HUA NING INDUSTRIES LTD v. BEST LEADER ENGINEERING LTD

HCA 1801/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1801 OF 2008

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BETWEEN

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REASONS FOR DECISION

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1.  This is an appeal by the Defendant against the Order of Master R. Lai made on 7 January 2011. After the hearing, I ordered that the appeal be dismissed with costs to the Plaintiff in the sum of HK$16,750.00 assessed by me under a gross-sum assessment. I now supply written reasons for my decision.

Background

2.  The Writ of Summons herein was issued on 22 September 2008.  By a Statement of Claim filed on 10 October 2009, the Plaintiff claimed against the Defendant for rental arrears in relation to various rental agreements concerning a number of vessels. 

3.  The original Defence was filed on 11 December 2008.  The existence of the rental agreements and the monthly rentals payable thereunder were admitted. The Defendant put the Plaintiff to strict proof as to the alleged arrears.  The Defendant also pleaded that in HCA 1620 of 2008, a shareholder of the Plaintiff applied for an injunction against the other two shareholders enjoining them from doing anything in connection with the internal management of the Plaintiff. It further suggested that such should include the commencement of these proceedings herein.

4.  The Defence then underwent a number of amendments. It was first amended on 18 September 2009.  The Defendant added an allegation of a cooperation agreement between the Plaintiff and the Defendant dated 12 September 2003.  It was then pleaded that pursuant to that cooperation agreement, there was an implied term that no action shall be taken by the Plaintiff against the Defendant for outstanding unpaid rentals until all works in respect of a certain reclamation project were fully completed by the Defendant and until they were fully paid by the main contractor of the said project.

5.  By the time of the first amendment to the Defence, the Plaintiff had already diligently filed its several Lists of Documents on 6 February 2009, 26 May 2009 and 16 June 2009.  Parties had also exchanged witness statements between 26 May 2009 and 31 July 2009.  At the first Case Management Meeting held on 10 September 2009, the Plaintiff already indicated that the case was ready for trial. This was, of course disrupted by the amendment to the Defence allowed on 18 September 2009.

6.  The Defendant only filed its List of Documents for the first time on 1 April 2010. On the same day, a supplemental witness statement was also filed. Then the Defendant changed its solicitors on 14 April 2010. On 13 May 2010, the Defendant took out, inter alia, 2 Summonses, one for consolidation of the present action with HCA 1620/2008 and HCA 215/2009; and the other for the striking-out of the present action. Substantive hearing for the two Summonses were scheduled to take place on 26 July 2010.  In the meantime, on 1 June 2010, the Defendant was given leave to Re-amend its Defence.  The re-amendments essentially pleaded certain facts in relation to the background leading to the execution of the cooperation agreement as well as certain terms of the cooperation agreement.

7.  Then, 3 days before the scheduled hearing, the Defendant issued a Summons on 23 July 2010 seeking to re-re-amend the Defence and to file further evidence for use in the substantive hearing on 26 July 2010. The hearing on 26 July 2010 was thus taken up by the application for re-re-amending the Defence which was allowed by Master K. Lo.  The re-re-amendments related to pleading two oral agreements between certain shareholders of the Plaintiff concerning rights to participate in the management of the Plaintiff’s business.  Pursuant to an Order of Master K. Lo dated 26 July 2010, the striking-out Summons was ordered to be heard by a Judge (with 4 days reserved) and that the consolidation Summons would only be heard after the disposal of the striking-out Summons.  Substantial hearing of the striking-out Summons was eventually fixed to be heard before Mr. Justice Au from 11 January 2011 to 14 January 2011. 

8.  The striking-out application relates to paragraphs 2(a), 2(b) and 3 of the Re-Re-Amended Defence.  In short, it relates to the Defendant’s allegation that the shareholders now in control of the Plaintiff should have no right to cause the Plaintiff to instigate these proceedings against the Defendant. The hearing duly took place before Mr. Justice Au who reserved his decision. The hearing actually took the form of a trial of a preliminary issue with witnesses called to give viva voce evidence and cross-examined.

9.  In the meantime however, on 31December 2010, the Plaintiff issued a Summons seeking to Re-re-re-amend the Defence and to add a Counterclaim.  This Summons was heard by Master R. Lai on 7 January 2011.  The purport of the proposed re-re-re-amendments can be summarized as follows:-

(i) the adding of an alternative defence alleging that a total sum of HK$15.5 million of rental arrears originally owing by the Defendant to the Plaintiff had in fact been assigned by the Plaintiff to one Mr. Sze by way of two assignments of debt made towards the end of 2007;

(ii) the adding of a defence of set off by using the Counterclaim hereinafter pleaded; and

(iii) the adding of a new Counterclaim.

10.  It is interesting to note how the proposed Counterclaim was framed and hence I set it out in full:-

“14. Since around 2003, after the incorporation of the Defendant, the Defendant has started to pay for various outgoings and expenses of the Plaintiff, such as office rental, salary for employees, utility bills, vessels’ insurance, maintenance and mooring fees (collectively, “the Assessed Sum”).

