HIGH HOPE ZHONGDING CORPORATION v. 廈門墩峰進出口有限公司 AND OTHERS

HCA 2485/2015

[2020] HKCFI 3152

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2485 OF 2015

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R U L I N G

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1.  There are two applications before me : -

(i)  An application by Summons issued by the 4^th and 5^th defendants this morning to amend their Re-re-Amended Defence and Counterclaim.

(ii)  An application by the plaintiff to exclude the evidence in the Witness Statement of Ding Wan Li (“Ding”) relating to a claim by the 4^th and 5^th defendants for an equitable set-off against the plaintiff in case the plaintiff is successful in its claim against them.

The applications are closely related and I shall deal with them together.

2.  Having considered the submissions by Mr Chan for the plaintiff and by Mr Tam for the 4^th and 5^th defendants, I have decided : -

(i)  to dismiss the Summons by the 4^th and 5^th defendants; and

(ii)  to exclude the evidence in the Witness Statement of Ding relating to the claim for equitable set-off.

3.  I give my brief reasons below.

4.  There are only three parties in the present proceedings, namely, the plaintiff on the one hand and the 4^th and 5^th defendants on the other hand.  Originally there were also the 1^st, 2^nd and 3^rd defendants.  They have faded out of the picture in the circumstances set out below.

5.  The 1^st defendant was the main contracting party with the plaintiff in various contracts for the purchase and sale of nickel.  The plaintiff alleges that the 1^st defendant had been in breach of what is known as “the Repayment Agreement”.  The 4^th and 5^th defendants in fact acted as guarantors for the 1^st defendant under the Repayment Agreement.

6.  Although the action was started against all five defendants, the 1^st, 2^nd and 3^rd defendants being parties on the Mainland had never been served.  Notwithstanding the above, the 1^st defendant in fact filed a voluntary Acknowledgment of Service through Messrs Henry Wan & Yeung, Solicitors, on 26 July 2018. That firm of solicitors was in fact acting for the 1^st defendant as well as the 4^th and 5^th defendants at that time.  Soon after that, the plaintiff and the 1^st defendant came to an agreement that the plaintiff would discontinue the action against the 1^st, 2^nd and 3^rd defendants and that the 1^st defendant would withdraw his said Acknowledgment of Service.

7.  As a result, by an Order of Master Ho dated 1 August 2018, leave was granted to the plaintiff to withdraw the action against the 1^st, 2^nd and 3^rd defendants and to the 1^st defendant to withdraw his Acknowledgment of Service. On that occasion, there was never any reservation expressed by the 4^th and 5^th defendants of their right to claim an equitable set-off.

8.  The Defence and Counterclaim by the 4^th and 5^th defendants was filed on 10 March 2017.  The Amended Defence and Counterclaim was filed on 20 October 2017.  The Re-Amended Defence and Counterclaim was filed on 19 January 2018.  The Re-re-Amended Defence and Counterclaim was filed on 8 November 2019.

9.  We are on the third day of the trial and it was in the late afternoon of yesterday that Mr Tam gave oral notice that he would be making an application to further amend the Re-re-Amended Defence and Counterclaim.

10.  I should add that in the course of the proceedings during the last few years, the 4^th and 5^th defendants had changed their legal teams and that both Mr Tam and his present instructing solicitors, Messrs Bryan Chan & Co, had not come into the picture in 2018.

11.  The reason why the 4^th and 5^th defendants wish to further amend the Re-re-Amended Defence and Counterclaim is that they want to claim in effect a declaration that they be allowed to have an equitable set-off against the plaintiff, in case the plaintiff is successful against them, for alleged breaches of contract committed by the plaintiff against the 1^st defendant in relation to other contracts.

12.  In paragraph 10(3) of the Re-re-Amended Defence and Counterclaim, it has been pleaded that the 4^th and 5^th defendants aver that the plaintiff’s claim should be set off, extinguished and/or reduced by the damages for the loss suffered by the 1^st defendant, as a result of alleged breaches by the plaintiff of other contracts unconnected with the Repayment Agreement or its predecessor contracts.  Such a plea however is not contained in the Defence and Counterclaim either in its original form or in any of its subsequently amended forms.  By the present proposed amendment, the 4^th and 5^th defendants also wish to supply further particulars.  I should also note that it is Mr Chan’s submission that such particulars are not sufficient anyway.

13.  On 11 May 2018, the parties exchanged their Witness Statements.  Two were filed on each side.  Ding’s Witness Statement contains her evidence relating to the alleged breaches of the plaintiff in other contracts with the 1^st defendant.  On the other hand the two witnesses for the plaintiff did not touch upon such alleged breaches at all.  As the Witness Statements were exchanged, neither side would know the contents of the other side’s Witness Statements beforehand.

14.  Mr Chan submits that the evidence relating to the said alleged breaches on the bases of which the equitable set-off is claimed should be excluded because they have never been pleaded in the Counterclaim.  He objects to the application for amendment at this late stage because his client will be seriously prejudiced.

15.  Mr Tam admits that the amendment is necessary to enable the Court to try all the issues between the parties.  He also admits that the plaintiff will be prejudiced to a certain extent because there will have to be an adjournment.  But that can be compensated in costs.  He also relies on the List of Agreed Issues which contains a reference to the question of equitable set-off.

16.  My reasons for finding against the 4^th and 5^th defendants are as follows : -

(i)  Having considered all the authorities cited by the parties, I am of the view that a surety cannot rely on equitable set-off to which the principal debtor is entitled in the absence of the principal debtor in the same proceedings, otherwise, the creditor may be at risk of being sued by the principal debtor again.

(ii)  If the case has to be adjourned after the trial has started, the plaintiff will suffer serious prejudice.

(iii)  An adjournment in the present circumstances will seriously undermine the underlying objectives of the Civil Justice Reform.

(iv)  Lastly, in relation to Mr Tam’s point on the Agreed List of Issues, it is to be noted that, in paragraph 3 thereof, it is said:

“In consideration of Issue 2, whether the 4^th and 5^th Defendants are entitled on the defence of :-

(i)  set-off…….”

Thus, quite clearly it was contemplated by the parties that the question of entitlement to rely on such a defence of set-off would be argued.

17.  This is the end of my ruling. 

18.  I take the view that both the application for amendment and the application to exclude the evidence of Ding are closely related and they are intertwined with each other. I order that the costs of both applications be to the plaintiff in any event.