WDA ARCHITECTS LTD v. MHS PLANNERS, ARCHITECTS & ENGINEERS AND ANOTHER

HCCL 43/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 43 OF 2007

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REASONS FOR DECISION

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1. On 17 January 2014, after hearing the parties, I dismissed a substantial part of the plaintiff’s application for leave to re-amend the statement of claim on the ground that I was not satisfied that the new causes of action that were introduced in the proposed re-amendments arose out of the same facts, or substantially the same facts, as the causes of action already pleaded and in respect of which relief had already been claimed in the amended statement of claim. These are my reasons for that decision.

2. This action arises out of refurbishment works at the Shatin and Happy Valley public racestands that were commissioned by the Hong Kong Jockey Club (“the Club”) from about 1998 to about 2003.  The parties to these proceedings are architects.  The plaintiff is a company incorporated in Hong Kong and the 1^st defendant is a Japanese firm of architects.  The 2^nd defendant was specifically incorporated in Hong Kong as a subsidiary of the 1^st defendant for the purpose of carrying out the Club’s projects.

3. The plaintiff had been invited by the Club in September 1998 to submit a fee proposal for a feasibility study in connection with the refurbishment of the public racestands in Shatin and in Happy Valley. In December 1998, the plaintiff and the 1^st defendant agreed jointly to compete for the Project.  A joint fee proposal was submitted to the Club in January 1999 by the plaintiff, who introduced the 1^st defendant to the Club as its specialist consultant.  The proposal was successful and, in August 1999, the Club formally appointed the plaintiff as the lead consultant to carry out the first stage of the master plan study.  Shortly thereafter, the plaintiff and the 1^st defendant entered into a contract for the carrying out of that study.  On 1 February 2000, the Club decided to engage the plaintiff to develop designs for 8 high priority improvement projects at its racecourses, the most prestigious of which involved the increase of viewing capacity at the Shatin racecourse parade ring(“the Parade Ring Project”).  In December 2001, the plaintiff was appointed, together with the 1^st defendant, to carry out Phase 1 of the improvement project which did not include the Parade Ring Project.  However, they were also engaged to provide a feasibility study on the Parade Ring Project.  In the course of 2001 and 2002, correspondence was exchanged between the plaintiff and the 1^st defendant with regard to the Parade Ring Project.

4. It is the plaintiff’s case that, unknown to the plaintiff, the defendants entered into secret negotiations with the Club in respect of the Parade Ring Project and that the defendants subsequently entered into a contract with the Club to undertake the Parade Ring Project as project manager and lead consultant, with another architect firm engaged as the Authorised Person.

5. The plaintiff commenced proceedings against the 1^st and 2^nd defendants in 2007.  There were two orders made for the renewal of the writbefore it was finally served on the 2^nd defendant in Hong Kong, and on the 1^st defendant in Japan, in 2009.  The statement of claim was served on 30 December 2009.  This was met, in the following month, with the application to strike out by the defendants.  That application did not succeed because the plaintiff applied for, and was granted, leave to amend the statement of claim on June 2011.  Proposed draft re-amendments to the amended statement of claim were provided by the plaintiff in January 2013 and were objected to by the 1^st and 2^nd defendants.  The plaintiff then issued the present application for leave to re-amend the amended statement of claim on 22 April 2013.

6. It was common ground that the re-amendments, insofar as they sought to introduce new causes of action, were time-barred and that I ought not to grant leave to amend unless satisfied that the new causes of action arose out of the same facts, or substantially the same facts, as the causes of action in respect to which relief had already been claimed in the amended statement of claim.

The principles

7. The principles governing such applications are well established.  Under section 35(2) of the Limitation Ordinance, a new claim in pending actions includes any claim involving the addition or substitution of a new cause of action, or the addition, or substitution of a new party.  Diplock LJ, as he then was, defined a cause of action in Letang v. Cooper [1965] 1 QB 232 at p.242 as meaning “simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person”. Under section 35(1)(b) of the same Ordinance, any such new claim is deemed to be a separate action and to have been commenced on the same date as the original action.  The effect of this relation back is that the grant of leave to amend, to include a new claim or a new party after the expiry of a limitation period, has the effect of depriving the defendant of a limitation defence to such new claims.  For that reason, the Limitation Ordinance is imperative in directing that the court must not allow such new claim to be made in the course of any action, after the expiry of any time limit under the Ordinance, except as provided by Section 30 of the Ordinance, which provides a discretionary power to extend the time-limits for fatal accidents or personal injuries claims, or as provided by rules of court.  Order 20, rule 5 of the Rules of the High Court (“RHC”) is such a rule and empowers the court to grant leave to amend, in the particular circumstances mentioned in sub-paragraphs (3), (4) or (5), even though the amendment is made after the expiry of a limitation period.