15. In the premises, the Assessed Sum are due and owing by the Plaintiff to the Defendant.

16. The Defendant is entitled to and claims interest on the Assessed Sum at such rates and for such periods as the Court shall determine pursuant to section 48 of the High Court Ordinance.

AND THE DEFENDANT COUNTERCLAIMS AGAINST THE PLAINTIFF

(1) the Assessed Sum;

(2) interest at such rates and for such periods as the Court shall determine pursuant to section 48 of the High Court Ordinance;

(3) costs; and

(4) further or other relief.”

11.  There was no affirmation filed by the Defendant in support of this re-re-re-amendment application.  Master Lai allowed the Defendant to rely on the alternative defence based on the alleged assignments of debt but disallowed the proposed addition of the Counterclaim, and hence disallowed the proposed addition of the defence of set-off basing on the Counterclaim.

12.  Master Lai also gave directions on the filing of supplemental witness statements by the parties in relation to the additional issue of “assignments of debts”.  Both parties filed their respective supplemental witness statements in February 2011.

13.  The Defendant now appeals against Master Lai’s Order in so far as it relates to the refusal to allow the addition of the Counterclaim and hence the resultant defence of set-off.

Discussion

14.  The Defendant was represented by Mr. Lam in this appeal.  Mr. Lam fairly accepted that he could not provide an amount for the “Assessed Sum” and accepted that the proposed Counterclaim was not a claim for liquidated debt. With respect, the form and content of this proposed Counterclaim is totally defective and misconceived.  It purports to be a claim for a liquidated sum “due and owing” when it could not possibly be so.  It is wholly lacking in particulars as to the amount of the “Assessed Sum” alleged to have been paid by the Defendant for the benefit of the Plaintiff since 2003. It did not even state up to when such alleged sums had been paid by the Defendant.  When asked by this Court, Mr. Lam again fairly accepted that he could not name a date.  The proposed plea cannot constitute a legal set-off against the Plaintiff’s claim.

15.  Again, when asked by this Court, Mr. Lam fairly accepted that the proposed Counterclaim raised a fresh issue which bore no relationship with the Plaintiff’s claim under the rental agreements.  Hence, ignoring the form of the pleading and treating the proposed Counterclaim as a claim for an unliquidated sum (to be assessed by the Court), it does not give rise to equitable set-off. In other words, the proposed Counterclaim is a mere distinct cross-claim.

16.  Mr. Lam again fairly accepted that in the absence of an affirmation in support of the Summons, there was no evidence before Master Lai, and there is no evidence before this Court to explain why the Defendant failed to take steps to introduce this proposed cross-claim until at such late stage.  I accept that no trial dates have yet been fixed, but that is largely due to the various interlocutory applications made by the Defendant. Mr. Tsoi, counsel for the Plaintiff, reminded the Court that the Plaintiff expressed readiness for trial since 10 September 2009.  He also emphasized that even with the additional defence of “assignment of debts”, the parties had already filed supplemental witness statements in relation to such additional defence and should be ready for trial.  Mr. Lam accepted that, putting aside the proposed Counterclaim, the Defendant is also ready for trial on all the issues contained in the Re-re-re Amended Defence allowed by Master Lai.  Mr. Lam also fairly accepted that if the proposed Counterclaim is allowed to be included, further discovery would be anticipated and new witnesses would have to be called.  In fact, when one looks at the nature of the “Assessed Sum”, one would expect very extensive discovery relating to outgoings and expenses of various sorts over an indefinite period since 2003.  It can also be anticipated that specific staff members from the Defendant as well as the Plaintiff would likely be called to testify on those alleged outgoings and expenses.  In other words, trial of these proceedings is likely to be further stalled indefinitely.

17.  Mr. Lam referred me to Liu Kam Hoi & others v. Liu Ping Kuen, the personal representative of the estate of Liu Fun Kee (HCA 6728/1998) and Tsoi Yiu Chung v. ING Life Insurance Company (Bermuda) Limited (HCA 2447/2007).  Each of these two authorities involved the Court’s exercise of its discretion upon the special circumstances of the case.  I do not consider them of much assistance.  I have to exercise my discretion upon the special circumstances of the case which I am dealing with.

18.  As I have mentioned above, the proposed Counterclaim is an unconnected cross-claim.  It is poorly drafted and structured, to say the least, and is palpably lacking in particulars. There is no evidence to explain why it was not brought up much earlier.  In disallowing the proposed amendment, I can see no prejudice on the Defendant as it could bring a separate claim if it so wishes. On the other hand, if I allow the proposed amendment at this late stage, final resolution of these proceedings will be further stalled.  I am of the view that these proceedings are ready for trial (pending the decision of Mr. Justice Au on the striking-out application) and should be allowed to proceed expeditiously in that direction.  I have not lost sight of the outstanding application for consolidation by the Defendant.  I am of the view that whoever that may handle such application would also give serious consideration as to whether there could be justification for further stalling the final resolution of these proceedings.

Conclusion

19.  I had therefore dismissed the appeal with costs to the Plaintiff assessed at HK$16,750.00.