KEEN LLOYD ENERGY LTD. v. BANK OF CHINA (HONG KONG) LTD.

HCA 1299/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1299 OF 2004

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D E C I S I O N

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1.  The Registrar on 21 December 2005 granted leave to the Plaintiff to amend its Indorsement of Claim and to file and serve the Statement of Claim within seven days thereafter.  The Plaintiff duly amended the Indorsement of Claim and filed the Statement of Claim on the same day.  The Defendant on the same day filed a notice of appeal against the Order of Registrar.  In addition, the Plaintiff also issued a summons to strike out the Amended Writ of Summons endorsed with the Amended Indorsement of Claim and the Statement of Claim on the ground that they disclose no reasonable cause of action.

Background

2.  The Plaintiff issued a Write of Summons against the Defendant with an Indorsement of Claim for damages of HK$5 billion for fraudulent misrepresentation made “in or about December 1997 to the Plaintiff, inter alia, that the Defendant could and subsequently had increased the Keen Lloyd Group of Companies (“the Group”) credit facilities with the Defendant from HK$1.8 billion to HK$2.3 billion, when the Defendant could not and did not increase such facilities to the Group”. 

3.  The Defendant filed an acknowledgement of service on 4 July 2004.  The Plaintiff did not file any Statement of Claim.  On 6 October 2005, it filed a notice of intention to proceed.  On 12 December 2005, it issued a summons to amend the Indorsement of Claim and to file the Statement of Claim.  It wanted to amend the Indorsement to say that the misrepresentation, which was made fraudulently, recklessly or negligently during the period from July 1997 to around the end of 1998, was that the Defendant could increase the general banking facilities from HK$1.656 billion to HK$3.080 billion and the facilities could be used by the Plaintiff as well as Keen Lloyd Motors Limited and Keen Lloyd Resources Limited, but the Defendant failed to honour the representation.  The amendment also sought damages for breaches of a contract in respect of the said increase of credit facilities.  I have already said that the Registrar allowed this summons on 21 December 2005 and the Defendant appealed against that order.

Appeal on the ground of Limitation

4.  The Defendant's ground of appeal is based on the law of limitation.  It argued that the amendment had brought in new claims that were not statute barred on the day when the writ was first issued but were barred on the day when the summons to amend was issued.

5.  Mr Chow, leading counsel for the Defendant, submitted that if the Plaintiff should maintain that the new claims were not barred on the day when the summons was issued, it could issue a new writ for these claims instead of including them in this action by amendment.  To make good his submissions that the amendment to the Indorsement had brought in new claims, Mr Chow also referred to the contents of the Statement of Claim. 

6.  The Amended Indorsement of Claim and the Statement of Claim reveal that the Plaintiff's claim as originally set out in the Indorsement had been changed and expanded from one misrepresentation made in about December 1997 to two misrepresentations.  They were allegedly made between July to December 1997 and between early to late 1998 respectively.  The 1^st misrepresentation was said to have been made negligently or recklessly.  It stated that the general banking facilities would be increased from HK$1.656 billion to HK$2.4 billion.  The 2^nd misrepresentation was said to have been made fraudulently, recklessly or negligently.  It stated that the general banking facilities would be increased from HK$2.4 billion to HK$3.080 billion.  The amendment thus brought in a new claim grounded on the second misrepresentation.  It also added an alternative claim for damages for breach of a contract that arose from the 2^nd misrepresentation.

7.  Mr Chow further submitted that if new claims are added by way of amendment, section 35(1) of the Limitation Ordinance would deem them to have been commenced on the same date as the original action.  If they are not barred on the commencement date of the original action, but are barred on the date when the summons to amend is issued, to include them by amendment after they have been barred would defeat the defendant's defence of limitation because of deeming effect of section 35(1) of the Ordinance.  In such case, the defendant would be prejudiced by section 35(1).  However, if the new claims are already barred on the commencement date of the original action, section 35(1) would not create such prejudice as the deemed commencement date would still be after the expiry of the limitation period.

8.  Thus in cases where the defendant may be prejudiced by section 35(1), it is for the plaintiff should to show that the defendant has no reasonably arguable defence of limitation to the new claims or that the plaintiff can bring the new claims within sections 35(5) and (6) of the Ordinance and O. 20 r. 5(5) of the Rules of the High Court.  Mr. Chow further submitted that the Plaintiff has not done so in this case and leave to amendment should not have been given. 

9.  The relevant parts of section 35 are as follows:

“	(1)	For the purposes of this Ordinance, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced-
		(a)	…; and
		(b)	in the case of any other new claim, on the same date as the original action.
	(2)	In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either-
		(a)	the addition or substitution of a new cause of action; or
		(b)	…,
	….
	(3)	Except as provided by section 30 or by rules of court (which are not relevant here), the court shall not allow a new claim within subsection (1)(b), other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Ordinance which would affect a new action to enforce that claim.
	(4)	...
	(5)	Rules of court may provide for allowing a new claim to which subsection (3) applies to be made as there mentioned, but only if the conditions specified in subsection (6) are satisfied, and subject to any further restrictions the rules may impose.
	(6)	The conditions referred to in subsection (5) are-
		(a)	in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment; and
		(b)	...”

