LO WO AND OTHERS v. CHEUNG CHAN KA JOSEPH AND OTHERS

HCA 618 of 1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 618 OF 1997

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J U D G M E N T

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1. This is an application by the 2nd Defendant on the 4th day of the Trial of the Action for leave to Re-Amend the Defence of the 2nd Defendant. The application is strongly resisted by the Plaintiffs. The following time-table of the proceedings will set this application in its proper context:-

24-08-93	Provisional Agreement between the Plaintiffs and the 2nd Defendant
17-01-97	Writ in Action issued
09-12-97	Order of Yeung, J. granting leave to the Plaintiffs to Amend the Statement of Claim and dismissing the Summons of the Defendants to strike out the Action
09-01-98	Amended Defence of the 2nd Defendant
16-02-98	Reply to Amended Defence of the 2nd Defendant
28-05-98	Witness Statements of the 2nd Defendant
02-06-98	Witness Statements of the Plaintiffs
16-09-98	Order of Yeung, J. granting leave to set down for Trial in fixture list
10-11-98	Trial fixed for 12 days commencing 13th September 1999
26-08-99	Pre-Trial Review before Yuen, J.
13-09-99	Commencement of Trial before Waung, J.
15-09-99	Commencement of Cross Examination of 3rd Plaintiff
17-09-99	Application by 2nd Defendant to Re-Amend its Defence

2. The draft Re-Amended Defence of the 2nd Defendant put before the Court contains the following allegations:-

(1) Rescission should be refused because the Plaintiffs had the opportunity in the months prior to the August 1993 Agreement to find out the value of the Property (para. 66(e));

(2) Rescission should be refused because the Plaintiffs had the opportunity between August 1993 and December 1996 to find out the value of the Property (para. 66(f));

(3) Rescission should be refused because after being informed of the value of the property, the Plaintiffs did not return the deposits of $150,000 and did not seek to set aside the August 1993 Agreement until 1997 (para. 66(g));

(4) Rescission should be refused because the Plaintiffs seek monetary compensation from the Court even up to the date of the Trial (para. 66(h));

(5) Rescission should be refused because damages provide an adequate compensation (para. 66(i));

(6) Withdrawal of pleading in para. 32 that up to August 1993 the Plaintiffs were not aware that:-

(a) the deceased died intestate leaving the property;

(b) the Plaintiffs had the statutory right under Hong Kong law to succeed to the estate of the Deceased;

(c) the Plaintiffs had the right under Hong Kong law to apply for grant of Letters of Administration.

For convenience, I will hereinafter refer to the above six proposed amendments as 1st, 2nd and 3rd Amendment etc.

3. At the hearing of the application for leave to Re-Amend, Mr. Remedios submitted to the Court that the Court should refuse the application both on the ground that some or all of the proposed 6 Amendments are irrelevant and further in any event, in the circumstances of the present case, the court should exercise its discretion against the application. I propose to consider the question of relevance and discretion in turn.

RELEVANCE OF PROPOSED AMENDMENTS

4. This is an Action whereby the three old lady Plaintiffs from China now in their eighties and nineties are seeking to set aside the purchase transaction they entered into in August 1993 with the 2nd Defendant on the ground that there was equitable fraud by the 2nd Defendant in that with knowledge of the gross undervalue of the purchase price, the 2nd Defendant had unconscionably taken advantage of the Plaintiffs. The defence of the 2nd Defendant on equitable fraud liability is that the Plaintiffs only had an expectation to the property and there was little market value in such expectation. Therefore the purchase by the 2nd Defendant from the Plaintiffs was not at an undervalue let alone a gross undervalue and accordingly such purchase was not unconscionable. The defence of the 2nd Defendant to equitable remedy of rescission if equitable fraud is found against the 2nd Defendant is that rescission should not be ordered because the 2nd Defendant had demolished the building, had commenced foundation work for the re-development building and it would be impossible to reconstruct the old building. This was the state of the pleadings and the issues between the parties when the Trial began on the 13th of September 1999.

5. The case of the 2nd Defendant under the 1st Amendment is that the Plaintiffs ought to know the market price of property several months before the August 1993. It is to be noted that this 1st Amendment is wholly unparticularised. Mr. Chong for the 2nd Defendant says that this 1st Amendment is relevant both on the issue of liability for equitable fraud and on the issue of the rescission remedy. Is that submission correct?

6. The essence of equitable fraud in respect of unconscionable bargain is the victimisation of the weaker party by the stronger party. The emphasis is on the behaviour of the stronger party who took unfair advantage and not on the behaviour of the victim of what he ought to have done or could have done. As Kitto, J. said in Blomley v Ryan [1957] 99 C.L.R. 362 at page 429:-

"... the principle applied is not one which extends sympathetic benevolence to a victim of undeserved misfortune; it is one which denies to those who act unconscientiously the fruits of their wrongdoing."

As far as I can see from the authorities, what the victim might have done is irrelevant to the question of whether the stronger party had exploited the victim. Very often it is precisely because the victim did not do what could have been done that gave the stronger party the opportunity to exploit the victim. The proposed plea that the Plaintiffs could have found out about the value of the property is therefore irrelevant to the issue of equitable fraud liability.

