THE WORLD FOOD FAIR LTD v. HONG KONG ISLAND DEVELOPMENT LTD

HCA4602/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 4602 OF 2000

_______________________

_______________________

_______________

R U L I N G

_______________

History

1. This trial is not a paragon of how a civil action should proceed in the High Court. It concerns a claim by the 1st plaintiff (and now the 2nd plaintiff) that the defendant is in breach of an agreement whereby it had agreed to let to the 1st plaintiff part of a shopping mall that it had just completed at Tsim Sha Tsui, so that the 1st plaintiff might fit out and operate a restaurant together with a food court from there.

2. Put very shortly, the allegation is that after much of the fitting out work had been done by the 1st plaintiff, the defendant changed its mind as to the type of food and beverage establishment that ought to be operated from the less formal casual outlet that had been agreed upon to a more high class restaurant, which the 1st plaintiff had not agreed to. The 1st plaintiff has taken this alleged change of mind by the defendant as a repudiation of what had been agreed and now seeks damages for breach of contract, including reimbursement of substantial expenditure that has been occurred in the expectation that the agreement would be carried out on both sides.

3. The trial started on 15 January 2003 and after five days it had to be adjourned for reasons which I will explain in a moment. After some further directions were given, it has now been listed to resume on 11 August 2003 for a further five days.

4. The reason why the case has been adjourned and prolonged in this way is because when Mr Lin was cross-examining the plaintiff's witnesses, particularly Mr Steve Siu, its principal witness, he began to delve into some of the detail of the documents which purported to support the 1st plaintiff's claim for expenditure incurred by it in fitting out what were to be the restaurant premises. As he did so, it became clear that he was challenging the authenticity of those documents and the amounts that they purported to prove.

5. This cross-examination was allowed to proceed without objection for some time until 20 January 2003, the fourth day, when the plaintiff's then counsel, Miss Wong, sought to understand the effect of Mr Lin's line of cross-examination and how this might impact on her case on quantum, and on what further evidence she might need to call in the light of that cross-examination.

6. She then asked for a ruling from me as to the effect of Order 27 Rule 4 of the Rules of the High Court. The rule has the primary effect of relieving a party that has served its list of documents from having to produce those documents. It may also give secondary evidence of their contents as an exception to the best evidence rule, and further, that the party served with an affidavit listing specific documents is deemed to admit that if a document is described as an original document, that it is genuine, and if described as a copy, that it is a true copy. Such admissions would not apply if the court otherwise ordered, or if the other party has denied the authenticity of all, or of any particular documents in its pleading or by service, within a specified time, of a notice to that effect.

7. Having had to confront the effect of the rule, I ruled that Mr Lin could not properly pursue this line of questioning unless he first sought leave from me to release him from the deemed admission of authenticity in the absence of the point having been taken in the defence or by notice of non-admission. Mr Lin then sought such an order, which, having regard to the importance of the matters raised by his questions, I felt constrained to make. My ruling to this effect is dated 20 January 2003 and is in the court papers.

8. This then resulted in Miss Wong having to ask her client to strengthen its chain of proof of these alleged losses by producing further documents. Faced with this situation, I adjourned the trial to allow time for that to be done in the expectation that the trial would continue a few weeks later. In the event, as so often happens, the matter has gone off for 6 1/2 months rather than for the shorter period that had been hoped for.

9. In the meantime, the 1st plaintiff and its solicitors had decided to change counsel so that Miss Selina Lau now appears briefed halfway through the trial. She has considered the papers afresh and concluded that it would be in the 1st plaintiff's interests that its parent company - that is a fair way of describing the relationship - should be joined as 2nd plaintiff and that the statement of claim should be re-amended to plead in the alternative a breach of contract against it as well, and that a further cause of action should also be added alleging misrepresentation by the defendant.

10. For its part, the defendant has decided to seek an order for security for costs against the 1st plaintiff.

11. It is these two matters that I am now required to consider on the very eve of the restored hearing of the action.

12. Yesterday, having heard the argument on the amendment, I ruled that the 2nd plaintiff could be added as an additional party and that the statement of claim could be re-amended to allege a breach of contract against the 2nd plaintiff as well, but I refused leave to add a claim based on misrepresentation. I indicated that I would give reasons for that ruling today, which I will do in a moment.

13. Having ruled in that way, I then heard the argument on the defendant's application for security for costs, which I propose to rule on after I give my reasons for the amendments which I have allowed.

SUMMONS TO AMEND THE WRIT AND RE-AMEND THE STATEMENT OF CLAIM

14. This summons is dated 30 June, the 1st plaintiff's intention to seek such an order having been indicated a few days beforehand. It follows, therefore, that the application is a very late one. Faced with that difficulty, Miss Lau stresses the fact that the effect of the proposed amendment should cause no injustice to the defendant because the amendments, by the addition of the 2nd plaintiff and the new pleas sought to be advanced in the proposed re-amended statement of claim, are based entirely on the evidence that had been expected to be given on the witness statements as filed before the trial and the evidence as subsequently given during the five days of the trial thus far.