8. The principle underlying of the exercise of the power of the court under rule 5 is that if the proceedings had been probably formulated, or constituted from the beginning, in the circumstances specified in sub-paragraphs (3), (4) and (5) of rule 5, the defence of limitation would not have been available to the defendant; accordingly, if, in the exercise of its discretion, the court thinks it just to grant leave to amend defects in the writ, or in the pleading, within the scope of the circumstances specified in these sub-paragraphs, so that such defects in the proceedings are treated as having been cured ab initio, the defendant is not being deprived of the benefit of a defence which he would not have had, if the proceedings had been properly formulated or constituted in the first place.

9. Where it is reasonably arguable that the relevant limitation period has expired before an amendment is made, the onus is on the applicant to show that the amendment falls within the provisions of sub-paragraphs (3), (4) or (5).  Where there is a dispute as to whether or not the new claims are time-barred, the better course to take is to issue a new writ containing the new claims and wait to see if the defendant will assert a limitation defence.

10. The present application fell withinsub-paragraph (5) of rule 5 and the focus of the inquiry was whether the new causes of the action arose out of the same facts, or substantially the same facts, as the causes of action in respect of which relief has already been claimed in the action.  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 the 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. 

11. 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.  To safeguard against the unjustified loss of a limitation defence, an amendment to introduce a new claim can only be allowed if it is based on substantially, or essentially, the same facts that had already been pleaded to support the original cause or causes of action.  Another way of putting it is that the greater part of the facts in support of the new cause of action, which is sought to be introduced by the amendment, must already have been pleaded in support of the original cause of action.

12. Whilst the question, whether the new cause of action arose out of the same, or substantially the same facts, as originally pleaded, is sometimes a matter of impression, particularly in borderline cases, in most cases, the court must adopt an approach that is guided by a large measure of common sense in its analysis of the facts that have been relied upon in support of the new cause of action.  The material facts supporting the new cause of action need not be identical to or be a complete overlap with those supporting the originally pleaded cause of action.  Thus, the originally pleaded cause of action may rely on material facts A, B and C, and the new cause of action may rely on material facts A, B, C and D.  The addition of new fact D does not necessarily mean that the facts in support of the new cause of action are not substantially the same as those supporting the old cause of action.  That must depend on the nature of the causes of action concerned and the nature and importance of the new facts that have been pleaded.  There can be no hard and fast rule.

13. The court usually allows amendments to insert further and better particulars of facts and matters pleaded in support of the original causes of action in the statement of claim, even though such further and better particulars are provided after the expiry of any relevant limitation period.  However these new further and better particulars, introduced after the expiry of the limitation period, cannot then be relied on to support a new cause of action introduced after the expiry of a limitation period, on the ground that they also support the old causes of action that had been pleaded originally.  To come within sub-paragraph (5), the same facts, or substantially the same facts must already appear in the original pleading.  If they are introduced as further and better particulars to support the original cause of action by way of an amendment after the expiry of the limitation period, it must follow that the facts and matters introduced by these further and better particulars may not have been the subject of an investigation by the defendant before the expiry of the limitation period.  If so, a new cause of action introduced after the limitation period which is based on these further and better particulars would fall outside the ambit of the limited exception contained in Order 20, rule 5 of the RHC.

The present application

14. The inquiry must, of course, start with a review of the originally pleaded causes of action and the facts pleaded in support of the same. 

15. It was pleaded in paragraph 5 of the amended statement of claim that, in or about December 1998, the plaintiff and the 1^st defendant agreed jointly to compete for the jobs related to the refurbishment of the public stands of the racecourses; and that they would conduct further discussions for future co-operation and other business arrangements after the outcome of the bid to the Club was known. 

