廈門新景地集團有限公司 formerly known as 廈門市鑫新景地房地產有限公司 v. ETON PROPERTIES LTD AND OTHERS

CAMP 454/2022

[2023] HKCA 147

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 454 OF 2022

(ON AN INTENDED APPEAL FROM HCCL 13/2011)

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J U D G M E N T

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Hon Barma JA (giving the Judgment of the Court):

1.  This is a renewed application by the plaintiff for leave to appeal against the decision of Mimmie Chan J (“the Judge”) on 18 August 2022[1] (“the Decision”), by which she (i) granted leave to the 1^st and 2^nd defendants to amend their Statement in Response filed on 15 January 2021 (“the Statement in Response”); and (ii) granted leave to the plaintiff and the 1^st and 2^nd defendants to adduce their respective expert evidence on their proposed subjects and questions.

2.  The plaintiff’s application for leave to appeal in the court below was dismissed by the Judge on 18 October 2022[2] (“the Leave Decision”).

Background

3.  The background to the parties’ dispute had been set out comprehensively by Yuen JA in the judgment of this court dated 15 April 2016[3] at [2] to [95] (“the CA Judgment”) and by Ribeiro PJ in the judgment of the Court of Final Appeal dated 9 October 2020[4] (“the CFA Judgment”) at [6] to [79].

4.  For present purposes, we highlight the following factual and procedural history:

(1)  the protracted proceedings in this case arose from an agreement dated 4 July 2003 (“the Agreement”), pursuant to which the plaintiff agreed to purchase and the 1^st and 2^nd defendants agreed to sell their shareholding in the 4^th defendant, with a view to enabling the plaintiff to acquire the right (held in the name of the 5^th defendant, a company incorporated in the PRC) to develop a plot of land known as Lot 22 in Xiamen (“the Land”);

(2)  under the Agreement, the 1^st and 2^nd defendants warranted that they had “absolute control” over the 4^th and 5^th defendants, and it was agreed that they would transfer all their shares in the 4^th defendant to an entity designated by the plaintiff after payment of the transfer price;

(3)  on 14 November 2003, the 1^st and 2^nd defendants issued a Notice to Discontinue Performance of the Agreement to the plaintiff (“the Notice to Discontinue”), which purported to serve as notice in writing that performance of the Agreement would be discontinued;

(4)  notwithstanding the plaintiff’s refusal to accept the termination of the Agreement or the return of the deposit paid by it, the Land was not delivered to the plaintiff by 4 January 2004 as agreed;

(5)  the defendants thereafter took steps to develop the Land themselves (in accordance with their own design), culminating in the plaintiff’s commencement of arbitration proceedings on 8 August 2005 against the 1^st and 2^nd defendants in Beijing;

(6)  prior to the commencement of the arbitration proceedings, unbeknown to the plaintiff, the defendants carried out a restructuring of the Eton group, which effectively led to the 1^st and 2^nd defendants no longer being owners of the shareholding in the 4^th defendant, hampering the performance of the share transfer;

(7)  on 27 October 2006, the arbitral tribunal issued an award in favour of the plaintiff (“the Award”), ordering inter alia that the 1^st and 2^nd defendants “shall continue to perform the Agreement”;

(8)  on 31 October 2007, in the ex parte application in HCCT 54/2007, A Cheung J (as Cheung CJ then was) granted leave to the plaintiff to enforce the Award and entered judgment in terms of the Award (“the Statutory Judgment”), with the 1^st and 2^nd defendants’ applications to set aside the judgment subsequently dismissed (and the dismissal was upheld by this court on appeal);

(9)  on 27 May 2008, the plaintiff commenced the present proceedings (initially listed as HCA 961/2008 and subsequently relisted as HCCL 13/2011), being its common law action to enforce the Award;

(10)   subsequent applications and approaches to the arbitral tribunal by the 1^st and 2^nd defendants, being their attempts to overturn or disturb the Award, were unsuccessful;

(11)   this court on 3 February 2012 ordered a split trial, postponing the issues of quantum (which were raised in [35(5)] of the Re‑Amended Statement of Claim dated 23 December 2011) to be dealt with at a later stage;

(12)   by the CA Judgment, this court allowed the plaintiff’s appeal against the dismissal (by DHCJ Stone QC presiding over the trial on liability) of the common law action on the Award.  Upon the plaintiff’s informed election, this court set aside the Statutory Judgment and entered judgment in favour of the plaintiff in HCCL 13/2011 for damages against the 1^st and 2^nd defendants for breach of the implied promise to honour the Award;

(13)   the Court of Final Appeal, by the CFA Judgment, dismissed the appeal by the 1^st and 2^nd defendants against the CA Judgment, holding inter alia that (i) the implied promise to honour the Award existed as a contractual obligation which was separate and distinct from the obligations created by the underlying contract; and (ii) in an action on the implied promise, the enforcing court could grant relief appropriate to an arbitral award, and where the performance of the original promise (in this case being the share transfer) had been frustrated, it may grant relief in the form of damages.