15. If the amendments are allowed in their entirety, this would not mean that the plaintiffs will seek to call any additional evidence on liability, that has already been given, and that none of the cross-examination that has already been addressed by the defence would have had to be conducted differently or indeed would now require any further cross-examination of the witnesses. The case, on the trial, remains the same. These proposed amendments are merely an additional expression of the plaintiff's case based on what is already there. There will be no late movement of the goal posts by the plaintiffs to the defendant's forensic disadvantage.

16. She reminds me of the principle that an amendment should be allowed at almost any time provided the other party can be compensated in costs, which is grounded in the familiar dictum of Bowen LJ in Cropper v Smith [1884] 26 Ch.D. 700 at 710 - 711 where he said:

"It is a well established principle that the object of the courts is to decide the rights of the parties and not punish them for mistakes they make in the conduct in their cases by deciding otherwise than in accordance with their rights ... I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the court ought not to correct if it can be done without injustice to the other party. Courts do not exist for the sake of discipline but for the sake of deciding matters in controversy, and I do not regard such amendment as a matter of favour or grace ... it seems to me that as soon as it appears that the way in which a party has framed his case will not lead to a decision of the real matter in controversy, it is as much a matter of right on his part to have it corrected if it can be done without injustice, as anything else in the case is a matter of right."

17. Not surprisingly, Mr Lin has taken strong objection and has referred me to many of the cases which bear on this issue which he has reproduced for my assistance as part of his written argument and now amplified before me in his address to the court. I am grateful to him. Whilst each of the cases referred to were decided on their particular facts, the principle that emerges from the authorities is that late amendments which have the effect of causing injustice to the other party or which may have that effect should not be allowed in the exercise of the court's discretion. Where such amendments are the result of oversight by the party's solicitors or counsel, or the result of a deliberate decision later reconsidered should not afford a reason for allowing such amendments. The party seeking the amendment should, if necessary, be left to take its own course against its advisers rather than have the court allow such late amendments.

18. Mr Lin does not accept that these amendments will not cause the defendant injustice. On the contrary, he suggests in particular that his clients will be deprived of the opportunity of making any interlocutory applications as they may be advised to make against the 2nd plaintiff, if they are brought in when the trial resumes next Monday. He is particularly concerned with discovery and also the lack of opportunity to consider whether to apply for security for costs against the 2nd plaintiff as has been done against the 1st plaintiff.

19. He also makes a general point by posing the rhetorical question: why should the defendant now be put into the position of having to bother and concern itself with having to defend against an additional plaintiff on the very eve of the resumption of this trial? As a matter of general principle, it seems to me that these are very valid concerns which have been addressed in the cases that he has drawn attention to and which militate against the granting of leave to amend.

20. Ultimately, I need to attend to the facts of this particular matter where perfectly proper concerns by the party resisting the amendments may be more imagined than real, which of course is not to say that the objections are in any way spurious.

21. As a general observation, it seems to me that in this matter Miss Lau is right when she says that when one attends to the detail of what is proposed by the amendments, the plaintiff's case remains the same. Whilst I am the judge and not the advocate for the defendant, I cannot really imagine that Mr Lin will be required to conduct his case differently.

22. The 2nd plaintiff, as it now is following yesterday's ruling, has been the real presence against the defendant throughout this dispute. The 1st plaintiff is alleged to have been brought into existence by agreement as the company that would lease the premises to operate the restaurant. This being the so-called subsequent novation agreement, once the 2nd plaintiff and the defendant had agreed on the overall agreement for the operation and nature of the restaurant.

23. All of that evidence was foreshadowed in the witness statements filed and served before trial and ultimately led before me in evidence in January. So on the general approach, I believe that Miss Lau is correct in her appraisal of the situation on the ground, as it were, that the forensic dispute remains the same despite the addition of the 2nd plaintiff. The more substantial concern is the lack of opportunity for the defendant to mount any interlocutory challenges to the 2nd plaintiff, particularly any application for discovery which inevitably would be quite a lengthy process.

24. Miss Lau's answer to this is that any documents that would be properly discoverable by the 2nd plaintiff are already in evidence, given the identity of purpose of both plaintiffs. The 2nd plaintiff would, of course, need to serve its own list, but Miss Lau says that this list would only include the 1st plaintiff's documents. It has no further documents.

25. Mr Lin says that I cannot expect the defendant to accept that position without affording it a proper opportunity to consider the matter which they cannot by the time that the trial resumes on Monday. Mr Lin says that he may have to ask for an adjournment, which would be highly undesirable, and an additional reason to refuse the proposed amendments.

