厦門新景地集團有限公司 v. ETON PROPERTIES LTD AND OTHERS

HCMP 13, 15, 18, 21/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NOS 13, 15, 18, AND 21 OF 2012

(ON AN INTENDED APPEAL FROM HCCL NO 13 OF 2011)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Cheung CJHC:

1.  On 3 February 2012, we allowed the applications by the respective defendants for leave to appeal against the decisions of the commercial judge (Reyes J) on 21 December 2011 granting leave to re‑amend the statement of claim and giving directions for expert evidence on quantum. Treating the hearing as the substantive appeal, we allowed the appeal, but only to the extent of adjourning the trial of the matters pleaded in paragraph 35(5) of the re‑amended statement of claim for further directions to be sought and given after the outcome of the upcoming trial in March is known. We also gave the parties liberty to apply for further or other directions from the commercial judge or the trial judge. We gave the costs of the appeal (including the applications for leave to appeal) to the defendants with a certificate for two counsel. We now give our reasons.

Facts

2.  The disputes between the parties have a long history.  The detailed facts can be gleaned from various previous judgments given by this court and at first instance: Reyes J’s judgment dated 24 June 2008 in HCCT 54/2007; the Court of Appeal’s reasons for judgment dated 11 June 2009 in CACV 106 & 197/2008; Fok J’s judgment dated 16 March 2010 in HCA 961/2008 (which has since been transferred to the commercial list and become the action below, HCCL 13/2011); the Court of Appeal’s judgment dated 15 December 2010 in CACV 88 & 89/2010 and the determination dated 4 May 2011 of the Appeal Committee of the Court of Final Appeal in FAMV 4 & 5/2011.

3.  As the Chief Justice summarized in paragraph 1 of the Appeal Committee’s determination, the plaintiff obtained a CIETAC arbitral award in respect of a contract with the 1^st and 2^nd defendants for the transfer of land on the Mainland via the sale of shares in the 4^th defendant, requiring those defendants to perform the contract.  The plaintiff seeks to enforce that award in Hong Kong.  However, difficulties were placed in the way of its enforcement by the 1^st to 5^th defendants executing share transfers and property sales which, they say, makes performance of that contract impossible.  As the Chief Justice noted, CIETAC pointed out in a subsequent application that such a self‑induced impossibility of performance itself constitutes a breach of the agreement.

4.  Ma CJ went on to observe (para 2) that with a view to overcoming the difficulties created by the 1^st and 2^nd defendants, the plaintiff began HCA 961/2008 (which, as mentioned, became HCCL 13/2011 below) asserting various causes of action and claiming relief against the Eton Group defendants. Amongst other things, the plaintiff claims that the relevant shareholdings in the 4^th defendant which, through its wholly‑owned subsidiary, the 5^th defendant, beneficially owns the land (or its proceeds of sale) are held on constructive trust for the plaintiff, or alternatively that the relevant share transactions are void and of no effect in which case the 1^st and 2^nd defendants are required to transfer the shares in the 4^th defendant to the plaintiff in performance of the contract.

5.  Importantly for the purposes of the present applications for leave, the plaintiff also relies on a claim that the defendants conspired to defraud and unlawfully injure the plaintiff.  In addition, it is also alleged that the 3^rd to 11^th defendants are guilty of unlawful interference with contractual relations.  The 6^th defendant is the founder of the Eton Group whereas the 7^th to 11^th defendants were at all material times the directors or senior officers of the 1^st to 5^th defendants.  The loss and damage pleaded in respect of the two economic torts comprised, prior to the amendments granted by Reyes J, the fees and other expenses incurred by the plaintiff in the expectation that the defendants would perform their obligations under the contract and, in addition, the unrecovered legal costs and expenses in the arbitrations.

6.  The trial of the action has been fixed for 8 March 2012 before Deputy Judge Stone, with 12 days reserved.  The application for leave to amend was taken out by the plaintiff on 14 December 2011, whereas one week before, the plaintiff had taken out an application for directions to adduce expert evidence on the valuation of the 4^th defendant.  Significantly, the plaintiff had previously in a case management conference indicated to the court that it did not intend to amend the pleadings or to adduce expert evidence.  That had remained the position when the March trial dates were fixed on 11 November 2011. Reyes J, after a short hearing, granted both applications, on 21 December 2011.

