LIU HAO TSING EDUCATION FOUNDATION LTD AND ANOTHER v. LIU TIEH CHING BRANDON (also known as LAU TIT SHING)

HCA 931/2019

[2023] HKCFI 1463

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 931 OF 2019

________________________

________________________

________________________

J U D G M E N T

________________________

A. INTRODUCTION

1.  This is the defendant’s appeal against the Decision of Master Rita So dated 9 January 2023 allowing the plaintiffs to re-amend the Amended Statement of Claim (“ASOC”).  The defendant objects to the green amendments in §§10A, 11, 12, Heading “C”, 14, 15, 17, Heading “D”, 18 and the prayers for relief of the Re-Amended Statement of Claim (“RASOC”)  (“Disputed Amendments”), which raise a new claim for breach of contract. The plaintiffs did not file any evidence in support of their application.

2.  It is well-established that an appeal from a master to a judge in chambers is dealt with by way of an actual rehearing of the application.

3.  In summary, the proposed amendments are objected to by the defendant on the following grounds:

(1)  First, the plaintiffs’ new contractual claim is factually inconsistent with their existing claim based on conditions attached to a gift.  It is impermissible for the plaintiffs to plead a factually inconsistent alternative which cannot be properly verified by a statement of truth.

(2)  Second, the amendments effectively amount to a withdrawal of the admission that the relevant transfer of shares was a gift.  Given the bad faith and tactical manoeuvring on the part of the plaintiffs, leave for its withdrawal should not be granted.

(3)  Third,the new contractual claim should be refused on limitation grounds.

B.  BACKGROUND

4.  Overseas Associates Limited (“OAL”)  is a Hong Kong company established by the late Liu Hao Tsing (“Liu Sr”). The 2^nd plaintiff is the executor of Liu Sr’s estate.

5.  Liu Sr has 3 sons, namely, Brandon Liu (the defendant - “BL”), Liu Ju Ching (the 2^nd plaintiff - “LJC”)  and Liu Yiu Ching (“LYC”).  LJC and LYC are twin brothers.

6.  Prior to the plaintiffs’ amendment application, it was the pleaded case of both the plaintiffs and the defendant that in February 2014, Liu Sr transferred 3,500 shares of OAL (ie 70% shareholding)  to BL, LJC and LYC (who received 1,400, 1,050 and 1,050 shares respectively)  by way of gift.

7.  The plaintiffs alleged that the gift was made in accordance with and subject to the conditions set out in “Liu Sr’s Statement” dated 16 December 2009.  Provision (3)  of the Liu Sr’s Statement (“Provision (3)”)  provides that:

“(3)  三兄弟不能對 ‘僑民有限公司’ 及 ‘劉浩清教育基金有限公司’ 或上述公司之附屬公司或劉氏兄弟姐妹提出任何法律訴訟，破壞劉氏家屬聲譽。若任何人違反此規定即必須將所持有之 ‘僑民有限公司’ 股份歸還 ‘劉浩清教育基金’，由本人之遺囑執行人執行。”

8.  The English translation of Provision (3)  is that:

“(3)  the three brothers cannot bring any legal action against ‘Overseas Associates Limited’ and ‘Liu Hao Tsing Educational Foundation Limited’ or subsidiaries of the aforesaid companies or the Liu siblings, damage Liu Family’s reputation. If anyone breaches this provision they shall return their shares of ‘Overseas Associates Limited’ to ‘Liu Hao Tsing Educational Foundation Limited’, this shall be enforced by the executor of my will.”

9.  The plaintiffs contended that BL breached Liu Sr’s Statement and the conditions of the gift set out therein by presenting a petition in the court under HCCW 109/2019 in relation to OAL against, inter alios, LJC, LYC, the Foundation and OAL.  Accordingly, BL is liable to transfer his 1,400 OAL shares to the Foundation.

10.  In the Amended Defence, on the premise that the transfer of OAL shares in 2014 was a gift, the defendant pleaded, inter alia, that Provision (3)  is void for uncertainty, contravention of public policy and repugnancy.[1]

11.  By the Disputed Amendments, the plaintiffs seek to introduce an entirely new case that:

(1)  Liu Sr’s Statement constituted a contractual agreement between Liu Sr, BL, LJC and LYC, concluded in December 2013, that Liu Sr would transfer the OAL’s shares to his 3 sons in consideration for their promise to abide by the terms of Liu Sr’s Statement (“Agreement”).[2]

(2)  The transfer of the OAL shares from Liu Sr to BL, LJC and LYC on 12 February 2014 was “in performance of the Agreement”.[3]