16. In paragraphs 7 and 8, it was pleaded that, by letter dated 5 August 1999, the Club appointed the plaintiff as the lead consultant to carry out the first stage of the master planning study, and that, on or about 7 August 1999, the plaintiff and the 1^st defendant entered into a contract for the carrying out of the first stage.

17. In paragraph 10, it was pleaded that, after the 1^st defendant had carried out the first stage, the Club, by letter dated 27 April 2000, engaged the plaintiff, as the lead consultant, and the 1^st defendant to further develop designs for 8 high priority projects.  It was further pleaded that this was the result of co-ordinated and joint efforts between the Plaintiff and the 1^st  defendant over a period of about 16 months.

18. It was pleaded in paragraph 11 that one of the 8 high priority projects was the Shatin racecourse Parade Ring Project and that the initial design for this was made by the plaintiff and sent to the 1^st  defendant on or about August 2000.

19. In paragraph 12, it was pleaded that the 2^nd defendant was incorporated for the purpose of working on the Parade Ring Project.

20. In paragraph 13, it was pleaded that a contract was entered into between the Club and the plaintiff on or about 21 December 2001 whereby the plaintiff, in consultation with the 1^st defendant, was appointed to carry out the high priority projects, with the exception of the Parade Ring Project, and to provide a feasibility study on the Parade Ring Project.

21. In paragraph 14, it was pleaded that correspondence was exchanged between the plaintiff and the 1^st defendant in 2001 and 2002 in connection with the schematic design prepared by the plaintiff for the Parade Ring Project, the final and the largest of the8 individual projects.

22. In paragraph 16, it was pleaded that, between July 2002 and January 2003, discussions took place between the plaintiff and the defendants concerning the Parade Ring Project on the basis that the parties would jointly provide architectural services to the Club. 

23. In paragraph 19, it was pleaded that it is to be inferred from the course of dealing, as pleaded in paragraphs 5 to 16 of the amended statement of claim,  that a contract was made between the plaintiff and the 1^st and/or 2^nd defendant whereby, in consideration of the plaintiff acting jointly with the 1^st and/or 2^nd defendant in competing for and undertaking the projects pleaded in paragraph 13, the 1^st and/or 2^nd  defendant agreed to refrain from exploiting any business opportunities or conducting any business with the Club, (including the Parade Ring Project), without the involvement of the plaintiff. 

24. In paragraphs 20 and 21, it was pleaded that, in breach of this implied contract not to compete, the defendants in mid 2002, unknown to the plaintiff, entered into secret negotiations with the Club in respect of the Parade Ring Project, and subsequently contracted with the Club to undertake that project as project manager and lead consultant, with another architect firm engaged as the Authorised Person. 

25. The reliefs claimed included a claim for damages for breach of contract.

26. The amended statement of claim also contained claims for damages and equitable compensation for breach of fiduciary duties, and/or an inquiry as to damages for breach of confidence, and/or an account of profits. These claims were pleaded in paragraphs 16, 16A, 16B, 16C, 17, 18, 22, 23 of the amended statement of claim.  It was pleaded in these paragraphs that information of confidential character was imparted by the plaintiff to the defendants in circumstances importing an obligation of confidence, that this was done for the solely for the purpose of the enabling the parties to provide services to the Club in relation to the Parade Ring Project, and that the defendants were not entitled to the use the confidential information for any other purpose.  It was also pleaded that they acted as joint venturers, and were in a fiduciary relationship whereby the defendants had to act in the interests of the plaintiff and that the plaintiff was entitled to loyalty from the defendants.

27. I now turn to deal with the proposed re-amendments.  I decided on 17 January 2014 that I would not allow the re-amendments in paragraphs 1.3, 20 and 22A containing the averment that the 2^nd defendant acted as agent of the 1^st defendant at all times and which related to the new claim for breach of warranty of authority. 

28. I did not allow the proposed re-amendments in paragraphs 10A, 10B, 10C, 11, 12, 12A to 12H relating to new claims based on a newly pleaded joint venture partnership. 

29. I did not allow the proposed re-amendments in paragraphs 13, 15, 15A to 15D and 15M relating to new claims based on a newly pleaded agreement to work as joint venture partners.

30. I did not allow the proposed re-amendments in paragraphs 15E to 15L and 15M relating to a new claim based on a newly pleaded agreement for the provision of services as an Authorised Person. 