7.  The amendments plead for the first time, as part of the particulars of loss and damage given under paragraph 35 of the statement of claim (as amended), the loss of interest which the plaintiff would have made from such funds obtainable through the 4^th defendant but for the defendants’ wrongful acts in frustrating, obstructing or delaying the performance of the contract and the arbitral award, in case the court is to grant such relief enabling the plaintiff to become the sole shareholder of the 4^th defendant.  But more controversially, the plaintiff also pleads in the new paragraph 35(5) that in the event the court is to refuse the grant of such relief, its loss and damage is the difference between (i) the existing value of the entire shareholding in the 4^th defendant and (ii) the sum of RMB120,000,000 which the plaintiff agreed to pay under the agreement for acquisition of the same.  The plaintiff therefore claims that “each of the 1^st to 11^th defendants is jointly and severally liable whether by means of an award of equitable compensation or by means of an award of damages”, in respect of the loss and damage so particularized.  The expert valuation directions are directed at quantifying the loss and damage so alleged.

Intended grounds of appeal

8.  Various grounds were relied on by the defendants in support of the intended appeal.  They contended :

(1) The defendants did not have a fair hearing.

(2) The plaintiff’s amendments are embarrassing and unintelligible.

(3) Reyes J failed to consider that the plaintiff’s amendments are futile.

(4) The plaintiff’s claim for damages is inconsistent with its action for enforcement of the award, and should be stayed for arbitration.

(5) Reyes J’s decision was a perverse case management decision and in any event, he should not have given expert directions on valuation before the issues are crystallized in pleadings.

Principles for granting leave

9.  No leave to appeal should be granted unless the threshold test of reasonable prospect of success is satisfied, or (which is not relevant to the present case) there is some other reason in the interests of justice why the appeal should be heard : section 14AA(4), the High Court Ordinance (Cap 4).  But the court still retains a discretion whether to grant leave even if the threshold test is satisfied.  This is particularly so in relation to an intended appeal against a case management decision.  In relation to such an intended appeal, this court rarely intervenes save in exceptional circumstances.  As Kwan JA reiterated in the recent case of Mimi Kar Kee Wong Hung v Severn Villa Limited, HCMP 2192/2011, 12 January 2012, para 31, it need hardly be emphasized that generally, an appellate court will not interfere with a judge’s exercise of discretion unless the judge has misunderstood the law or the evidence or the exercise of his discretion was plainly wrong such that it was outside the generous ambit within which a reasonable disagreement is possible. In relation to case management decisions, the intended appellant must show that the judge “has gone clearly wrong and made orders which will clearly involve an injustice or an inability for the trial court to carry out its task”, or if the judge “erred in principle or the order was irrational having regard to the issues that had to be resolved”.  It is of great importance that this court does not descend to micro‑managing cases pending before the court below.

10.  I now turn to the various intended grounds of appeal.

Fair hearing

11.  First, all defendants complained that the judge did not give them a fair hearing.  He heard their oppositions to the plaintiff’s belated applications with a closed mind.  In some instances, the judge was said to have refused to hear counsel at all.

12.  I do not accept the criticisms.  Here the context is important : this is a case in the commercial court, which is known for its robust approach.  The judge was seized of the dispute between the parties at a very early stage and witnessed the development of the case since 2008.  He was most familiar with the issues, and so were the parties.  When they appeared before him for the applications, everybody in court (including the judge) knew perfectly well what each other was talking about.  As an experienced commercial judge, assisted by equally experienced senior counsel, the judge was able to resolve the applications expeditiously and efficiently.  No doubt the judge assumed a lead role, a role which was fully in accordance with the spirit behind the civil justice reform.

13.  Take, for instance, the criticism that the judge did not give counsel a proper chance to advance or develop their submissions at the hearing and he often interrupted counsel mid‑sentence saying that he was not with him on the point.  The criticism must be viewed in context : all counsel had filed written submissions and (in some cases) supplemental submissions with the court which the judge had read before the hearing.  Furthermore, like the submissions before this court, many of the submissions, coming as they did from different counsel all dealing with the same points, were repetitive of each other.

14.  As for the criticism that the judge did not give reasons for his decisions whether at the end of the hearing or afterwards, it was, with respect, an unfair criticism.  A perusal of the transcript would reveal that the judge did make known his views succinctly in his exchanges with counsel during submission, not to mention that there are actually authorities to the effect that discretionary decisions, say interlocutory case management decisions, are obvious examples of judicial decisions where fairness does not demand that the parties should be informed of the reasoning underlying them : English v Emery Reimbold & Strick Ltd [2002] 1 WLR 2409, para 13.  Likewise, judges are expected to be robust when dealing with applications for leave to appeal from their own decisions, particularly when the parties can subsequently apply for leave from the Court of Appeal : cf Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 205H – 207E.

15.  I agree that a different judge may well have conducted the hearing in a different manner.  I also agree with the importance of affording everyone in court a fair opportunity to be fully heard, regardless of the eventual outcome.  I further agree and indeed stress that it is of utmost importance for the administration of justice that no judge should hear a matter with a closed mind or with even the appearance of a closed mind.  I accept that, on the materials available, there was a reasonably arguable complaint.  However, at the end of the day, I do not believe a case of lack of fair hearing has been made out.

