LAW KWOK FAI PAUL AND OTHERS v. WELLMEI (HK) PLASTICS & ELECTRONICS INDUSTRIAL LTD AND ANOTHER

CACV 45/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 45 OF 2014

(ON APPEAL FROM HCA NO. 184 OF 2012)

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REASONS FOR JUDGMENT

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Hon Yuen JA:

1. 1. This is an appeal from a decision of Deputy Judge B Chu refusing the plaintiffs leave to amend their statement of claim by the addition of a claim for special damages for nuisance, assault, harassment, libel and negligence, the damages newly claimed being the expenses of hiring private security personnel at a cost of more than $10m.

1.2.       At the conclusion of the hearing, we dismissed the appeal and ordered the plaintiffs to pay the defendants the costs of the appeal and the application for leave. My reasons appear below. 

Background

2. In order to assess the significance of the plaintiffs’ failure to plead special damages, it is necessary to recount the relevant facts in some detail, especially the events that occurred after legal proceedings commenced.

3. The plaintiffs’ case is that in mid-January 2012 the defendants harassed them in activities aimed at collecting an alleged debt of about $10m for goods sold and delivered to a company with which the plaintiffs were thought to be connected, and in February 2012 published materials which were defamatory of them.        

Legal proceedings

4.1. On 4 February 2012 the plaintiffs issued a writ.  They were legally represented.

4.2. On 6 February 2012 the plaintiffs obtained an ex parte injunction restraining the defendants from harassing them.  This order was continued after an inter partes hearing on 10 February 2012, at which hearing an injunction was granted against publication of defamatory materials.

4.3. The 1^st plaintiff made an affirmation on 4 February 2012 in support of the application for injunction.  In it, he referred to security guards, but in the context he was referring to those of the residential or commercial buildings in which the plaintiffs lived or worked.  There was no indication that private security personnel had been hired. 

4.4. On 6 March 2012 the 1^st plaintiff made a 2^nd affirmation. Again there was no reference to the hiring of private security personnel.

Statement of Claim

5.1. A statement of claim was served on 21 March 2012.  This was a comprehensive, 25-page document.  No reference was made to private security personnel in the body of the pleading. 

5.2. The following relief was sought:

- a declaration that the plaintiffs are not liable for the alleged debt (“the declaratory relief”);

- an injunction to restrain the defendants from continuing harassment and publication of defamatory materials (“the injunctive relief”) and

- damages for nuisance, assault, harassment, libel and negligence (“the claim for damages”). 

5.3. No special damage was claimed.  If the plaintiffs were incurring expenses of hiring private security personnel and wished to make a claim for them against the defendants, the rules of court required them to plead and particularise it.

“Special damage in the sense of a monetary loss which the plaintiff has sustained ... must be pleaded and particularised, otherwise it cannot be recovered” (para. 18/12/41, Hong Kong Civil Procedure 2015, p.417)

5.4. The rationale for this rule was set out in Perestrello Ltda v United Paint Co Ltd [1969] 1 WLR 570, 579 E-H:

“If a plaintiff has suffered damage of a kind which is not the necessary and immediate consequence of the wrongful act, he must warn the defendant in the pleadings that the compensation claimed will extend to this damage, thus showing the defendant the case he has to meet and assisting him in computing a payment into court.

…

The same principle gives rise to a plaintiff’s undoubted obligation to plead and particularise any item of damage which represents out-of-pocket expenses ... and which is capable of substantially exact calculation. Such damage is commonly referred to as special damage or special damages but is no more than an example of damage which is ‘special’ in the sense that fairness to the defendant requires that it be pleaded.

The obligation to particularise in this latter case arises not because the nature of the loss is necessarily unusual, but because a plaintiff who has the advantage of being able to base his claim upon a precise calculation must give the defendant access to the facts which make such a calculation possible”. (Emphasis added).

5.5. Any reader of the statement of claim in the present case would therefore have reasonably assumed that the only damages sought were general damages.    

6. On 26 April 2012 the 1^st plaintiff made a 3^rd affirmation. Again there was no reference to the hiring of private security personnel.

7. On 10 May 2012 the defendants filed a Defence which, apart from disputing the size of the alleged debt, was essentially a denial of liability that they had taken part in any harassment of the plaintiffs or publication of defamatory material. 