7. The argument of Mr. Chong on the 1st Amendment that it is relevant to the question of remedy is equally untenable in my view. Firstly it conflicts with the emphasis in the principle on behaviour of the stronger party and not on the possible undeserving nature of the victim's behaviour. Secondly, the behaviour of the victim so far as remedy is concerned, would only be relevant if the defence is affirmation or acquiescence, which depends on establishing that the victim had full knowledge of the right to set aside and then acted in ways as to amount to affirmation or acquiescence. "Could have known" is in fact the opposite of "did know". In none of the authorities, was there any decided instance of "could have known" being held as a relevant consideration by the court. Thirdly, a plea suggestive of victim's negligence (failure to find out) has no place in a claim for setting aside unconscionable bargain. The court is not concerned with constructive knowledge or notice of the victim. What the victim might or could have done does not in any way provide a reason for the court not to enforce the remedy of rescission. It seems to me that the very nature of this equitable remedy suggests that this proposed plea of Plaintiffs "could have known" is irrelevant to the question of remedy. I therefore conclude that the 1st Amendment is irrelevant.

8. The 2nd Amendment (again not fully particularised) although relating to a different period (from 1993 to 1996) is in the same nature of the "could have known value of property" plea under the 1st Amendment. Mr. Chong limits the relevance of this 2nd Amendment to the issue of remedy. For reasons given earlier, I also hold that the 2nd Amendment is irrelevant.

9. The 3rd Amendment is an allegation made by the 2nd Defendant before Yeung, J. but which the 2nd Defendant has seen fit not to plead in its Amended Defence. The 3rd Amendment contends that after the Plaintiffs had learnt from Cai Shi the probable true value of the property, they did not return the deposits nor seek rescission until January 1997. The time when the Plaintiffs learnt from Cai Shi of the probable true value of the property from the evidence adduced and from the documents before the court is somewhere between mid 1996 to late 1996 and therefore the time alleged to have elapsed between the alleged knowledge of the Plaintiffs of the true value and the time when the Writ was issued was a short one of at the most several months. Although delay or prolonged delay amounting to affirmation would be a relevant defence to a claim in equity, the period involved is short. There is therefore considerable doubt in my mind whether what is now raised is a realistic relevant issue. This matter will be of some significance when I come to consider the exercise of my discretion in allowing the present proposed Amendments.

10. The 4th Amendment (again raised before Yeung, J. with the 2nd Defendant deciding not to plead such defence) seeking to allege that rescission ought to be refused is a shabby display of opportunism with no prospect of success. In the Amended Statement of Claim, the Plaintiffs sought rescission without even the alternative plea of damages. In the Witness Statements of the Plaintiffs, there was no claim for damages but only a claim for rescission. In the Opening Speech of Mr. Remedios for the Plaintiffs, notwithstanding the Court making reference to whether there ought to be claim for damages, equitable damage or equitable compensation, Mr. Remedios made it clear that the Plaintiffs were confining their claim to rescission and not seeking any remedy of damages. Although in the evidence of the 3rd Plaintiff there was reference to getting her money, there was certainly no specific claim that she is seeking damages in this Action against the 2nd Defendant rather than rescission of the August 1993 Agreement. I regret that the 2nd Defendant and/or Mr. Chong in these circumstances saw fit to propose this 4th Amendment, which has no prospect of success. As I see it, the 4th Amendment is being merely used by Mr. Chong to fish for a case or to further unnecessarily prolong the cross-examination of the 3rd Plaintiff in the hope of finding some defence for the 2nd Defendant.

11. The 5th Amendment which is unparticularised suggests that damages will be an adequate compensation instead of rescission. I must here say something about the relevance and importance of rescission to the 2nd Defendant as I understand it. The 2nd Defendant has made the purchases of flats in the two old buildings (including the suit premises) with the intention of redeveloping the whole site to put up a new development. The old buildings had been demolished but the new development building had not yet been erected. If there was rescission of the August 1993 Agreement ordered by the Court, then the whole new development would be put in jeopardy as the 2nd Defendant would not be able to give good title to the land. From the 2nd Defendant's point of view, it would rather pay damages or compensation or money to the Plaintiffs for the equitable fraud instead of being ordered to rescind the August 1993 Agreement. Conversely therefore rescission is of far greater value to the Plaintiffs then an award of damages, specially when nothing had been said in the pleadings about damages or what ought to be the quantum of damages which the 2nd Defendant says ought to be payable to the Plaintiffs in lieu of rescission.