(3)  BL was in breach of the Agreement by presenting the petition in HCCW 109/2019, and is liable to transfer his 1,400 OAL shares to the Foundation.[4]

(4)  If (which the plaintiffs deny)  the Agreement or any part thereof is void and/or unenforceable, there was allegedly a mistake as to the validity of Provision (3), and BL has been holding the 1,400 OAL shares transferred to him by Liu Sr on constructive trust for the Foundation and/or Liu Sr’s estate.[5]

12.  The plaintiffs’ previous case on breach of conditions of the gift is retained as an “alternative” to their primary case of breach of contract.[6]

C.  GROUND 1: FACTUALLY INCONSISTENT ALTERNATIVES

C1.  Relevant legal principles

13.  After the Civil Justice Reform, a party’s ability to plead inconsistent allegations of fact is restricted.  First, under Order 18, rule 12A of the Rules of the High Court (“RHC”):

“A party may in any pleading make an allegation of fact which is inconsistent with another allegation of fact in the same pleading if - (a)  the party has reasonable grounds for so doing; and (b)  the allegations are made in the alternative.”

14.  Under Order 41A, rule 2(2)  RHC:

“A pleading must be verified by a statement of truth in accordance with this Order notwithstanding that the party has in the pleading made an allegation of fact in accordance with Order 18, rule 12A, which is inconsistent with another allegation of fact in the same pleading.”

15.  In Hui Yin Sang v Tsoi Ping Kwan [2010] 1 HKC 585, Au J (as he then was)  at §25(10)  described the objectives of Order 18, rule 12A in these terms:

“One of the objectives of this rule is to prevent a party from pleading inconsistent cases in relation to a matter which is plainly within his knowledge, so that there could be no justification for him to put forward inconsistent factual alternatives. The party also simply could not properly verify the pleading as he is now required to do.” (emphasis added)

In that case Au J concluded that no reasonable ground had been provided by the plaintiffs for advancing their inconsistent claims, when the relevant facts must be within their personal knowledge (§25(11)(b)).

16.  The Court of Appeal in Yiu Ka Fung Vincent v Info-Vantage Ltd, CACV 96/2014 (unrep, 3/07/2015)  explained the principles at §§63 and 65:

“63. Cases may arise where the party has no personal knowledge of the facts, but has evidence pointing to alternative possibilities. The pleading and verification of such alternative pleas is permissible as long as there is a reasonable basis for doing so on the evidence available. In such circumstances, where a party puts forward a pleading with alternative and mutually inconsistent versions of the facts, because the facts as known to him admit of alternative interpretations, the pleading is permissible and verifiable on the basis that the party believes on the evidence available that the facts will ultimately correspond to one or other of the possibilities pleaded. However, if the matters pleaded are matters which are plainly within that party’s knowledge, so that he must know which of the inconsistent alternatives is the correct one, then the pleading of inconsistent alternative cases is not permissible.

…

65. In our view, there is a distinction between advancing mutually inconsistent allegations of fact and advancing alternative positions based on the same underlying facts. …” (emphasis added)

17.  A party will be required to explain why its proposed amendment is required if it seeks to amend a pleading by introducing allegations inconsistent with those previously verified: Hong Kong Civil Procedure 2023, Practice Note 20/13/1.

18.  In a similar vein, where a pleading has been verified in circumstances where it has been demonstrated that the verification should never have been made, the court should be very slow to permit any amendment to that pleading: Tong Kin Hing v Autron Mauritius Corp [2010] 1 HKLRD 77 at §20 (Rogers VP).

C2.  Discussion

19.  As correctly analysed by the defendant, it is important to distinguish a transfer of property by way of gift with a transfer of property pursuant to a contract:

(1)  In order to constitute a gift, there must have been an intention by the donor to make an immediate present gift; and the gift must be perfected either by delivery of possession or by deed. There must be a voluntary transfer from the donor to the donee with the full intention that the property would not return to the donor.  The key element is the intention to gift.  It must be shown that the donor intends there and then to give the property to the donee.  See: Ho Man Kit v Sure Lead Ltd [2019] HKCFI 2914, at §37 (DHCJ William Wong SC).  So a gift essentially involves a unilateral intention on the part of the donor to voluntarily transfer the property to the donee, and such gift is perfected by the actual transfer of the property.

(2)  In contrast, it is trite that a contract requires an agreement having been reached whereby a party provided consideration in exchange for a promise and intended to create a legal relation: see Chitty on Contracts (34^th edn)  at §§1-035, 6-001.  Hence, where a party transferred his property pursuant to a contract, the transferor did not intend to make a voluntary/gratuitous transfer, but intended that in exchange for his transfer of the property, the transferee would perform his promise under the agreement.  And vice versa for the transferee.