The parties’ applications in the court below

5.  The 1^st and 2^nd defendants applied for leave to amend their Statement in Response, which was filed for the purpose of the forthcoming trial on quantum fixed to be heard on 4 September 2023.  The only amendments with which the plaintiff took issue were those to:

(1)  [32A(5)] of the Statement in Response, which essentially avers that even if the plaintiff could identify and prove its loss with reference to the development value of the Land based on the actual development carried out (i.e. in accordance with the 5^th defendant’s design) and the profits earned as a result, the loss, if any, should be limited to the “reasonably anticipated profits” the plaintiff itself would have made if it had developed the Land in accordance with its own design; and

(2)  [32B] of the Statement in Response, which in gist contends that the date of assessment of the plaintiff’s loss (if any) should not be 27 October 2006 (i.e. the date of the Award) as proposed by the plaintiff, but should be no later than April 2005, by reason of the plaintiff’s delay in commencing the arbitration proceedings only in August 2005 notwithstanding that it had received the Notice to Discontinue in November 2003.

6.  The arguments and issues raised in the amendments set out above were collectively referred to as the “P-Design Argument” at the hearing before the Judge.

7.  The plaintiff’s fundamental opposition to the amendments was based on the delay by the 1^st and 2^nd defendants in raising this new defence and that it would require additional expert evidence which may or would cause further delay to the trial on quantum.  The plaintiff also argued that the amendments disclose no reasonable defence.

8.  By the Decision dated 18 August 2022, the Judge took the view that the amendments sought by the 1^st and 2^nd defendants could not be said to be bound to fail (see [12]-[25] of the Decision), as the approach by the courts in relation to the remedies to be granted in a common law action is flexible, and accordingly granted them leave to amend their Statement in Response.

9.  Flowing from the amendments which were allowed, in particular the dispute over the date of assessment of loss (if any), the Judge, having regard to the parties’ cases and the evidence that could be useful in assisting the court in determining the material disputes at trial (such as the gross development value of the Land under the prevailing market conditions at the various disputed dates of assessment), allowed both parties to adduce their own expert evidence in terms of their respective Summonses for expert evidence (see [26]-[31] of the Decision).

10.  Dissatisfied with the Decision (which permitted the amendments and granted leave to the 1^st and 2^nd defendants to adduce their expert evidence), on 30 August 2022, the plaintiff applied to the Judge for leave to appeal.

11.  The proposed grounds of appeal were in gist that the Judge (i) should have concluded that the P-Design Argument raised in the amendments was bound to fail at trial (“Ground 1”); (ii) erred in law in accepting that the plaintiff’s loss could be assessed at a date (i.e. April 2005) before the accrual of the plaintiff’s cause of action (i.e. October 2006) (“Ground 2”); (iii) erred in failing to have due regard to the impact of the amendments and the defendants’ Summons for expert evidence on the trial fixed in September 2023 (“Ground 3”); and (iv) erred in finding that the defendants’ Summons for expert evidence was relevant and necessary (“Ground 4”).

12.  Noting that the intended appeal is one against an exercise of the court’s discretion and case management powers and that the plaintiff needed to overcome a high threshold, the Judge maintained her views and conclusions in the Decision.  By the Leave Decision, the plaintiff’s application for leave to appeal was dismissed.

The present application

13.  The plaintiff renewed its application before this court by a Summons filed on 1 November 2022, enclosing a draft Notice of Appeal setting out the four grounds of appeal which were considered by the Judge.

14.  The plaintiff and the 1^st and 2^nd defendants have respectively (on 1 and 15 November 2022) lodged written submissions.