26. I have had to stand back from these well-made submissions by Mr Lin to decide whether there is here the prospect of any real injustice by allowing all or part of what is proposed by Miss Lau. I have decided that where the addition of the 2nd plaintiff will have no material impact on the profile of the trial, the forensic contest will remain the same, I should allow the 2nd plaintiff to be joined.

27. As to the consequent re-amendments of the statement of claim, similar considerations apply to the proposed alternative pleading as to the case on the alleged novation agreement. There is no conceivable injustice that I can discern which might be done to the defendant. The evidence is the same and the challenges now mounted by the re-amendments are such that the defendant will be able to rise to them in the available, albeit limited, time.

28. As to the absence of opportunity to make interlocutory applications, I am satisfied that this case remains the same and that the documents that have already been put in are the documents that the 2nd plaintiff would be expected to discover as an additional party. Whilst late applications of this sort are to be deprecated, I feel able to allow these parts of the 1st plaintiff's summons because I am satisfied that no injustice will be done to the defendant by my making such an order and because it can be adequately compensated for in costs.

29. That having been said, wholly different considerations apply to the proposal to add a cause of action based on misrepresentation. Despite Miss Lau's submissions that nothing changes save for the way in which the evidence is now sought to be expressed, I simply do not believe that the defendant should be put to it to have to cope with a grave allegation of this sort which poses an additional risk in terms of a basis for liability some 72 hours before the trial. To allow such an amendment so late in the day would amount to an injustice, which I am not prepared to expose the defendants to, particularly where I have allowed other substantial amendments to be made. These, therefore, are the reasons for my ruling yesterday.

THE APPLICATION FOR SECURITY FOR COSTS

30. Here, the boot is on the other foot because it is the defendant who is late. This is an application under section 357 of the Companies Ordinance which is in these terms:

"Where a limited company is plaintiff in any action or other legal proceeding, any judge having jurisdiction of the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and may stay all proceedings until the security is given."

31. The principles which govern the exercise of the court's discretion appear to be these:

(i) whether the plaintiff's claim is bona fide (as oppose to a sham);

(ii) whether the plaintiff has a reasonably good prospect of success;

(iii) whether the plaintiff's claim would be stifled if security was ordered.

(iv) whether the application for security is made at a late stage of the proceedings; and

(v) whether there is a co-plaintiff who is not impecunious.

32. Miss Lau accepts that the condition precedent, which the section requires, has been met. There is credible testimony given by Mr Siu, on behalf of the plaintiffs during the trial, to show that the 1st plaintiff will be unable to pay the defendant's costs if the claim is dismissed. The application, therefore, only concerns how I should exercise my discretion.

33. Notwithstanding the fact that I have to make this decision halfway through the trial, no objection is taken on the basis that the 1st plaintiff's claim would be stifled. The objection is really based on its lateness and that now that the 2nd plaintiff is a presence in the action and is able to pay its costs, the defendant would be protected from any impecuniosity of the 1st plaintiff.

34. I need to balance a number of conflicting interests: firstly, where the condition precedent, as I have called it, is met, the defendant's legitimate concerns will need to be addressed, but against that it does seem to me that this application is one that should and could have been made at a much earlier stage following the adjournment of the trial. This consideration needs to be tempered by the fact that it is not being said that this claim will be stifled, particularly by a late application which I would have thought would have been a weighty consideration if I were required to decide the matter on that basis.

35. I do not consider that the 2nd plaintiff's presence is a determinative factor because it is clearly open to the court to decide liability on a basis that would not require the 2nd plaintiff to, in effect, be liable for the 1st plaintiff's costs, which would result in the successful defendant being out of pocket as against the 1st plaintiff. Weighing all of these factors, it seems to me that some order for security should be made.

36. As to quantum, the matter has been pitched rather moderately by the defendants, but that having been said, I am persuaded by Miss Lau that I should ask myself the question: why we are having to have this now prolonged trial? Substantially, the answer to that is because Mr Lin has questioned the authenticity of the documents on quantum and has put himself in the position of seeking and getting an order releasing him from the effects of Order 27 Rule 4. This consideration must therefore sound in quantum. Mr Lin has complained that Miss Wong should have raised her concerns earlier in the course of his cross-examination, but even so, this matter should really have been dealt with by the defence before the trial started by, at the very least, service of a counter-notice.

37. Doing my best, I would have thought that the proper order for security is one of $350,000, which is about half of the amount asked for. I will hear the parties on Monday as to the date and terms upon which this order should go. Clearly, the amount will need to be paid within a very short period of time.

38. So I will leave it like that at this stage. I have directed that the transcript be prepared as a matter of urgency and I hope, therefore, that in the course of Monday the parties will have it and then I will deal with issues concerning costs and the terms upon which this order for security should be paid.