10.  The relevant parts of Order 20 rule 5 also provide as follows:

“	(1)	Subject to Order 15, rules 6, 7 and 8 and the following provisions of this rule, the Court may at any stage of the proceedings allow the plaintiff to amend his writ, or any party to amend his pleadings, on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.
	(2)	Where an application to the Court for leave to make the amendment mentioned in paragraph (3), (4) or (5) is made after any relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so.
	(3)	...
	(4)	...
	(5)	An amendment may be allowed under paragraph (2) notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment.”

11.  I am also referred to Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409 at 1425F-H where the English Court of Appeal said:

“

We now wish to make it clear that, though the test applied in Leicester Wholesale Fruit Market Ltd v Grundy [1988] 1 WLR 107 was the correct test in the circumstances of that case, in which section 35(1) gave the plaintiff no advantage, it was unnecessary for the decision in that case to disagree with what Purchase LJ said in Grimsby Cold Stores Ltd v Jenkins & Potter (1985) 1 Const. LJ 362, 370.  Our view is that Judge Hicks was correct in concluding that where section 35(1) does, or may well, give the plaintiff an advantage a different test, namely that enunciated by Purchase LJ in the Grimbsy Cold Stores case, should be applied.  In such a case, leave to amend by adding a new claim should not be given unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation which will be prejudiced by the new claim, or can bring himself within R.S.C., Ord. 20, r. 5.”

Section 35(1) of our Limitation Ordinance is the same as section 35(1) of the Limitation Act of 1980 as discussed in Welsh Development Agency.  Our Order 25 rule 5(5) is also the same as the one as discussed in this case.

12.  Mr Chow thus submitted that the new claims sought to be added by the amendment herein might not have been barred on the date when the action was commenced but had obviously been barred when the summons to amend was issued.  These claims are also outside the scope of sub-sections 35(5) and (6) of the Ordinance and O. 20 r. 5(5) of the Rules of the High Court.  He therefore submitted that as the Plaintiff has not shown that the defendant has no reasonably arguable defence of limitation to these new claims, the Registrar should not have granted leave. 

13.  Mr Yuen, leading counsel for the Plaintiff disagreed.  He submitted that the amendment was rightly allowed.  The Defendant could plead and argue the limitation defence in respect of any new claim that might have been brought in by the amendment.  This defence would be adjudicated at the trial.  He did not think that the Defendant would be prejudiced by the deeming effect of section 35(1) of the Ordinance if the new claims were not barred by limitation at the commencement of the action but were so barred when the summons to amend was issued.  He submitted that section 35(1) would not operate in such scenario. 

14.  I regret that I cannot accept Mr. Yuen's submission as it is contrary to the plain meaning of section 35(1).  I agree with Mr. Chow's understanding of the effect of section 35(1).  I agree that the law has been set out correctly in Welsh Development Agency.  I now consider whether the new claims are covered by the objection raised by Mr Chow. 

The 2^nd misrepresentation

15.  The first misrepresentation as originally pleaded in the Indorsement of Claim was allegedly made in about December 1997 that the general banking facilities would be increased from HK$1.8 billion to HK$2.3 billion.  After the amendment, it became a misrepresentation made from around July 1997 to around the end of 1998 that the general banking facilities would be increased from HK$1.656 billion to HK$3.080 billion (mistakenly typed as millions). 

16.  The Statement of Claim as filed pursuant to the leave granted revealed that there were in fact alleged two misrepresentations made at different times for the general banking facilities to be increased to different levels. 

17.  Mr Yuen argued that the amendment did not introduce two misrepresentations but that the two misrepresentations in fact constituted part and partial of the same transaction.  I do not agree.  The misrepresentations as introduced by the Amended Indorsement of Claim and elaborated in the Statement of Claim clearly refer to two distinct causes of action.  I refer to them as causes of action without prejudice to whether they should be struck out.  They were allegedly made at different times with different contents.  They meant to give the Plaintiff different facilities.  Indeed the Plaintiff did not plead that the Defendant had failed to provide the facilities as alleged in the 1^st misrepresentation although Mr Yuen said that when the facilities were withdrawn, that resulted in both the first and second representations being false.  The 2^nd misrepresentation is thus a new cause of action.  It is also not within the scope of sub-sections 35(5) and (6) of the Ordinance or O. 20 r. 5.