15.  The position of Mr Man SC, leading counsel for the plaintiff, is primarily that the Judge erred in failing to find that the P-Design Argument was bound to fail (i.e. Ground 1).  He submitted that:

(1)  notwithstanding the flexibility to grant a wide range of remedies which is accorded to the enforcing court, damages for breach of an implied promise would still be governed by the usual rules on contractual damages;

(2)  the aim of an award of damages is to put the plaintiff in a position as good as if the implied promise to honour the Award had been performed, namely if the 1^st and 2^nd defendants had transferred their shares in the 4^th defendant to the plaintiff, so that the plaintiff could reap the profits from the development of the Land;

(3)  The P-Design Argument erroneously conflated the plaintiff’s claim for breach of the Agreement with breach of the implied promise to perform the Award.  The plaintiff is suing for the latter, and reference was made to [10] of this court’s judgment in CACV 158/2012 dated 10 December 2018[5] (which dealt with the parties’ applications for leave to appeal to the Court of Final Appeal), where it was stated that:

(i)    it is clear that an action on the Award is based not on a breach of the underlying contract, but of a different implied promise that arises when the parties’ dispute is submitted to arbitration and an award is made;

(ii)  any remedies granted are therefore not in respect of the original contract, but for the breach of that (later) implied promise;

(iii)  damages are not, therefore, granted in respect of the loss of bargain under the original contract, but in order to compensate for the non-performance of the award.  This is a different breach, and damages may well be different from the loss of bargain under the original agreement;

(4)  The plaintiff’s cause of action accrued at the date when the 1^st and 2^nd defendants ought to have complied with the Award, and the earliest date of which would be 27 October 2006 when the Award was issued.  Damages ought to be assessed on the earliest date on which the Award could be performed, i.e. 27 October 2006, and not at an earlier date, e.g. April 2005.

16.  In reply, Mr Benjamin Yu SC for the 1^st and 2^nd defendants argued that the plaintiff has failed to meet the threshold required for leave to appeal against a case management decision.  He submitted that:

(1)  the plaintiff’s reference to [135] of the CFA Judgment (at [12] of Mr Man’s written submissions) was taken out of context, and that the court was simply referring to what the arbitral tribunal saw in terms of what the Agreement constituted, and that the tribunal did not (nor did the Court of Final Appeal) rule that the Agreement should be rewritten so as to require the 1^st and 2^nd defendants to procure the transfer of the shares in the 4^th defendant to the plaintiff. In particular, Lord Sumption in the CFA Judgment at [180] recognised that certain conditions (such as those related to demolition, design and construction) needed to be fulfilled before the transfer of the shares;

(2)  the Agreement never contemplated any development on the Land other than in accordance with the plaintiff’s design and upon satisfaction of the various obligations of the parties set out therein, and the tribunal only directed the 1^st and 2^nd defendants to continue to perform the Agreement according to its terms, and not otherwise;

(3)  by reason of the order for split trial, the Court of Final Appeal in the CFA Judgment dealt only with the question of whether the 1^st and 2^nd defendants were liable under the plaintiff’s cause of action for breach of the implied promise to honour the Award and it was plainly not concerned with the basis upon which quantum should be assessed in the event that the question of liability was decided in favour of the plaintiff;

(4)  the Award itself directed the parties to continue to perform the Agreement (under which the plaintiff’s design was the only design contemplated);

(5)  at the hearing of the plaintiff’s application for interim payment against the 1^st and 2^nd defendants before Cheng J, the plaintiff, also referring to [10] of this court’s judgment in CACV 158/2012 dated 10 December 2018, emphasised that its complaint concerns the failure to perform the Award as opposed to the original Agreement.  Cheng J at [57] of her decision dated 16 September 2022[6] observed that while the breach of the implied promise gives rise to a different cause of action than the breach of the original agreement, the questions of (i) what position would the plaintiff have been in had the Award been performed; and (ii) should the damages for this breach be any different from the damages for breach of the original agreement, still remained;

(6)  according to Johnson v Agnew [1980] AC 367, there is no absolute rule for damages for breach of contract to be assessed as at the date of breach, and that the court, if fixing the date in such a way would give rise to injustice, has power to fix such other date of assessment as may be appropriate in the circumstances.  In any event, this is a fact-sensitive issue which should be determined at trial.

Legal principles

17.  Section 14AA(4) of the High Court Ordinance, Cap 4, provides that leave to appeal against an interlocutory judgment or order of the Court of First Instance shall not be granted unless this court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.

18.  It is a well-established principle that an applicant for leave to appeal against a case management decision of the court, which is an exercise of discretion, faces a very high hurdle.