12. It is in the context of the special importance to the 2nd Defendant of the remedy of rescission that I must now consider the relevance of the proposed 5th Amendment. The underlying assumption of the 5th Amendment in this case as in the refusing of injunction, is that the adequacy of damages in lieu of injunction is a relevant factor for the court in deciding the equitable remedy. In my judgment, this is an erroneous assumption. The exercise of the remedy of rescission in a case of unconscionable bargain is based on equity's principle that it is against the conscience of the strong party to retain a contract which had been obtained by victimising the weaker party. Pursuant to equity's conscience to protect the vulnerable, the emphasis is on the disapproval of the behaviour of the stronger party and preventing that stronger party from retaining its gain. Conscience is the heart and soul of equity (see Chapter 2 of Parkinson on The Principles of Equity). It is sometimes immaterial that the weaker party in fact has not suffered loss. The authorities and textbooks show that the objective of this remedy is not to compensate the weaker party but to prevent the stronger party benefiting from its unconscionable gain. The adequacy or inadequacy of compensation is therefore not relevant to a consideration by the court whether the remedy of setting aside should be ordered.

13. The 6th Amendment is a curious amendment whereby the 2nd Defendant wishes to do a complete about-face. The case of the 2nd Defendant under paragraph 32 is that prior to the August 1993 Agreement, the Plaintiffs did not know the deceased had died leaving a property and that under Hong Kong law the Plaintiffs had the right to succeed to the property and to achieve that end by obtaining the Letters of Administration. With that plea, the 2nd Defendant:-

(a) asserts that the Plaintiffs did not know their full rights to the property;

(b) cannot deny that the Plaintiffs did not know their full rights to the property;

(c) cannot assert that the Plaintiffs did know of their full rights to the property.

With this 6th Amendment, the 2nd Defendant is changing the above positions and as frankly admitted by Mr. Chong in his submission, will enable the 2nd Defendant to cross-examine and probe (which otherwise it would not be able to do):-

(i) the conduct of the Plaintiffs in finding out the true value of the property;

(ii) the conduct of the Plaintiffs in finding out the Plaintiffs' full rights.

The purpose of the change of front is of course to adopt a different position in relation to the knowledge of the Plaintiffs. As I see it, hiding behind the proposed 6th Amendment, the 2nd Defendant in fact wishes to fish for a case that the Plaintiffs had knowledge. Although therefore the proposed amendment cannot be said to be totally irrelevant, the court must be particularly careful in granting an amendment at this late stage where the circumstances are as unusual as in this case.

EXERCISE OF DISCRETION

14. The first and paramount factor that stands out with the present application of the 2nd Defendant for leave to re-amend is that it is done at the Trial and in the course of the cross-examination of the 3rd Plaintiff who is an old lady in her eighties and who came specially to Hong Kong for the Trial. The Amendments now sought to be made could be made a long time ago and the chronology of the proceedings which I described earlier made it inexcusable to my mind for the present application to be now made.

15. It is clear to me that if I were to accede to the application then the Trial will have to be adjourned, so that the further pleadings could be filed (including Further and Better Particulars of the proposed Amendments), additional witness statements to be filed and possibly even additional discovery to be made. For the Plaintiffs this would be disastrous for a large number of reasons, including the fact that:-

(a) the Plaintiffs are all of very advanced age and this particular 3rd Plaintiff is at such an old age that there is every likelihood that she might not be able to come back to Hong Kong to give her evidence;

(b) the Plaintiffs are all at such advanced age that they might not be able to enjoy the fruit of judgment if the Trial is adjourned;

(c) substantial security for costs had been given by the Plaintiffs for the Trial and further delay in the Trial would likely be a serious drain finally on the Plaintiffs;

(d) there will be uncertainty when the Trial could resume having regard to the state of the diary of the Trial Judge;

(e) there will be doubt as to the availability in future of other witness who is not a Hong Kong person to give evidence.

16. In the well known passage at page 220 of Ketteman v Hansel Properties [1987] A.C. 189, Lord Griffiths said:-

"... justice cannot always be measured in terms of money and in my view a judge is entitled to weigh in the balance the strain the litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, the anxieties occasioned by facing new issues, the raising of false hopes, and the legitimate expectation that the trial will determine the issues one way or the other.

...... a judge must weigh is the pressure on the courts caused by the great increase in litigation and the consequent necessity that, in the interests of the whole community, legal business should be conducted efficiently...... "

I have no doubt that all the above considerations apply in this case. Indeed I believe that this is such an extreme case (three illiterate, poor and very very old Plaintiffs from rural area of China, with one of them being the main witness for the Plaintiffs) that it would be perverse, having regard to the past and present history of the Action, to permit at the Trial any last minute re-amendments to the Amended Defence. In my view even if the proposed Amendments are all highly relevant, I would have exercised my discretion by refusing to grant leave to amend. But in fact, I am of the view that the proposed Amendments are either irrelevant or of doubtful relevance and significance or wholly unparticularised. In the circumstances I have no hesitation, both as the exercise of my discretion and as a matter of Trial Judge's case management, in refusing to grant leave to re-amend sought by the 2nd Defendant. Much time of the Trial has been wasted by the application of the 2nd Defendant, which is dismissed with costs. The 2nd Defendant is to pay to the Plaintiffs and to the 1st Defendant the costs of the application to re-amend, which costs I will assess by way of gross sum assessment under Order 62 rule 9(4)(b) of the Rules of the High Court at the end of the Trial.