31. I also did not allow the proposed re-amendments in paragraphs 17, 21, and 21.5.  Finally, I did not allow the proposed re-amendment to sub-paragraphs (3) and (3B) of the reliefs claimed.

Breach of Warranty of Authority

32. The new claim brought against the 2^nd defendant for damages for breach of warranty of authority can be disposed of quite quickly. It is pleaded in paragraph 1.3 of the proposed re-amendment that the 2^nd  defendant acted as agent of the 1^st defendant at all material times.  In the proposed re-amended paragraph 20, it is pleaded that the 2^nd defendant, acting as an agent, impliedly warranted that it was authorised by the 1^st  defendant to deal with the plaintiff and that the plaintiff dealt with the 2^nd defendant in reliance on the said warranty.  Finally, it is pleaded in the proposed re-amendment in paragraph 22A, that if the 2^nd defendant had no authority to enter into the agreements on behalf of the 1^st defendant and/or did not receive the confidential information as agent of the 1^st defendant, and/or did not owe any fiduciary duty to the plaintiff by virtue of being the 1^st defendant’s agent, the 2^nd defendant was in breach of the said implied warranty of authority. 

33. This new claim is not based on the same fact, or substantially the same facts that were pleaded in the amended statement of claim.  It is based on a new fact, pleaded in the proposed re-amendment, that the 2^nd  defendant acted as an agent of the 1^st defendant at all material times.  In the original pleading, the 2^nd defendant was identified as a company incorporated in Hong Kong, as a subsidiary of the 1^st defendant, and carrying on the business of a firm of architects in Hong Kong, and that it was incorporated for the purpose of establishing an office for the 1^st defendant in Hong Kong, and that, subsequently, both the 1^st and the 2^nd defendants were appointed as sub-consultants to the plaintiff, the lead consultant.  It was further pleaded that there were discussions which took place in 2002 and 2003 between the plaintiff and the 1^st and 2^nd defendants on the basis that the parties would jointly provide architectural services to the Club. These factual averments do not support the new claim that the 2^nd defendant breached an implied warranty of authority that it was authorised to act as an agent of the 1^st defendant. 

The Authorised Person agreement     

34. It was pleaded in the amended statement of claim that the defendants, in breach of their agreement with the plaintiff, subsequently entered into a contract with the Club to undertake the Parade Ring Project as project manager and lead consultant, with another architect firm engaged as the Authorised Person. 

35. The proposed re-amendments introduce a new allegation in paragraph 15E that an Authorised Person agreement was entered into on 5 September 2002 by the plaintiff and the 1^st defendant for the plaintiff to provide services as an Authorised Person for the Parade Ring Project.  Paragraphs 15F to 15L contain further averments in relation to the Authorised Person agreement. In paragraph 15M, it is pleaded that the Authorsed Person agreement and/or the implied term pleaded as arising therefrom, was breached by the 1^st defendant, who entered into secret negotiations with the Club without the plaintiff’s knowledge, involvement or consent, and by the 1^st defendant appointment as project manager and lead consultant of the Parade Ring Project, with another architect firm engaged as the Authorised Person.

36. This is an entirely new cause of action based on entirely new facts which are not to be found in the original pleading, the new facts being the averment that, in September 2002, the plaintiff and the 1^st defendant entered into this agreement and the other facts and particulars, pleaded in the following paragraphs 15F to 15L, in connection with the provision of Authorised Person services by the plaintiff.  The only pleaded fact from the original pleading, which is repeated in connection with this new claim, is that another architect firm was engaged to provide such services.  This new clause of action arises entirely out of the new facts pleaded in the proposed re-amendments.  There is nothing in the original pleading to suggest, or even to hint, that arrangements had been made between the plaintiff and the 1^st defendant for the former to provide services as Authorised Person. 

37. I do not accept the submission that, just because these new facts arise out of that same period of time referred to the original pleading, these new facts ought to have been investigated in the course of the investigation of the originally pleaded facts, and that there was no new area of investigation that would have to be covered as a result of the proposed re-amendments.  The coincidence of the relevant timeframe, of the facts pleaded to support the original claims and of the new facts pleaded to support the new claim, cannot justify a conclusion, in the context of the originally pleaded facts in the amended statement of claim, that the new claim arises from substantially the same facts as pleaded to support the original claims.

