SHUI HING INVESTMENT CO. LTD. AND ANOTHER v. KUTEX INTERNATIONAL LTD.

IN THE COURT OP APPEAL

Civil Appeal
No. 163 of 1988

BETWEEN

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

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

REASONS FOR JUDGMENT

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

Clough, J.A. delivering the reasons of the court:

1. This is an appeal by the defendant against the order of Jones J. made on the 25th November 1988 allowing the plaintiffs' appeal against the order of Master Jones made on the 3rd, November 1988 dismissing the application of the plaintiffs to re-amend the writ in the action by correcting the name of the plaintiffs from "Shut Hing Investment Company Limited" and "Yick Fung Estates Limited" to "Wing Wong Company Limited". The Judge granted the plaintiffs' application. He dispensed with service of the re-amended writ, awarding the costs of the proceedings before the master to the defendant and the costs of the appeal to the plaintiffs.

2. The defendant's appeal from the order of the judge raised the question whether the judge was right to apply Order 20 rule 5(3) in the circumstances of the case. On the 21st March 1989 we dismissed the appeal with costs after hearing leading counsel for the defendant and without calling on leading counsel for the plaintiffs. We indicated at the time that we would give written reasons for our decisions later, and we now do so.

3. The plaintiffs and Wing Wong Company Limited ("Wing Wong") have at all material times been associated companies, belonging to the Chinachem Group. The plaintiffs were involved in the development in Shatin of 14 blocks of buildings and a condominium to be known as Belair Gardens. By an agreement ("the principal agreement") dated the 4th December 1979 and made between (1) the plaintiffs as vendors (2) Hop Kay Company Limited, On Lee Investment Company Limited and Wota Investment Limited as "Financiers" and (3) Wing Wong as purchaser, the plaintiffs contracted to sell to Wing Wong part of the development then in the course of construction which included a flat ("the flat") to be constructed in one of the blocks called Block "B" and also known as Beverley Heights in Belair Gardens.

4. By a subsequent agreement ("the sub-sale agreement" which recited and to which was annexed the principal agreement) dated the 19th February 1981 and made batween Wing Wong and the defendant, Wing Wong contracted by way of sub-sale to sell the flat to the defendant for $2,665,000 which was to be pail by the defendant in three instalments, the last instalment being payable within seven days of the defendant being notified by Wing Wong of the issue of the occupation permit relating to the flat. Completion was to be within 14 lays of that notification. Time was to be of the essence.

5. The relevant occupation permit was issued do the 7th January 1982 and notification of this was contained in a letter from Wing Wong to the defendant dated the 8th February 1982. On the 29th March 1982, after the defendant had failed to complete in accordance with the terms of toe sub-sale agreement, Wing Wong's solicitors gave the defendant written notice to complete within 7 days from the date of the notice i. e. on or before 5th Appril 1982.

6. The defendant did not complete the sub-sale by the extended date. It hid paid the first two instalments amounting in aggregate to $533,000 under the sub-sade agreement but it failed to pay the final instalment of $2,132,000. On the 15th November 1982 Wing Wong, by its solicitors, purported to rescind the sub-sale agreement and to forfeit all moneys paid by the defendant thereunder without prejudice to Wing Wong's rights and remedies under the agreement.

7. On the 11th April 1984 a writ indorsed with a statement of claim was issued against the defendant, naming the plaintiffs and not Wing Wong as the plaintiffs in the action. The statement of claim pleaded the sub-sale agreement but alleged that the plaintiffs had agreed to sell the flat to the defendant and pleaded the plaintiffs' title to the property comprising the flat. The statement of claim went on to plead the alleged breach of the sub-sale agreement by the defendant and the purported rescission of that agreement by the plaintiffs as the basis for appropriate relief claimed in the prayer.

8. On the 1st May 1984, before any defence had been filed in the action, the defendant's solicitors sent a letter to the plaintiffs' solicitors requresting a copy of "the Sale and Purchase Agreement". This request was complied with on or about the same date when the defendant's solicitors were supplied with the sub-sale agreement.

9. Thereafter on the 11th May 1984 the statement of claim was slightly amended in a manner which is not material to these proceedings. On the 26th June and 12th September 1984 the defendant filed its defence and counterclaim and amended defence and counterclaim respectively. In both pleadings the defendant admitted the sub-sale agreement as alleged in the amended statement of claim to have been made between the plaintiffs and the defendant but denied any breach of the agreement. The amended defence includes reliance on a number of alleged misrepresentations as inducing the defendant to enter into the sub-sale agreement and allegations of breaches of implied terms of the agreement. Reliance is also sought to be placed on these matters to support a counterclaim for rescission and damages and a declaration that several clauses in the sub-sale agreement are null and void. By its reply and defence to counterclaim filed on the 13th September 1984 the plaintiffs joined issue with the defendant on all the matters raised in the amended defence and counterclaim.