(3)  A gift can be subject to a condition subsequent imposed by the donor, such that although the donee receives the gift, if the condition is not fulfilled, the gift is forfeited: Clayton v Ramsden [1943] AC 320 at 326 (Lord Russell).  However, this is clearly to be distinguished from a contract.

20.  Once this is understood, it is clear that (i) a transfer of property by way of gift and (ii) a transfer of the same property pursuant to a contract are mutually exclusive.

21.  In the present case, (i) that LJC, LYC and BL intended their (alleged)  promise to abide by the terms of Liu Sr’s Statement to be in exchange for Liu Sr’s promise to transfer the OAL shares to them, or (ii) that LJC, LYC and BL had no such intention but Liu Sr unilaterally imposed conditions subsequent on the transfer of the shares, are inconsistent factual alternatives.  The intention of the parties at the time, which included LJC and LYC themselves, is matter plainly within their knowledge.  Accordingly, it is impermissible for the plaintiffs to plead the new case on contract.  The Disputed Amendments should be refused.

22.  Before the Master the plaintiffs contended that they are simply advancing alternative legal conclusions of contract and conditional gift drawn from the same underlying facts.  Properly analysed, this is untenable as an intention to gift and an intention to contract - which are matters of fact - are inherently and fundamentally inconsistent.

23.  In paragraph 32 of the plaintiffs’ Skeleton Argument lodged for this hearing, the plaintiffs boldly assert that the legal effect of Liu Sr’s Statement is a question of law, rather than “merely” a question of fact.  There can be little doubt the nature (viz whether it is a contract or a gift)  and effect of Liu Sr’s Statement is a question of fact which is then reflected in an issue of law - and for the reasons set out above, the plaintiffs are pleading inconsistent facts.

24.  The defendant’s submission can be clearly demonstrated to be correct if one contrasts starkly the case pleaded in the ASOC and the one pleaded in the RASOC.

25.  In the ASOC, it was pleaded that on about 12 February 2014, the shares in question then held by Liu Sr were “gifted” (by transfer from Liu Sr)  to BL, LJC and LYC. Clearly, the case pleaded was that a gift was made in 2014, and there was no obligation for Liu Sr to do so prior to that time (see: §§11 and 12 of the ASOC).

26.  Contrast §§10, 10A and 11 of the RASOC, where it was pleaded that Liu Sr’s Statement constituted a contractual agreement between Liu Sr, BL, LJC and LYC, concluded in December 2013, that Liu Sr would transfer the OAL’s shares to his 3 sons in consideration for their promise to abide by the terms of Liu Sr’s Statement.  And that the transfer of the shares from Liu Sr to BL, LJC and LYC on about 12 February 2014 was in performance of the agreement.

27.  Clearly, these are two inconsistent factual alternatives in relation to matters which were plainly within the knowledge of LJC, who signed the Statement of Truth in the ASOC as the 2^nd plaintiff.  It is not just a different legal classification of a story but a different story itself.

D.  GROUND 2: WITHDRAWAL OF ADMISSION

28.  In an application for amendment of pleadings resisted on the basis that the proposed amendments amount to withdrawal of an admission, the relevant considerations were set out in Chow Kam Hung v Hoi Kong Ironwares Godown Co Ltd [2019] 1 HKLRD 356 at §§23-30 by DHCJ Keith Yeung SC (as he then was):

(1)  The first issue is whether an admission has been made.  Admissions may be express or implied, and they are in most cases made on the face of or by pleadings.  But that does not necessarily have to be so.  Moreover, in order to be admissions, they must be clear and unambiguous.

(2)  Once it has been established that an admission has been made, the next issue is whether leave for its withdrawal should be granted.  Whether to do so is in the discretion of the court.  In exercising its discretion, the court will consider all the circumstances of the case and seek to give effect to the overriding objectives.

(3)  Amongst the matters to be considered will be: (a) the reasons and justification for the application which must be made in good faith; (b) the balance of prejudice to the parties; (c) whether any party has been the author of any prejudice they may suffer; (d) the prospects of success of any issue arising from the withdrawal of an admission; (e) the public interest, in avoiding where possible satellite litigation, disproportionate use of court resources and the impact of any strategic manoeuvring.  Above all, the exercise of any discretion will always depend on the facts of the particular case before the court.

(4)  When deciding whether leave should be granted, the need of the applicant applying to withdraw an admission to put forward a convincing and credible explanation of the circumstances in which the admission was in fact made is, although not conclusive, a powerful factor.  That also goes to the issue of good faith on the part of the application.