Exclusive joint venture partnership agreement(s) and estoppel

38. A new plea of an exclusive joint venture partnership agreement between the plaintiff and the 1^st defendant and a new plea of estoppel have been raised in paragraphs 10A, 10B, 10C and 12A of the proposed re-amendments.  A further or alternative case is put in paragraph 12H, which pleads that a joint venture partnership agreement arose by reason of the conduct of the parties set out in paragraphs 2 to 12 and/or 12B to 12G of the proposed re-amended statement of claim.

39. Paragraphs 12B to 12G contain entirely new averments as do paragraphs 10A to 10C.  Whilst the facts pleaded in the amended statement of claim can be relied upon in support of the alleged exclusive joint venture partnership agreement, this new cause of action arises, not out of the same facts, or substantially the same facts, pleaded in the amended statement of claim, but out of the new facts pleaded in the proposed re-amendment.  The averments in relation to these new facts cannot be classified as minor differences likely to have been the subject of the original inquiry and which would not involve any major investigation that would not already had been undertaken in respect of the existing causes of action.  This is a case where the original pleaded causes of action relied on material fact “A” and the new cause of action relies on material fact “A” and new facts “B, C and D”. 

40. Indeed some of the material facts pleaded in the amended statement of claim, such as the description of the role of the plaintiff as the lead consultant and the role of the 1^st and 2^nd defendants as the sub-consultants, do not support this new cause of action based on an agreement to act, not as a lead consultant and sub-consultants, but as exclusive joint venture partners.  

41. As against that, there is a plea in paragraph 17 of the amended statement of claim that, in the circumstances, it is to be inferred as a matter of fact and law that, in entering into the arrangements pleaded in the amended statement of claim, the plaintiff and the defendants, as joint venturers, were in a fiduciary relationship.  The averment that the arrangements between the plaintiff and the defendants, pleaded in the amended statement of claim, were that of joint venturers can be relied upon to support the new cause of action.  Notwithstanding this pre-existing averment, in my judgment, the new cause of action is based substantially on the new facts pleaded in the proposed re-amendments, and does not arise from the same facts, or substantially the same facts, pleaded in the amended statement of claim.

42. The plea of estoppel can be dealt with shortly.  It is based entirely on the new facts pleaded in the proposed re-amended statement of claim, and does not arise out of any material facts contained in the amended statement of claim. 

New claims based on an agreement to work as joint venture partners pleaded in paragraphs 13, 15 and 15A of the proposed re-amended statement of claim and estoppel

43. The averments in these paragraphs introduced a new cause of action based on an agreement, contained in a letter dated 12 March 2002, that the plaintiff and the defendants would work as joint venture partners on the high priority projects of the Club and on the feasibility study on the Parade Ring Project.  It is further pleaded in these paragraphs that the plaintiff entered into this agreement in reliance on the 1^st defendant’s statements referred to paragraphs 10B and 10C and/or 12A and/or 12B and/or (13) and that the 1^st defendant is estopped from denying the same.  

44. This new cause of action is based entirely on the new facts pleaded in the proposed re-amended statement of claim, and not on any material facts pleaded in the amended statement of claim. In the original paragraph 13 of the amended statement of claim, it was pleaded that a contract was entered into between the Club and the plaintiff on or about 21 December 2001 whereby the plaintiff, in consultation with the 1^st  defendant, was appointed to carry out the work in question.  In the proposed re-amendment, the word ‘consultation’ is deleted and replaced by the word ‘partnership’.  In the paragraph 15 of the amended statement of claim, it was pleaded that, by a letter dated 12 March 2002 countersigned on behalf of the defendants, the defendants were appointed by the plaintiff to provide special consultant services for the contract with the Club, as pleaded in paragraph 13 therein, and that those projects were undertaken by the plaintiff, as the lead consultant, with the defendants acting as the sub-consultants.  In the proposed re-amendments the reference to special consultant services has been deleted, as are the references to lead consultant and sub-consultants; instead the new averment is that, by this letter dated 12 March 2002, the defendants agreed with the plaintiff that they would work as joint venture partners on the projects under the contract pleaded in paragraph 13.

45. As with the earlier plea of estoppel referred to above, this plea of estoppel also relies entirely on the new facts pleaded in the proposed re-amendment. 

Conclusion

46. For these reasons I dismissed the plaintiff’s application to re-amend the statement of claim to introduce new causes of action which are time-barred.