10. It was not until about the 25th May 1985 that it dawned on anyone that Wing Wong and not the plaintiffs should have been named in the writ as the plaintiffs and the vendor of the flat under the sub-sale agreement. On that date the plaintiffs' solicitors, who also acted for Wing Wong, wrote a letter to the defendant's solicitors pointing out that it had recently come to their notice that the name of the plaintiffs in the action should be Wing Wong and that the named of the plaintiffs had peen wrongly inserted in the writ due to inadvertence. By the same letter the plaintiffs' solicitors requested the defendant's solicitors to consent to the plaintiffs' summons applying to amend the writ appropriately and dispense with service vi ca of the re-amended writ, the costs of the application being to the defendant.

11. The parties corresponded further in May and June 1985 but no consent to the plaintiffs' proposals was forthcoming because the defendant, by its solicitors, Insisted on its claim to all of the costs of the action up to the date of the proposed amendment. The plaintiffs would not agree to such terms. Accordingly, on the 28th June 1985, they issued their summons applying for leave to re-amend the amended writ. The summons vas adjourned on the 5th July 1985 to a date to be fixed for further argument but no steps were taken to restore it until the 22nd April 1988 and it was not until the 3rd November 1998 that the effective hearing of the application look place before Master Jones.

12. In the meantime, on the 3the June 1988, there was filed the affidavit of Miss Amy Wong, an assistant solicitor who had the conduct of the action on behalf of the plaintiffs. She explained the background of the principal and sub-sale agreements and the alleged breach by the defendant of the sub-sale agreement. She deposed that the plaintiffs and Wing Wong had at all material times belonged to the Chinachem Croup of Companies.

13. According to Miss Wong her firm had been instructed in April 1982 by Wing Wong to bring processdings against the defendant for its breach of the sub-sale agreement. Her evidence was that at that time both the plaintiffs and Wing Wong were clients of her firm. She deposed that -

"At about the same time when Wing Wong gave its instructions as aforesaid, the Plaintiffs also gave instructions to my firm to institute legal proceedings against other defaulting purchasers of premises in the said Belair Gardens. Owing to pressure of Work, we inadvertantly had overlooked the names of the parties to the said agreement and used the names of the Plaintiffs to institute proceedings against the Defendant despite the fact that we were and are suing for and on behalf of Wing Wong for the breach of the said agreement by the Defendant and hail fully pleaied the default of the Defendant in the Amended Statement of Claim."

14. Miss Wong pointed out that although the defendant's solicitors had been supplied by her firm with a copy of the sub-sale agreement on the 1st May 1984, the mistake had not been spotted by the defendant's solicitors and that in the defendant's pleadings it had been admitted that the sub-sale agreement had been Made between the plaintiffs and the defendant. She made the point that when, in May 1985, her firm had discovered what had happened the defendant's solicitors were immediately v informed of the mistake and requested to consent to the proposed amendment to correct the name of the plaintiffs to Wing Wong. She complained that the defendant's solicitors had refuned to agree despite the explanation given and the offer of costs to the defendant.

15. The explanation of Miss Wong, such as it was, for the delay between July 1985 and April 1988 in restoring the summons for hearing before the master was that between early l985 and February 1988 her time and the time of her then senior partner had been taken up in defending a heavy derivative action involving multi-million dollar claims concerning Belair Gardens and winding up proceedings in which the plaintiffs and Wing Wong were involved.

16. The master having dismissed the plaintiffs' application on the 3rd November, the matter came before Jones J. on the plaintiffs' appeal on the 17th November 1988.

17. It was conceded for the purposes of the application before the judge that by the time of the hearing before him the limitation period in respect of the claim in the action had expired. However additional evidence was adduced before the judge in the form of an affidavit by Mr. Boy Yu, a partner in the plaintiffs' firm of solicitors, exhibiting a writ issued on the 24th March 1988 in a new action (1988 No. A2212) on the sub-sale agreement by Wing Wong against the defendant. The writ was intended to protect Wing Wong against the running of time in case the plaintiffs' appeal in the present action should fail.