29.  I agree with the plaintiffs that in the present case there is no “admission” or “withdrawal of admission”.

30.  First, the plaintiffs have never made any “admission” to any averment made by the defendant.

(1)  An “admission” in this context refers to an admission to an averment of the other side: Hong Kong Civil Procedure 2023, Practice Note 27/2/1.  Order 27, rule 1 RHC reads thus:

“A party … may give notice, by his pleading or otherwise in writing, that he admits the truth of the whole or any part of the case of any other party.” [emphasis added]

(2)  The court would first have to see whether a party has made any “admission” to the case of any other party: Chow Kam Hung (Supra)  §25.  In Chow Kam Hung, the question was whether the defendants had in the Defence made admission to the plaintiff’s case before the defendants’ proposed amendment: Chow Kam Hung §§32-33.

(3)  But in the present case, there is and cannot be any admission on the part of the plaintiffs.  The plaintiffs’ case as pleaded in the Statement of Claim contains averments made in support of the plaintiffs’ case.  It cannot and does not involve any admission to, or any failure to traverse, any part of the defendant’s case.

31.  Second, I agree there is simply no “withdrawal” of any admission.

(1)  In the RASOC, the plaintiffs’ case is that the transfer of the shares subject to the conditions contained in Liu Sr’s Statement constituted an agreement.

(2)  At the same time, the plaintiffs still maintain as an alternative case that there was a gift of the shares subject to those conditions set out in Liu Sr’s Statement.

(3)  In the premises, there is no question of any withdrawal of the case of conditional gift.  That case of “conditional gift” is still relied upon as an alternative: §12 of the RASOC.

32.  This ground of objection is accordingly rejected.

33.  In my view, in a case where leave is sought to amend the Statement of Claim to plead an alternative factual case, it is more appropriate to deal with it under the regime of Order 18, rule 12A, rather than a situation where leave is sought to withdraw admissions.

E.  GROUND 3: LIMITATION

34.  Section 35(3)  of the Limitation Ordinance, Cap 347 (“LO”)  provides that where a party seeks to make a new claim in the course of any action, it should not be allowed after the expiry of the relevant limitation period.

35.  I agree with the plaintiffs that this ground cannot be relied upon to forbid the plea of breach of the Agreement (ie §§14 to 17 of the RASOC).

36.  The claim for breach of contract (ie the Agreement here)  is clearly within the limitation period stipulated in section 4(1)(a)  of the LO.  In fact, the defendant never suggests that the breach of contract claim under §14 of the RASOC is time-barred:

(1)  Liu Sr’s Statement was executed in December 2013: §10 of the RASOC.

(2)  Under section 4(1)(a)  of the LO, the limitation period for a claim in contract is “6 years from the date on which the cause of action accrued”.

(3)  In the present case, the limitation period only started to run from the date of the alleged breach (ie 11 April 2019, when BL presented the petition in HCCW 109/2019 in breach of Provision (3)). The plaintiffs commenced this Action on 29 May 2019.

37.  However, I agree with the defendant’s submissions on limitation grounds regarding §18 of the RASOC.

38.  The 6-year limitation period under section 4(1)(a)  or section 20(2)  of the LO is applicable to the plaintiffs’ claim under §18 of the RASOC, as it is either a restitutionary claim (see Chitty (Supra)  at §31-002), or a claim under the second class of constructive trust (see Timmerton Co Inc v Equity Trustee Ltd [2015] 1 HKLRD 247 at §§9-10, 16-17).

39.  The new claim based on the Agreement, if allowed, would “relate back” to the date of the Writ, thereby depriving the defendant of his potential limitation defence: section 35(1)(b)  of the LO.  As such, in dealing with the amendment application, the burden is on the plaintiffs to show that the defendant does not have a reasonably arguable case on limitation, or that the exception in Order 20, rule 5(5)  RHC (ie 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)  should apply: Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd [2012] 4 HKLRD 474 at §21 per Kwan JA (as she then was).

40.  On the plaintiffs’ case, the Agreement was allegedly concluded on 4 December 2013;[7] hence the alleged mistake was made in 2013, and the transfer of the OAL shares took place in 2014.  Accordingly, on the plaintiffs’ case, the cause of action pleaded in §18 of the RASOC accrued in or before 2014.  The application to amend was only taken out in 2022, more than 6 years after 2014.  The defendant therefore clearly has a reasonable limitation defence.

41.  The plaintiffs made two arguments before the Master which were repeated at the hearing before this court:

(1)  First, it was the defendant who pleaded that Provision (3)  is void and/or unenforceable, and the plea was raised for the first time in July 2021. It was in such context that §18 of the RASOC was pleaded in response to the defendant’s plea, that even if the Agreement is void, the defendant is bound to return the 1,400 shares as a matter of restitution.  The defendant has failed to take into account section 26(1)(c)  of the LO[8], by which the limitation shall not begin to run until the plaintiff has discovered the mistake or could with reasonable diligence have discovered it.