8. On 20 June 2012 the plaintiffs’ solicitors filed a time-tabling questionnaire which annexed proposed directions.  In the “Pleadings” section, they chose the statement “I confirm that I do not intend to amend my pleadings”. 

Proposals for Compromise

9.1. On 24 September 2012 the plaintiffs’ solicitors wrote to the defendants’ solicitors asking if the defendants would agree to have judgment entered on the declaratory relief, failing which they would apply for summary judgment.  There was no mention of the injunctive relief or the claim for damages.

9.2. On 6 October 2012 the defendants’ solicitors replied in a letter marked “Without Prejudice save as to Costs” (“Ds’ 1^st Calderbank letter”) that the defendants were not agreeable to the plaintiffs’ proposal but would consent to judgment for the injunctive relief, with no order as to costs of the action.  In light of the reference to costs of the action, the defendants obviously had in mind a compromise of the entire action.  

10.1. On 31 December 2012 the plaintiffs issued a summons for summary judgment for declaratory and injunctive relief.  There was no mention of the claim for damages.  The costs order sought was for “the costs of this application and the judgment entered be assessed (if not agreed) and paid forthwith by the Defendants to the Plaintiffs”.  This was supported by the 1^st plaintiff’s 4^th affirmation which dealt only with the grounds for the declaratory and injunctive relief.       

10.2. On 12 January 2013, the defendants’ solicitors wrote to the plaintiffs’ solicitors (“Ds’ 2^nd Calderbank letter”) offering a settlement of the whole proceedings on the following terms:

(1) the defendants would offer an undertaking in terms of the injunctive relief;

(2) the defendants would consent to the declaratory relief; and

(3) there be no order as to costs of the whole proceedings including the costs of the Order 14 application.

There was no reply to this offer.

11. A few days later, on 21 January 2013, the defendants’ solicitors wrote to the plaintiffs’ solicitors (“Ds’ 3^rd Calderbank letter”) stating that “in order to save time and costs”, the defendants would consent to final judgment being entered in terms of the Order 14 summons. 

Consent Order

12. As a result, on 23 January 2013 there was a consent order for final judgment for the declaratory and injunctive relief, with costs of the application and the judgment to be assessed (if not agreed) and paid forthwith by the defendants to the plaintiffs (“the Consent Order”).

Plaintiffs’ Sanctioned Offer on costs and defendants’ acceptance

13.1. On 25 March 2013 the plaintiffs’ solicitors served a Sanctioned Offer on costs to the defendants’ solicitors.  This was stated to be “made pursuant to Order 62A of the Rules of the High Court” and “in full and final settlement of whole of our clients’ costs in the above action”.  (Emphasis added).

13.2. The offer was open for acceptance within 14 days.

13.3. Before the expiry of that period, at 12:01 pm on 5 April 2013 the plaintiffs’ solicitors sent a letter by fax to the defendants’ solicitors which said “we would like to inform you that the Sanctioned Offer only limited [sic] to the costs pursuant to [the Consent Order]”.  

13.4. Less than an hour later, the defendants’ solicitors gave notice to the plaintiffs’ solicitors accepting the Sanctioned Offer and saying that they did not understand what the plaintiffs’ solicitors purported to express in their letter of the same day.  The defendants’ solicitors subsequently paid the sum set out in the plaintiffs’ Sanctioned Offer, but the payment was returned by the plaintiffs’ solicitors.

14. Pausing here, it is not material to this appeal whether the plaintiffs’ solicitors’ letter of 5 April 2013 was a purported withdrawal or diminution of a Sanctioned Offer which requires the leave of the court under Order 62A r7, and I say no more about it. 

15.1. Suffice it to say that even as at 8 April 2013, more than a year after the statement of claim, the plaintiffs had still not indicated to the defendants that they would claim special damages.  Their solicitors’ letter of that date still said that the plaintiffs would “proceed with the proceedings for other claims as stated in the Statement of Claim dated 21^st March 2012, such that [sic] damages for nuisance, damages for assault and harassment, damages for libel, damages for negligence, interest costs and further or other relief”.  (Emphasis added). 