18. In his reserved judgment delivered on the 25th November 1988 the judge dealt with the background facts which we have set, out above and then set out the terms of Order 20 rule 5(1), (2) and (3) which now derive their undoubted wires from section 35 of the Limitation Ordinance (Cap. 347) and are as follows:

"5. (1) Subject to Order 15, rules 6, 7 and 8 and the following provisions of this rule, the court may at any stage of the proceedings allow the plaintiff to amend his writ, or any party to amend his pleadings, on such terms as to costs or otherwise as may be just and in such manner (if any) as it pay direct.

    (2) Where application to the Court for leave to make the amendment mentioned in paragraph (3), (4) or (5) is made after any relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so.

    (3) An amendment to correct the name of of a party may be allowed under paragraph (2) notwithstanding that it is alleged that the effect of the amendment will be to substitute a new party if the Court is satisfied that the mistake sought to be corrected was a genuine mistake and was not misleading or such as to cause any reasonsable doubt as to the identity of the person intending to sue or, as the case may be, intended to he sued."

19. The judge appears to have considered the matter to the light of the following dictum, which he cited, of Donaldson L.J. (as he then was) in Evans Conatruction Co. Ltd v. Charrington & Co. Ltd. [1983] 1 O.B. 810(C.A.) at p. 821 F-G:

"In applying Ord. 2C, r.5(3) it is, in my judgment, important to bear in mind that there is a real distinction between suing A in the mistaken belief that A is the party who is responsible for the matters complained of and seeking to sue B, but mistakenly describing or naming him as A and thereby ending up suing A instead of B. The rule is designed to correct the latter and not the former category of mistake. Which category is involved in any particular case depends anon the intentions of the person making the mistake and they, have to be determined on the evidence in the light of all the surrounding circumstances."

20. The judge accepted that Miss Wong's evidence had established that the mistake made by her firm was genuine. The defendant did not contend below or on appeal that it had been misled by the mistake, but counsel for the defendant evidently contended that it would be unjust to allow the amendment as the limitation period had expired and in view of the inordinate delay by the plaintiffs' solicitors in restoring the summons.

21. In rejecting these arguments and arriving at his conclusion that the application should be allowed the judge had this to say:

"However, it is abundantly clear that Wing Wong Co. Ltd. intended to sue the defendant for breach of the agreement, which agreement this not been disputed. Indeed, by their own pleading, the defendant did not realise that a mistake had beep made. The joinder of the two plaintiffs was undoubtedly a genuine mistake which neither misled nor caused any prejudice to the defendant who was well aware that Wing Wong Co. Ltd. was the vendor and the correct plaintiff. The defendant could have been in no doubt as to the identity of the true plaintiff. The issue of delay has no relevance to this application. In all the circumstances it would he wholly unjust to disallow the amendment that has been sought."

22. On appeal Mr. Robert Tang, who said all that could possibly he said on behalf of the defendant, sought to fault the Judge's decision regarding the question of mistake and also regarding the exercise of the judge's discretion under Order 20 role 5(2).

23. The judge was criticised on the issue of mistake for indicating in his judgment that under rule 5(3) the onus was on the defendant to establish was in sufficient to establish that the plaintiffs' mistake was not genuine mistake. This criticism was justified because, after setting out the text of Order 20 rule 5(1), (2) and (3) in his judgment, the judge had observed:

"In deciding whether the court should exercise its discretion it must be established that the mistake was not a genuine mistake, that the defendant was misled or it would be unjust to make the order."

24. This observation clearly puts the onus on the wrong party. In addition to relying on this slip Mr. Tang contended that Miss Wong's evidence was insufficient to establish that the mistake was mistake in describing or naming the plaintiff. He contended that her evidence was equally consistent with the mistaken belief that the named plaintiffs were the persons who were entitled to enforce the sub-sale agreement. The further contention was that the question was not simply whether a genuine mistake had been made but what kind of mistake had been made. Mr. Tang contended that the judge had made no explicit finding on the latter question and that, on the defendant's argument as to the nature of the mistake made, the application should have been dismissed.

25. We did not consider that the judge's error regarding onus flawed his actual decision on the issue of mistake because the evidence was all one way, it was unchallenged and it established a genuine mistake. In all the circumstances we are unable to accept that the judge arrived at other than the inevitable conclusion when he dealt with Miss Wong's evidence to the following passage of his judgment:

"Although Mr. Pennicott who appeared on behalf of the defendant challenged the plaintiffs' contention that the mistake was genuine, he made no application to cross-examine Miss Wong nor was any evidence adduced by the defendant in reply. In the absence of any evidence to the contrary, and having regard to the acceptance by the defendant that there was an agreement between the defendant and Wing Wong Co. Ltd., I accept that the mistake made was genuine. No issue has been taken by the defendant that it has been misled by the mistake."