(2)  Second, the claim under §18 of the RASOC is simply the consequence of any ruling by the court that the Agreement is void.  If an agreement is held to be void, the parties would be restored to the position before the contract; there is no question of such claim being time-barred.

42.  For the reasons advanced by the defendant as set out below, both arguments are flawed and should be rejected.

43.  Regarding the first argument, the plaintiffs (who bear the burden of showing that the defendant does not have a reasonably arguable case on limitation)  have adduced no evidence to substantiate the timing of the discovery of the alleged mistake, and whether exercise of reasonable diligence could have discovered the alleged mistake.  In the absence of evidence from the plaintiffs, the fact that the defendant only raised the plea that Provision (3)  is void and/or unenforceable does not mean that the plaintiffs did not discover or could not with reasonable diligence have discovered the mistake earlier.  The plaintiffs could and might have sought legal advice on Provision (3)  at a much earlier time.

44.  In relation to the second argument, where a contract is declared void ab initio for mistake, the cause of action to recover the property transferred pursuant to the void contract is unjust enrichment and the claim is restitutionary in nature: Chitty (Supra)  at §32-008.  Accordingly, the 6-year limitation period applies.

45.  In relation to this second argument, the plaintiffs argue that it was the defendant who pleaded in the Defence that Provision (3) is void and/or unenforceable, and it is against such context that §18 of the RASOC was pleaded in response, namely, that if the Agreement is void, the defendant has to return the 1,400 shares to the 1^st plaintiff.

46.  The plaintiffs’ argument is plainly wrong.  It wrongly refers to the defendant’s pleas in the Re-Amended Defence (which was filed in response to the Disputed Amendments, subject to this appeal).  The defendant’s Amended Defence only pleads that Provision (3) of Liu Sr’s Statement is void, but not the whole Liu Sr’s Statement or the transfer of the shares in 2014.

47.  For completeness, insofar as it is suggested that the new claim should be allowed under Order 20, rule 5(5)  RHC, I agree with the defendant that it is incorrect.

(1)  As a matter of law, to rely on the exception in Order 20, rule 5(5)  RHC, “the new facts pleaded to support the new causes of action must involve something going no further than minor differences from the facts originally pleaded”: WDA Architects Ltd v MHS Planners, Architects & Engineers & Another, HCCL 43/2007 (unrep, 11/03/2014), §11 (Bharwaney J).

(2)  The focus of the court’s enquiry was set out in WDA Architects §10 (confirmed by the Court of Appeal in CACV 116/2014, 21/07/2015 at §68):

“… The reason why an amendment is only permitted if it is based on the same facts, or substantially the same facts, pleaded to support the original cause of action, is to avoid putting a defendant in the position 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.”

(3)  The additional elements pleaded in §18 of the RASOC, namely (i) Liu Sr’s Statement constituted (or partly constituted)  a contract; (ii) Provision (3)  is void and/or unenforceable; and (iii) that a “mistake” was made by all parties as to the validity of Provision (3), obviously go further than the facts pleaded in the existing ASOC.

(4)  If the amendment is allowed, the defendant will be obliged to investigate facts and evidence relating to the state of mind of Liu Sr, BL, LJC and LYC in entering into the alleged Agreement, and whether each and every one of them made a mistake, etc.  These are completely outside the ambit of the matters that he would need to investigate for the purpose of defending the original claim of the plaintiffs under the ASOC.

(5)  Notably, in Delco Participation BV v Chiho Environmental Group Ltd [2020] 5 HKLRD 712 at §50, the Court of Appeal held that for Order 20, rule 5(5)  to apply, the new claim should arise out of substantially the same facts already pleaded by the amending party (ie the plaintiffs), and what the opposing party had previously pleaded is simply irrelevant.

F.  DISPOSITION

48.  For the reasons set out above, I would allow the defendant’s appeal and make the following order:

(1)  Paragraph 1 of the Order of Master Rita So dated 9 January 2023 (the “Order”)  be set aside insofar as the same relates to the Disputed Amendments;

(2)  Paragraphs 2 to 6 of the Order be set aside; and

(3)  There be leave to the defendant to withdraw the Re-Amended Defence and the same be expunged from the court file.

49.  I further order that the costs of this appeal and the costs below be paid by the plaintiffs to the defendant, such costs are to be taxed if not agreed with a certificate for 2 counsel and paid forthwith.

50.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

51.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.