15.2. This led to a letter from the defendants’ solicitors dated 9 April 2013 in which they said “on 23 January 2013 it was by consent ordered that final judgment be entered for the declaration and injunction together with costs.  The proceedings is concluded save and except quantum of your clients’ costs.  Please enlighten us the authority that your clients can resume their claim for damages and other relief”.  

Plaintiffs’ application for leave to add claim for special damages

16.1. On 27 May 2013 the plaintiffs issued an application for leave to amend the Statement of Claim to include claims for hiring security guards from January to September 2012 at a total cost of more than $1.9m and engaging a Close Protection Unit from January 2012 to March 2013 at a total cost of more than $8.6m (“the security personnel expenditure”).  No evidence was filed in support.

16.2. An affirmation was however filed by Mr Yip the defendants’ solicitor, advancing the defendants’ case that the entire action had been settled by the Consent Summons.  Dealing with the plaintiffs’ proposed addition of the claim for special damages, he stated:

“The Defendants would definitely not be agreeable to compromise only part of these proceedings leaving the residue to be determined. And, in particular, there had not been, so far and by far, a scintilla as to the magnitude of the claim on damages. It was not until the issuance of the Summons [for leave to amend] that the Plaintiff revealed, for the first time, the amount sought”.

16.3. An affirmation in opposition was filed by Mr Yam, the plaintiffs’ solicitor.  Mr Yam’s affirmation contained no explanation why there had been no claim for the security personnel expenditure in the year since the Statement of Claim was filed in March 2012.  

17.1. The application for amendment was heard before Deputy Judge Chu in September 2013. The learned judge handed down judgment on 30 September 2013 refusing the application to include the security personnel expenditure in the proposed amendment. 

17.2. The judge rejected the defendants’ contention that the entire action (including the claim for damages) had been concluded, holding that she was “unable to conclude from the correspondence between the parties that there had been any concluded agreement that the Consent Summons signed by the parties was in full and final settlement of the whole action, or that the plaintiffs had abandoned their claim for damages” (para. 43).  Of course, that referred to the claim for general damages as that was the plaintiffs’ only extant claim. 

17.3. However the judge accepted the defendants’ submission that “the defendants might have decided to ‘throw in the towel’ right from the beginning or the defendants might have considered to make a payment into court early in the proceedings, had they known about the continuing costs of security guards or the magnitude of the claims in damages” (para. 45). 

17.4. The judge therefore considered that it would be unfair to permit the plaintiffs to “spring the surprise” of the new claim on the defendants.  In coming to this conclusion the judge had also taken into account the fact that the plaintiffs had offered no explanation at all for the delay in “springing the surprise” (paras 44 and 46).  The plaintiffs’ application to amend was accordingly dismissed with costs. 

18. The plaintiffs applied for leave to appeal which was granted by the judge on 19 February 2014.

Appeal

19. On 28 February 2014 the plaintiffs filed their Notice of Appeal. 

20.1. On 20 October 2014 the plaintiffs filed an application for leave to adduce fresh evidence, namely an affirmation of Mr Yam their solicitor purporting to explain the failure to plead special damages.

20.2. This application came before me on 29 October 2014 and I dismissed it at the conclusion of the hearing for reasons which were set out in Reasons for Decision handed down on 31 October 2014.  The upshot of that decision is that the plaintiffs have not explained their failure to plead special damages in the one year since the Statement of Claim was filed, in the course of which the defendants have proposed various compromises and in fact have agreed to a final compromise of part of the proceedings. 

Discussion

21. First and foremost, this is an appeal from an exercise of a judge’s discretion and it is well-established that an appellate court would generally not interfere with it unless the judge has erred in law or material fact, or had failed to take relevant matters into account or had taken irrelevant matters into account, or was “plainly wrong”.

22.1. Mr Mok SC appearing with Miss Catrina Lam for the appellants argued that the judge was in error in finding that the defendants might have “thrown in the towel” or considered making a payment into court earlier had they been made aware of the special damages claim, because there was no evidence of that before the court.