26. Mr. Tang submitted that the only evidence of Miss as Wong explaining the mistake (which we have set out earlier in this judgment) was insufficiently clear and did not indicate exactly who made the mistake and why. We accept that Miss Wong's references to "my firm" and "we" do not account to saying that Miss Wong herself or any other particular individual made the mistake. However Miss Wong, who had the conduct of the plaintiffs' case, had properly given her means of knowledge in the early part of her affidavit and she had clearly attributed the mistake to inadvertence on the part of her firm in overlooking the correct name of the party which was the vendor under the sub-sale agreement which was to he sued upon. Bearing in mind that Miss Wong's evidence was that there were concurrent actions by the plaintiffs upon other agreements to which the plaintiffs were in fact parties, the evidence in support of inadvertence and genuine mistake seems to us, as it must have seemed to the judge, to have been overwhelming.

27. As regards the nature of the mistake and Mr. Tang's submission that this question was not the subject of any explicit finding by the judge, we consider that the judge manifested his concern with this crucial question by citing the passage cited above from the judgment of Donaldson L.J. in Evans Constructions Co. Ltd. v. Charrington & Co. Ltd. and by expressing his conclusion that it was abundantly clear to him that Wing Wong intended to sue the defendant for breach of the sub-sale agreement, which agreement the defendant did not dispute to its pleading at a time when it was well aware that Wing Wong was the vendor and therefore the correct plaintiff.

28. Accepting as we do (and Mr. Tang did), with respect, the majority judgments of Donaldson and Griffiths L.JJ. in the Evans Constructions case regarding the procedural change effected by Order 20 rule 5(2) and (3), we consider that the approach adopted by the judge concerning the nature of the mistake and his decision on that issue was clearly right.

29. As to the question of discretion, it was contended on behalf of the defendant that the judge was wrong to treat the plaintiffs' substantial (explained but not excusable) delay in restoring the summons as irrelevant. In this connection it a s also submitted that the fact that Wing Wong, the correct party, had issued a new writ should which against the granting of leave to amend the writ in these proceedings where the application to amend had been so long delayed.

30. Mr. Tang accepted that the new writ issued by Wing Wong was not time barred. When invited to indicate what prejudice the defendant would sustain if the amendment of the writ in these proceedings were allowed he was unable to point to any, but was constrained to rely op the hare fact of delay and the existence of a properly constituted action begun by Wing Wong's writ. Mr. Tang very fairly acknowledged that in practical terms the issue had become one of costs, because if the appeal were to succeed the plaintiffs would be obliged to bear all the defendant's costs incurred in the plaintiffs' abortive action, whereas if the appeal failed they would only have to pay the defendant's costs occasioned by the application to amend up to the hearing before the master. The plaintiffs has always accepted that they would have to hear the defendant's costs occasioned by the amendment.

31. In our view the judge was right to treat the delay, albeit substantial and inexcusable, in restoring the plaintiffs' summons as irrelevant in the circumstances of this case. The defendant did nothing to restore the summons itself. The delay seems not to have troubled it. Moreover the issue of Wing Wong's writ within the limitation period has produced the result that even if the appeal were to succeed and the plaintiffs' action were to be dismissed, the defendant would not have achieved (in the words of Donaldson L.J. in the Evans Constructions case at p.822 F) a wholly adventitious chance of defeating Wing Wong's claim under the sub-sale agreement without regard to the merits of the claim. All the defendant could to achieve would be an award of costs incurred in the plaintiffs' abortive action.

32. It did not therefore seem to us to hp just in all the circumstances to regard delay without consequential prejudice to the defendant as a material consideration on the amendment issue. Furthermore it seemed to us to be just to permit the amendment of the writ to introduce the correct plaintiff, Wing Wong, in place of the plaintiffs, on appropriate and usual terms as to costs, in order that the action in which the pleadings are closed may continue as properly constituted. This would not prejudice the defendant. The alternative course of compelling Wing Wong to prosecute the new action, Which has not proceeded beyond the writ stage, seemed to us to be one which would serve no useful purpose and would be wasteful of time, effort and costs. We apprehend that this must have been the view of the judge whose decision on the appeal from the master we considered to be clearly right notwithstanding his initial slip on the question of onus.