ANTHONY ERIC RYAN HOTUNG v. HO YUEN KI AND OTHERS

HCA 1216/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1216 OF 2006

________________________

________________________

____________________

J U D G M E N T

____________________

1.  The 1^st defendant appealed against the decision of the Master given on 7 October 2016 by which the Master allowed amendments to be made by the plaintiff to the amended statement of claim. Having read the written submissions of the parties and heard oral submissions on 13 February 2017 I came to the conclusion that leave to amend the statement of claim ought not to have been granted in regard to certain of the claims advanced, differing from the decision of the Master. I therefore allowed the appeal accordingly. The Master having carefully considered the application, set out a note of his reasons, and I now do likewise.

2.  This action commenced in 2006, with the statement of claim having been issued on 6 June 2006.  It was amended on 8 July 2015, and the re-amendments allowed by the Master on this occasion were therefore advanced more than one year after the previous amendments were allowed, and approximately 10½ years after proceedings were initiated.

3.  The parties now involved are only the plaintiff and the 1^st defendant, the action against the 2^nd and 3^rd defendants having been discontinued by the plaintiff.  The plaintiff is a beneficiary under certain express trusts (referred to as "the Ho Trusts") in respect of which the 1^st defendant was appointed as trustee.  The thrust of the plaintiff's claim is that the 1^st defendant has failed in her obligations as trustee.  One particular complaint is made in regard to the sale of certain properties, and in regard to what are said to have been financial irregularities in the conduct of a company held by the 1^st defendant on trust for, amongst others, the plaintiff.  Damages for breach of trust are therefore sought.

4.  The plaintiff's proposed amendments were, for the most part, in the nature of "tidying up" and counsel for the 1^st defendant did not seek to challenge those aspects of the proposed amendments.  The battle lines were however drawn around an additional allegation which was made in the proposed amended statement of claim, to the effect that the 1^st defendant had "deliberately refused" to inform the plaintiff of his entitlement as a beneficiary upon his achieving the age of majority, or indeed, to inform him of the existence of the trusts at any time.  This averment was set out in particular at paragraph 49A of the re-amended statement of claim, by which the plaintiff set out a claim to "exemplary damages against the 1^st defendant for outrageous and reprehensible breach of trustee's duties...".

5.  Particulars of the alleged breach were set out in the proposed amendment, and included allegations that the 1^st defendant had not only failed to discharge her duties as trustee but had also "deliberately and consistently obstructed the plaintiff's attempt to obtain further information about the [trusts]... so as to delay any redress to which the plaintiff as beneficiary should be entitled".  It was further alleged that the 1^st defendant had "wilfully ignored and/or failed to comply with court orders" relating to the proper administration of the trusts.

6.  In light of those allegations the 1^st defendant was said to have been in blatant and continuous breach of trust such that an award of exemplary damages against her was warranted.

7.  There is no issue between the parties as to the existence of the Ho Trusts, nor as to the 1^st defendant's position as trustee or the general ambit of a trustee's duties in regard to conduct and management of trust property.  The 1^st defendant does not accept that she has been in breach of her obligations in regard to these trusts or in regard to the plaintiff as a beneficiary under the trusts.

Background

8.  Although this matter commenced in 2006 I was informed that no trial date has yet been set.  A Case Management conference is scheduled for late April 2017.  Some considerable time was taken up, it appears, by an ultimately unsuccessful strike out application made by the 1^st defendant in September 2009, which application was rejected by the Court of Appeal in December 2010.  A rather longer period of time then ensued in which neither party, it appears, took steps to proceed with the litigation and it was, according to the 1^st defendant, only upon its issue of a Notice of Intention to Proceed in 2015 that the plaintiff reactivated the case and issued its earlier summons for leave to amend the statement of claim.  It is relevant to note that the amendments which were made in 2015 were substantial; essentially rewriting the statement of claim entirely.  It is also pertinent to note that in that amendment process a prayer for relief which had originally been advanced for "punitive damages, aggravated damages and exemplary damages..." was deleted.

9.  Evidence was filed on behalf of the 1^st defendant (who I understand is now 92 years of age) to the effect that, due to age and infirmity, it was unlikely that she would be able to give meaningful instructions in regard to any new allegations, and it was submitted, it was unlikely that she would be in a position to give evidence at any trial.  I understand she has previously been unable to give evidence in an associated matter.  This evidence was not disputed or controverted by the plaintiff.