19.  In Tsoi Yiu Chung v ING Life Insurance Co. (Bermuda) Ltd. formerly known as Aetha Life Insurance Co. (Bermuda) Ltd., unrep., HCMP 247/2011, 22 February 2011, this court (Yeung and Hartmann JJA) dealt with an application for leave to appeal by the defendant against a decision by the Court of First Instance allowing the plaintiff to re-amend its statement of claim and to file additional witness statements.  It is noteworthy that in that case, the plaintiff only indicated his intention to re‑amend and file additional evidence on 4 January 2011, when the case had been set down for a 7-day trial commencing on 2 March 2011.  In order to allow the plaintiff to re-amend and for the parties to attend to consequential matters, the judge at first instance ordered the trial dates to be vacated.

20.  This court in Tsoi Yiu Chung, in dismissing the defendant’s application for leave to appeal, concluded as follows (at [8] to [20]):

(1)  the issue to be determined was whether the judge was wrong to exercise the discretion as he did;

(2)  it has always been important and remains so to ensure that genuine disputes between the parties are properly resolved, and that the only way to do so is by proper pleadings and proper evidence.  Milestone dates can be changed, if necessary;

(3)  the re-amendment of the statement of claim was late and the re-amendments were substantial.  However, the suggestion that the defendant may have to meet a different case and that the claim will be enhanced by the re-amendment is not a sufficient reason not to exercise discretion in favour of the plaintiff.

21.  In the frequently cited authority of Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887, Kwan JA (as Kwan VP then was) held:

“31. ... Case management decisions are only subject to appeal in rare circumstances. The appellant faces a ‘very high hurdle’ and 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 need hardly be emphasised 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.”

22.  Along the same vein, in West Coast International Trading Ltd trading as Dandelion Fine Arts v Chelesa Art Co. Ltd., unrep., HCMP 1228/2014, 3 September 2014, Kwan JA emphasised (at [5]) that an appeal against a case management decision should not be lightly brought, as it is contrary to a sense of reasonable proportion and procedural economy promoted as one of the underlying objectives in Order 1A rule 1 of the Rules of the High Court (Cap 4A), not to mention that the resources of the court must be distributed fairly such that the appeal court should not be concerned with unmeritorious appeals against the exercise of judicial discretion.  See also: Tao, Soh Ngun v HSBC International Trustee Limited [2018] HKCA 691 at [57]-[67].

23.  Having considered the papers, we decided to exercise the power under Order 59 rule 2A(5)(a) of the Rules of the High Court, Cap 4A to determine this application without an oral hearing and on the basis of the written materials filed with this court.

Grounds 1 and 2

24.  The plaintiff contends that the Judge ought to have found that the arguments raised in the amendments (namely the P-Design Argument) to the Statement in Response are bound to fail at trial.

25.  At the outset, it should be noted that the Judge (at [11] of the Decision) actually agreed with the plaintiff that a consideration of a counterfactual scenario is appropriate, as opposed to that of the actual reality of what has happened, when assessing the damages to be awarded for a breach of the implied promise to perform the Award (which she duly noted is separate and distinct from the obligations created by the underlying Agreement).  It was on this footing that the Judge proceeded to consider the question of whether the amendments to the Statement in Response should be allowed.

26.  In considering the application for amendment, the Judge in our view correctly applied the principles stated by this court in Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455, wherein Cheung JA (at [25]) stated that (i) leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail; and (ii) while the court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation.

27.  In fact, as can be seen in Tsoi Yiu Chung, in some cases, where the specific circumstances of the case in question is appropriate, trial dates may be rescheduled to cater for amendment of pleadings.

28.  In our view, the Judge duly considered the merits of the case (at [12]-[25] of the Decision), and we do not consider the reasoning leading to her conclusion that the P-Design Argument (which also encompasses the dispute as to the date of assessment, i.e. the matters raised in Ground 2), is not bound to fail at trial can be faulted.

29.  Neither the Judge, nor this court, is required to delve into the substantive merits of the parties’ cases or to come to a premature determination on the merits of the parties’ arguments, including the P‑Design Argument.  The relevant question for the purpose of this application for leave to appeal is whether the Judge was plainly wrong in deciding that the matters raised by the amendments are appropriate and necessary to be resolved at trial.

30.  The Judge in reaching her conclusion made clear (at [14]) that the basis of assessment of the damages to be paid by the 1^st and 2^nd defendants for the breach of implied promise, including the date to be taken into account for the purpose of the assessment of the plaintiff’s loss, are questions for determination at trial. She also fairly accepted that the plaintiff’s arguments, however sound they may seem at this stage, are more suitably reserved to be fully canvassed at trial, at which time they may be accepted by the court (at [21] of the Decision).  The overriding factor for the Judge in reaching the conclusions she did was that since the court has power to flexibly grant remedies from a wide range of options in a common law action, it was inappropriate to shut out the 1^st and 2^nd defendants from arguing their case at trial and that it could not be said that such arguments were bound to fail and should not be permitted to be raised.  We consider this approach to be entirely sensible and correct.