16.  For these reasons, I also reject the defendants’ application, made at the end of the hearing, that further directions on this case shall be given by some other judge.

Embarrassing or unintelligible amendments

17.  Secondly, there was the complaint that the amendments are embarrassing or unintelligible.  In particular, much play was made of the allegation that all the defendants are “jointly and severally” liable to pay the plaintiff “equitable compensation”.  Various arguments, some of which technically correct, were put forward to explain why, in particular, the 3^rd to 11^th defendants, who are not parties to the contract, cannot be held liable “jointly” with the 1^st and 2^nd defendants for “equitable compensation”.

18.  I find all this most technical, and not surprisingly, the points were not well received before the commercial judge. Increasingly nowadays, one looks at substance, rather than form; this is particularly so in the commercial court.  In substance, the amendments sought are narrowly confined to an issue of quantum, an issue which was foreseen by Fok J back in March 2010.  Fok J, in dealing with the defendants’ application to strike out, did not find any problem with the plaintiff’s claim based on the two economic torts.  The reason why he pointed out that the plaintiff had not referred to the value of the 100% shareholding in the 4^th defendant as part of its loss and damage arising from the economic torts was not that he found such loss unrecoverable, embarrassing or unintelligible.  Rather, he was, as I read his judgment, expressing his surprise that such loss was not pleaded – loss which he thought followed naturally from the two tortious causes of action (para 73).

19.  No doubt, if the plaintiff can establish its case, the remedy sounds in common law damages, not “equitable compensation”. But the plaintiff has by the amendments claimed not only equitable compensation, but also common law damages.

20.  As for equitable compensation, it must not be forgotten that the plaintiff has been alleging breach of fiduciary duty and constructive trust.  I see no problem with its plea for equitable compensation.

21.  On final analysis, this purported ground of appeal only boils down to a complaint that the plaintiff should have used “and/or”, or “or alternatively” etc in paragraph 35 of the re‑amended statement of claim.  That only highlights my point that the intended ground is not reasonably arguable.

Futile amendments

22.  Thirdly, several points have been made on futile amendments.  But I do not think they are reasonably arguable.

23.  Whether the date of valuation relied on by the plaintiff is right or wrong is, as the judge pointed out during argument, plainly a matter for trial.  There are, as Ms Cheng submitted, authorities to suggest that dates other than the date of breach may, in appropriate circumstances, be used for assessment purposes. Nor do I think this creates any difficulty for the defendants in the preparation of their valuation evidence.  If they are so confident that the plaintiff has picked the wrong date (with no fallback position) for valuation, they may simply ignore the plaintiff’s expert evidence which is, ex hypothesi, based on a wrong date, leaving the plaintiff with no expert evidence (based on the correct date) to substantiate its claim.

24.  As for the argument that the plaintiff cannot be allowed to claim damages in lieu of specific performance (without first having the order for continued performance discharged by the arbitral tribunal); and the related argument that any such attempt to claim damages in lieu would not be an attempt to enforce the award, but rather an attempt to raise a new dispute covered by the arbitration clause included in the contract which should be stayed for arbitration, I do not find the plaintiff’s position unarguable (at least at this amendment stage).  As the Chief Justice pointed out in the Appeal Committee’s determination, CIETAC had stated previously that it had fully adjudicated the arbitration and that there was nothing left for the tribunal to do.  The arbitrators had therefore treated the arbitration agreement as spent and incapable of further performance, removing any effective basis for a stay to arbitration (para 5).  In any event, none of the defendants except the 1^st and 2^nd defendants were parties to the arbitration clause.  Without intending to prejudge any issues, the suggestion that the plaintiff must go back before the tribunal to discharge the order for the continued performance of the contract before it can claim damages in lieu of performance (or damages for the economic torts) is, so it seems to me at this stage, most unattractive.

Claim for damages not an enforcement step

25.  Fourthly, it was contended that the claim for damages does not form part of the enforcement of the arbitral award but is itself a new dispute which should be stayed for arbitration.  For the reasons given above, the argument does not assist the defendants in the intended appeal.

Perverse case management decision

26.  Fifthly, the defendants contended that the judge’s decision amounted to a perverse case management decision.  They complained that the application to amend was both an eleventh‑hour application as well as a complete U‑turn from its previous position.  It was not accompanied by any explanation for the delay, particularly when Fok J (as he then was) had in his judgment given in March 2010 (para 73) long pointed out that the plaintiff had failed to plead its loss and damage by reference to the value of the 100% shareholding in the 4^th defendant, which the plaintiff would have obtained had the contract been fully performed. Yet the plaintiff had chosen not to apply to amend until less than 3 months before the commencement of trial.  The defendants complained that the timetable imposed by the judge on the parties for the amendment of pleadings and for the filing of relevant expert valuation evidence was almost impossible to comply with – the last report was only to be filed one day before the commencement of trial.  The defendants also said that the new claim raised many new issues such as the applicable law, remoteness and mitigation, which would involve further expert evidence on PRC law, further discovery and so forth.  The judge should not have given the valuation directions before the close of the (amended) pleadings.  The defendants said that the judge had either failed to take all this into account or had nonetheless come to a perverse decision.