The principles

10.  There was no real dispute between the parties as to what the relevant principles are; they differed as to their application however.  It was accepted by counsel for the plaintiff that an amendment was necessary to seek exemplary damages, this being a matter which required specific pleading.  As summarised by counsel for the plaintiff, in broad terms the principle is that amendments ought to be allowed where the purpose is to assist with determining the real question in controversy between the parties, or for correcting any defect or error that has arisen in the proceedings.  Again, in general terms, leave is readily granted to amend before the trial unless it can be demonstrated that the proposed claim is bound to fail.  The rationale behind the formulation of pleadings and a fortiori, the amendment of pleadings is to fairly and precisely inform the other party in the litigation of the stance of the pleading party.

11.  It is not controversial that a proposed amendment will be refused when this would cause prejudice to the other party which cannot be compensated by costs.  This is reflected in order 20, rule 8(1A) by which the discretion to allow an amendment is subject to the court being satisfied that the proposed amendment is "necessary" either to save costs or to fairly dispose of the dispute between the parties.

The contentions of the Parties

12.  The plaintiff contended that the disputed amendment was one which flowed from the existing facts pleaded and the existing cause of action for breach of trust.  Paragraph 49 of the amended statement of claim already contained allegations that the 1^st defendant had obstructed the plaintiff in his attempts to obtain information relating to the trusts, and had thwarted the plaintiff from preserving the value of the assets in the trusts.  The additions sought to be made by the proposed amendments were, in effect, elaborations of that existing plea, to which was added the additional claim for relief by way of the exemplary damages claim.  Thus, it was contended, the proposed amendment stemmed from the facts already pleaded in the existing amended statement of claim.

13.  This proposition was bolstered by the plaintiff by reference to the witness statements which had previously been exchanged, and by reference to certain evidence given by the 1^st defendant in cross examination in associated litigation, touching on the non-disclosure of the existence of the trusts by the 1^st defendant.  In reliance upon that material the plaintiff submitted that the need for further evidence from the 1^st defendant was doubtful, since she had already addressed why it was that there had been no such disclosure to the plaintiff upon his reaching his majority, or thereafter.

14.  The 1^st defendant, through counsel, did not accept the proposition that there would be no need for further factual investigation, submitting that there was a significant difference between an allegation the trustee had failed in her duties as trustee, and an allegation that she had deliberately concealed certain matters from the beneficiaries.  It was accepted on behalf of the 1^st defendant that the existing pleadings contained allegations of obstructive behaviour on the part of the 1^st defendant, but counsel contended that, with no claim for relief dependent upon those allegations, they were matters which the 1^st defendant had no necessity to address in the earlier preparation of evidence.

15.  Thus, in large measure, the submissions of the 1^st defendant were addressed to the prejudice that would suffered if these amendments were allowed.  The age and infirmity of the 1^st defendant has already been mentioned.  The relevant events took place at least 16 years ago, and potentially longer ago, since the plaintiff attained his majority in 1987.

16.  Submissions were also addressed on behalf of the 1^st defendant to the availability of a limitation defence were these matters raised by way of a fresh action, and the possible availability of a defence of laches on the part of the plaintiff in bringing these claims.

Determination

17.  It clear that these allegations are serious in nature, and the matters canvassed are of importance to both parties.  This, in my view, militates in favour of the amendment being allowed, as does the fact that no prejudice to a trial date or other significant milestone date will be caused.

18.  It is also correct to say that, in a broad sense, these allegations arise out of facts which are already pleaded by the plaintiff, and are closely associated with matters already in controversy between the parties.

19.  However, I accept the submission of the 1^st defendant that the facts required to support a claim for exemplary damages are different from those required to support a claim for "mere" breach of trust in failing to maintain trust assets.  Given the "punitive" nature of exemplary damages the court should, ordinarily, be entitled to expect, and provide an opportunity for, an explanation of the relevant conduct to be given by the defendant to such a claim.  It seems clear however that there is no realistic prospect of such an explanation being available in the present case, significantly hampering, at the lowest, any assessment of such damages.

20.  It is also likely that allowing the amendment may prolong the proceedings.  This is of significance, it seems to me firstly in the context of the age of the 1^st defendant, and secondly in the context of the length of time over which these proceedings have been running.  I have no doubt that this application is to be considered a "late" application in the context of proceedings which have been on foot for 10 years even though no trial date is imminent.

21.  Perhaps most importantly however it seems to me is the fact that the 1^st defendant will, through no fault of her own, it appears, be unable to respond to these new allegations, or to give proper instructions for the pleading of a defence to them.  This is a prejudice which cannot be compensated for costs.

22.  For these reasons, I disagree with the view taken by the Master, and do not agree that leave should be given for the proposed amendments.  In those circumstances I allowed the appeal, with costs of the appeal, and below, to the 1^st defendant.