18.  Regarding the limitation for this cause of action, section 4(1)(a) of the Limitation Ordinance provided a limitation period for negligent misrepresentation of six years from the accrual of the cause of action.  The cause of action would have accrued when damages accrued (see para. 5.002 of Limitation Periods by A McGee, 4^th edition).

19.  The 2^nd misrepresentation was made between early to late 1998.  The Plaintiff would have suffered the loss when the Defendant failed to provide the increased general banking facilities at HK$3.080 billion.  That failure should have come about soon after the making of this misrepresentation.  The limitation period of six years would thus have expired before 12 December 2005.  If this claim was made on 1 June 2004 when the writ of summons was first issued, it might not have been barred as six years before this day would be 1June 1998 when the representation might not have been made.

20.  If the misrepresentation was a fraudulent one, section 26(1) provides that the period of limitation shall not begin to run until the Plaintiff has discovered the fraud or would have discovered it with reasonable diligence.  The nature of the 2^nd misrepresentation, if of fraud, should have been discovered soon after it was made as the facilities never reached the ceiling as allegedly promised.  The limitation period should thus have expired before 12 December 2005.  I think the 6 year limitation period should apply in case the misrepresentation was a reckless one.

21.  If the Plaintiff would like to introduce this new claim of misrepresentation by amendment, it should show that the Defendant on the date of summons had no reasonably arguable defence of limitation to it.  The Plaintiff has not done so before the Registrar or on appeal.  I agree that it should not be granted leave to introduce this new claim.

The Contract

22.  The contract as pleaded was made in early to late 1998.  If arose out of the 2^nd misrepresentation.  It required the Defendant to increase the general banking facilities from HK$2.4 billion to HK$3.080 billion.  The alleged breach was the Defendant's failure to provide the HK$3.080 billion facilities.  I hold that it is a new cause of action not within sub-sections 35(5) and (6) or O. 20 r. 5.  There was no pleading as to when the increased facilities should be available.  The law would imply a reasonable time after the contract was made.  The reasonable time could not be as long as 12 months and it should also have expired before 12 December 1999.

23.  The limitation for contract is six years from the date of accrual of the action.  That is generally the date of breach.  In this case, it was the expiry of the reasonable time.  The limitation period has thus expired six years from the lapse of the reasonable time and it would have expired before 12 December 2005 when the summons was issued. 

24.  If this claim was made on 1 June 2004 when the writ was first issued, it might not have been barred as six years before this day would be 1June 1998 when the representation might not have been made or the reasonable time not yet expired.

25.  In these circumstances, it was again necessary for the Plaintiff to show that the Defendant had no reasonably arguable defence of limitation to the breach of contract claim as at 12 December 2005 before this claim could be introduced by the summons to amend.  The Plaintiff had not done so and leave should not have been granted for this claim to come in by amendment. 

26.  I therefore set aside the leave granted to the Plaintiff to amend the Indorsement of Claim and to serve the Statement of Claim.  I also order the costs of the appeal and below be paid by the Plaintiff to the Defendant.

Striking out

27.  Having allowed the appeal, it is not necessary for me to deal with the summons to strike out as the same result has already been achieved by allowing the appeal.  However, I would briefly deal with it in order to made plain the merits so as to justify the costs order for this summons.

28.  Mr Chow argued that the alleged representations were not really representations but were promises and there was no remedy for a breach of a promise.  Mr Yuen counter argued that the representations were not promises as they contained implied warranties or implied representations that the Defendant could lawfully do what it had represented.  If, by implied representations, Mr Yuen was referring to what one may comprehend by reading between the lines, then I do not think I can reach the same understanding as he did.  I also do not think the criteria in the case of BP Refinery (Westernport) Pty Ltd v President and Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 for implied terms would be applicable here.  I therefore agree that it is plain and obvious that these so-called representations, which were mere promises, do not disclose any reasonable cause of action and should be struck out.

29.  On the contract, Mr Chow argued that there is no plea of offer and acceptance or what was the agreed consideration in support of the contract.  Mr Yuen replied that the consideration was the Plaintiff's retention of the Defendant as the main banker and the charging of properties and assets by debenture and otherwise by the Plaintiff in favour of the Defendant as security for the facilities.  However, there is no pleading of such and I think the plea about contract should also be stuck out. 

30.  In addition, the Plaintiff has pleaded certain implied terms to the contract.  I agree with Mr Chow that these terms cannot be implied as it was not necessary to have them for the sake of business efficacy (see BP Refinery (Westernport) Pty Ltd).

31.  In the premises, I would also strike out the Amended Writ of Summons with be Amended Indorsement of Claim and the Statement of Claim with costs of this summons to the Defendant.  The Writ of Summons with the original Indorsement of Claim will be restored.

32.  Though the appeal is allowed, I understand that the Defendant has no objection for the particulars of the 1^st misrepresentation in the original Indorsement of Claim to be clarified.  I would leave the Plaintiff to effect the clarifications by way of amendment to the original Indorsement.