22.2. In my view, there was adequate evidence before the judge for her to find that the defendants were litigants who had a litigation strategy that was responsive to the claims made against them and who were alive to the issue of costs.  In Mr Yip’s affirmation (quoted in para. 16.2 above) he deposed that the defendants would have acted differently had they been made aware of the special damages claim, especially a claim of the magnitude of more than $10m.

22.3. Moreover, this was not just “empty talk” asserted only after the plaintiffs had filed their application for leave to add the special damages claim.  Throughout the year before the application, the defendants had shown that they were not obstinate, intransigent litigants determined to fight the action to the end, come what may.  As can be seen from the narrative of the proceedings set out above, the defendants had made three Calderbank proposals for compromise, each one demonstrating a willingness to retreat from earlier positions in response to the plaintiffs’ positions, and had accepted a sanctioned offer on costs (this is irrespective of the question regarding the plaintiffs’ ability to withdraw or diminish it: paras 13-14 above).

23.1. One might even think it does not matter very much in the present case whether the defendants

(a) might have conceded the entire case much earlier for the purpose of damage containment, had they been told about the continuing security personnel expenditure, or alternatively,

(b) might not have conceded to judgment being entered against them for the injunctive relief, thereby giving themselves more room to manoeuver in terms of an overall settlement, had they been told about the claim for special damages which is related to that relief. 

What matters is that the evidence showed that the defendants had a litigation strategy which was responsive to the plaintiffs’ claims and they were alive to the issue of costs, an approach which is in due compliance with the underlying objectives of the Civil Justice Reforms – which include increasing cost-effectiveness, ensuring that the case is dealt with as expeditiously as is reasonably practicable and facilitating the settlement of disputes. 

23.2. Accordingly when the plaintiffs failed to put forward the special damages claim for more than a year (in the course of which the defendants had put forward various proposals for compromise and concluded an actual compromise regarding part of the claims), the plaintiffs had deprived the defendants of the opportunity to respond effectively under the CJR, and the judge was entitled to find that it was unfair to the defendants to have to deal somehow with the plaintiffs’ new position.  The uneasy position in which the defendants would find themselves as a matter of litigation strategy, if the amendment was allowed, was clearly prejudicial to them. 

23.3. Mr Mok suggested that the court might be able to devise an order which might remedy the unfairness suffered by the defendants.  However no order which would remedy the situation for the defendants (if the amendment was allowed) was suggested.  In my view, the burden must be on the plaintiffs to show that the unfairness to the defendants can be remedied, given that it was they (the plaintiffs) who had caused the prejudice by failing to put forward the entirety of their claims in the first place.

24. This leads me to the other argument put forward on behalf of the plaintiffs, namely that the judge misunderstood the law or the evidence when she held that there was a delay in adding the claim for special damages which required an explanation, which was not provided.  It was argued that, unlike applications to amend at trial, these proceedings were still in its early stages and therefore there was no relevant delay that required explanation.

25. In my view, the issue whether an explanation on oath is necessary before a judge could properly exercise his discretion in favour of the applicant is not only to be determined by the length of time between the filing of the statement of claim and the application for amendment, but also by the events which have given rise to the proposed amendment, and the actions which have been taken by the parties during that time. 

25.1. In the present case, the length of time is over one year, which is a long period.

25.2. More importantly, the events which have given rise to the proposed amendment were the incurring of security personnel expenditure, which the plaintiffs themselves clearly knew about, and which had commenced even prior to the issue of the writ and continued thereafter.

25.3. More important still, the actions taken by the parties during that period include the plaintiffs’ confirmation that they did not intend to amend their pleadings, and the actions taken by the defendants by way of compromise (proposed and actual) thereafter.

25.4. In light of these matters, it was entirely proper for the judge, before she exercised her discretion, to consider whether the plaintiffs had a satisfactory explanation for this state of affairs.  None was provided.  It was for the plaintiffs to explain (if they could) why the court should exercise its discretion in their favour, despite the matters set out in the preceding sub-paragraphs.  However the plaintiffs did not avail themselves of the opportunity of doing so in the affirmation in support of the application for amendment.

Order

26. By reason of the above, we dismissed the appeal with costs of the appeal and the application for leave to be paid by the plaintiffs/appellants to the defendants/respondents.

Hon Kwan JA:

27. I agree with the Reasons for Judgment of Yuen JA.