31.  It should further be noted that, as pointed out by the Judge at [7] of the Leave Decision, the Decision and the matters stated therein in no way accepted any particular contention as to when the plaintiff’s damages should be assessed, nor did it contain any finding as to how and when the plaintiff’s damages should be assessed.  The Judge, in accordance with the principles stated in Natamon Protpakorn, conducted a broad brush assessment of the merits of the parties’ cases and arguments before concluding that the P-Design Argument is not bound to fail and should be left open for the 1^st and 2^nd defendants to fully argue at trial.

32.  We therefore agree with the Judge that in the circumstances the amendments to the Statement in Response ought to be allowed, and we consider that Grounds 1 and 2 are not reasonably arguable on appeal.

Grounds 3 and 4

33.  These grounds respectively raise issues of the potential impact of the amendments (and consequential matters, such as the filing of expert evidence) on the trial dates and the relevance and necessity of the expert evidence which the 1^st and 2^nd defendants sought to adduce.

34.  The Judge dealt with the question of delay and the impact on the trial dates at [13] of the Decision.  We agree with her analysis.

35.  At the time of the hearing of the application before her, the trial on quantum was still more than 12 months away.  In a case concerning a more substantial delay in amendment to pleadings which resulted in the trial dates being vacated, namely Tsoi Yiu Chung (discussed above), this court emphasised that it is important to ensure that genuine disputes between the parties are properly resolved by way of proper pleadings and proper evidence. The same principle equally applies in the present case, if not with greater force given the comparatively shorter delay by the 1^st and 2^nd defendants in bringing their amendment application.

36.  In any event, we agree with the Judge that there is no prejudice caused to the plaintiff which cannot be compensated in costs.  We therefore do not consider Ground 3 to be reasonably arguable.

37.  As regards Ground 4, namely the expert evidence issue, we note that the Judge by her Decision allowed both parties to call their own expert on the issues stated in their respective summonses for expert evidence.  The Judge, taking into consideration the complexities of this case and the history of this long drawn out litigation, decided that the issues raised by the pleadings are best considered with the assistance of expert evidence from both sides (see [31] of the Decision).

38.  Mr Man now seeks to attack the relevance and necessity of the question to be posed by the 1^st and 2^nd defendants to their expert, namely the determination of “the net profit of a development on the Land upon completion reasonably expected to be obtainable as at 30 April 2005 on the assumption that the plaintiff’s design of the development as approved by the authorities on 7 November 2003 was to be used” (see Annex to the Summons of the 1^st and 2^nd defendants filed on 19 April 2022).

39.  Mr Man’s opposition to expert evidence being adduced on this question is apparently premised upon his contention that the P-Design Argument is bound to fail, in particular the argument by the 1^st and 2^nd defendants that the date of assessment of any damages should be no later than April 2005.

40.  Having concluded above that we agree with the Judge’s decision to allow the amendments to the Statement in Response, i.e. because it cannot be said that the P-Design Argument is bound to fail and thus should be fully canvassed and determined at trial, we do not consider Ground 4 to be reasonably arguable.

Disposition and costs

41.  The plaintiff has failed to established that the Judge has misunderstood the law or the evidence or the exercise of her discretion was plainly wrong.  Accordingly, the threshold requirement for granting leave to appeal has plainly not been met.  In our view, there is no reasonable prospect of success in this intended appeal, nor is there some other reason in the interests of justice why the appeal should be heard nevertheless.

42.  For the above reasons, we refuse to grant leave to appeal to the plaintiff, and accordingly dismiss the Summons filed on 1 November 2022.

43.  As the leave application is wholly without merit, we make a further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination of this application to be considered at an oral hearing inter partes.

44.  Costs should follow the event.  We make an order nisi that the plaintiff do pay the 1^st and 2^nd defendants the costs of this application. 

45.  Having considered the statement of costs of the 1^st and 2^nd defendants for summary assessment, we consider the sum claimed therein to be reasonable and therefore propose to summarily assess the costs of the 1^st and 2^nd defendants on a gross sum basis in the amount of HK$219,730.00.

46.  Any party seeking to vary the costs order nisi shall lodge written submissions within 7 days of the handing down of this judgment, failing which the order shall become absolute.