27.  As regards delay and lack of explanation, I accept that that was a valid criticism to some extent, and that the plaintiff’s reference to discovery was a rather lame excuse.  However, as Ms Teresa Cheng SC for the plaintiff said in her written submissions, the reasons for the delay were actually apparent.  Between Fok J’s judgment in March 2010, which was partly reversed in favour of the plaintiff on appeal, and the plaintiff’s eventual application to amend in December 2011, the parties had been before the Court of Appeal as well as the Appeal Committee of the Court of Final Appeal.  It was only after all dust had settled following the determination of the Appeal Committee in March 2011 that the parties’ focus returned to the prosecution of the present case.  The defences were filed only on 12 May and 30 June 2011 and the first case management hearing was held on 12 September 2011, and indeed on that first occasion, directions were given for the setting down of the case for trial.  Thereafter discovery followed with a view to having the case tried before the commercial court in March this year.  It can therefore be seen that the whole case was progressed to trial in a most robust and expeditious way.  Against that background, the delay and the change of stance occurred and against that background, the same must be judged.  I am not, on the facts, prepared to draw the inference that the change of stance was a premeditated move to gain any unfair forensic advantage over the defendants.

28.  In any event, all these matters were just some of the many things that the judge, in exercising his discretion, had to take into account.  I cannot for one moment believe that the judge forgot or otherwise failed to take them into account.

29.  However, I do agree with the defendants that the late amendments, or more specifically, the new paragraph 35(5), took them by surprise and left them with inadequate time for the proper preparation of their defences in relation to it.  Furthermore, such a late application for amendment also went contrary to the letter and spirit of the civil justice reform and made a mockery of the requirement for filing information checklist before a case management conference.

30.  All this does not necessarily mean, however, that the court must refuse the amendments, bearing in particular in mind that the “primary aim” in exercising the case management (or other) powers of the court is to secure the “just resolution of disputes in accordance with the substantive rights of the parties” : O 1A, r 2(2), the Rules of the High Court (Cap 4A).  Driving a party away from the judgment seat without proper adjudication is always a serious matter.  Such a power of exclusion, like all other powers given under the rules, must only be exercised after considering all the relevant underlying objectives set out in O 1A, r 1.

31.  The plaintiff’s new paragraph 35(5) is a more or less self‑contained claim.  Depending on how the other issues already raised are to be determined at trial, a viable though not 100% satisfactory alternative to refusing the amendment is to hive off paragraph 35(5) from the trial to a subsequent stage.  Depending on the outcome of the trial, it may or may not be necessary to resolve the dispute arising from paragraph 35(5).

32.  In this way, injustice to either side would be avoided or, at least, minimized.  Nor would the original trial dates (which are milestone dates) be jeopardized.  Although it is always open to the commercial judge or the trial judge to order a split trial at a subsequent stage, it would have been far better to adjourn paragraph 35(5) at the time the amendment was granted.  By doing so, the parties would not have been unnecessarily distracted by the need to prepare for paragraph 35(5) for trial in the meantime.

33.  Unfortunately, the judge apparently did not see things this way.  He appeared to have taken an “all‑or‑nothing approach”. Once he decided to allow the amendments, he just focussed on how best to fit all the new issues raised (or to be raised) into the pre‑existing trial dates.  The resulting order became one that was quite unfair to the defendants, and one that did not sit well with the civil justice reform.

34.  It was on this limited basis only that I felt compelled and able to interfere with the judge’s undoubtedly wide case management power.

35.  Certainly, a split trial direction could have its own fair share of problems in terms of duplication of issues, evidence and efforts.  In all likelihood, further directions would be required. However, looking at the matter in the round, the hiving off of paragraph 35(5) would seem to be much more preferable to either refusing the amendments altogether or squeezing the case into the existing trial dates which were fixed for trying the plaintiff’s claim as originally framed only.

Outcome

36.  These are my reasons for the orders made by the court on 3 February 2012.  As for costs, first, the plaintiff asked for an indulgence by a very late application which involved a change of stance; secondly, the defendants were substantively though by no means completely successful on appeal.  On the whole, it was fair to award the costs of the appeal (including the applications for leave to appeal) to the defendants together with a certificate for two counsel.

Hon McWalters J:

37.  I agree with the Reasons for Judgment of the Chief Judge.