WING SIU CO. LTD. v. GOLDQUEST INTERNATIONAL LTD.

CACV 225/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 225 OF 2002

(ON APPEAL FROM HCA NOS. 3183 AND 4145 OF 2001)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This is an appeal from a judgment of Ma J, as he then was, given on 15 April 2002 with the reasons for the decision given on 23 April 2002. At the conclusion of the hearing this court dismissed the appeal with costs and ordered that there be an immediate payment of costs on account under Order 69 rule 9(2)(a) of $100,000. In doing so, this court indicated that it would give its reasons in writing which we now do.

The decision below

2. The application in the court below was an appeal from the order of the Master dismissing the action on the basis that the action was an abuse of process. There was also an application to appeal out of time a decision in another action refusing an amendment which had sought to raise the matter that was said should not be raised in this action. That aspect will be referred to below.

3. The defendant's argument that this action was an abuse of process stems from the fact that it is the second action brought by the plaintiff arising out of a lease of office premises in Dah Sing Financial Centre, Wanchai. The lease was dated 11 October 1999 and was for a period of three years finishing on 10 October 2002. Towards the end of the year 2000, the defendant found that the premises were too small for its requirements. It wished either to take additional premises or, if it could not take additional premises which were convenient, to assign its existing lease. It was unable to obtain the plaintiff's cooperation in this regard. The defendant then ceased paying rent, office rates, management fees and other charges. It did not take the plaintiff very long before the first action was started in the District Court on 19 January 2002. That action was eventually transferred to the High Court and was numbered HCA 4145 of 2001. That will referred to as the "first action".

4. Shortly after the first action was commenced the defendant sought to terminate the lease unilaterally. It returned the keys to the premises to the plaintiff under cover of a letter dated 22 January 2001. The plaintiff considered that this was a repudiation of the lease and accepted the repudiation by a letter dated 6 February 2001.

5. The statement of claim in the first action was served on 14 February 2001. Although in paragraph 5 of the statement of claim reference is made to the acceptance of the defendant's repudiation, that, as Ma J said, was in the context of limiting the claim for damages and rates to the period up until 6 February. The statement of claim also claimed damages based on the plaintiff's legal costs on an indemnity basis. A defence and counterclaim was filed in March 2001 and, thereafter, the plaintiff sought summary judgment. That application came before Master S. Kwang in May 2001. The order made on the application was for payment of a sum of $354,252.00 together with interest. That was in respect of the rent and other amounts claimed other than the legal costs on an indemnity basis. Execution of the judgment was stayed pending the determination of the counterclaim.

6. In June 2001, the plaintiff applied to amend the statement of claim in the first action by adding a claim for damages for wrongful repudiation of the lease. Master Au-Yeung refused the amendment on the basis that the repudiation alleged by the plaintiff had occurred after the date of issue of the writ. In might be added that the application was heard on a three-minute hearing and the defendant's solicitors did not object to the amendment.

7. In July 2001, the plaintiff commenced these proceedings ("the second action"). The writ claimed damages for wrongful repudiation. In addition to rental and other charges the plaintiff claimed the cost of reinstatement and restoration of the premises. In August 2001, immediately on service of the statement of claim in the second action, the plaintiff applied for summary judgment. This prompted the defendant to apply to have the second action dismissed on the basis that it sought to raise matters which should have been raised in the first action. When the matter came before Master Wong in January 2002 she dismissed the second action. From that dismissal the appeal was brought before Ma J.

8. Ma J's decision was clear. He held that Master Au-Yeung's decision was, in the first place, binding on the parties and, in the second place, was correct. The proposition that a cause of action cannot be added by amendment, without consent of the parties, if it arose after the issue of the writ was one which had been stated by the Court of Appeal in Lark International Finance Limited v Lam Kim Marisa [2000] 4 HKC 688. On the basis that the cause of action in respect of repudiation could not be included in the first action, the principle based on what has been termed the wider meaning of res judicata, as contained in Henderson v Henderson (1843) 3 HARE 100 at 115 per Wigram V-C, and more recently described as an abuse of process by the Privy Council in Yat Tung Investment Co. Limited v Dao Heng Bank Limited [1975] AC 581 see Lord Kilbrandon at 590A, was inapplicable.

9. Mrs Chan, on behalf of the defendant, took issue with the proposition stated by Keith JA in Lark International Finance Limited v Lam Kim Marisa and Another [2000] 4 HKC 688. He had stated at 699I-700A:

"It is well established that a statement of claim, whether indorsed on the writ or not, cannot be amended, without the defendant's consent, whether with the leave of the court or not, where the effect of the amendment is to add a cause of action which accrued since the issue of the writ: see Eshelby v Federated European Bank Ltd [1932] 1 KB 254 (Swift J), Roban Jig & Tool Co Ltd v Taylor [1979] FSR 130 (Court of Appeal) and Chu and Chow Maritime SA (Panama) v Bulk Sea Transport (Neill J) (Times, 25 February 1984, unreported)."

Whilst Keith JA expressed that view in absolute terms that might give rise to the impression that it were a rule of law, the very fact that the formulation used included an exception where there was the consent of the defendant would indicate that the rule is, on its face, not an absolute rule. Indeed Swift J's statement in the Eshelby case at page 262 was as follows:

"The Court is limited in giving its leave to the powers which are conferred upon it by the Rules and by the statute under which those Rules are made, and I cannot see how, without the consent of the parties, the Court can so amend a writ as completely to change the cause of action so as to bring in a cause of action which was non-existent at the time the writ was originally issued."

10. The rule that a cause of action which arose after the date of the issue of the writ cannot be included in the claim is linked with the "relation back" theory, namely that the amendments to a pleading relate back to the date of the pleading. Although the relation back theory is the normal rule, it cannot be regarded as absolute in all situations. Brandon L.J., as he then was, in the case of Liff v Peasley and Another [1980] 1 WLR 781, pointed to some of the limitations in the theory when he said at page 803D-E:

"There is, in my view, a high degree of artificiality and unreality about the 'relation back' theory. There is no reason to quarrel with the general preposition that an amendment of a writ or a pleading relates back to the original date of the document amended, as stated by Lord Collins M.R. in Sneade v Wotherton Barytes & Lead Mining Company [1904] 1 K.B. 295, 297. This seems to me to be an entirely sensible proposition so long as the amendment concerned does not involve the addition of a new party, either as plaintiff or defendant, or the raising of a new cause of action, but involves only the modification, by addition, deletion or substitution, of pleas of averments made between existing parties in respect of a cause or causes of action already raised. Where, however, the amendment concerned involves the addition of a new party or the raising of a new cause of action, it appears to me to be unrealistic and contrary to the common sense of the matter to treat it as relating back in the same way."

11. Lord Brandon referred to this statement in respect of the relation back theory in his speech in Ketteman and Others v Hansel Properties Limited and Others [1987] 1 AC 189 at 210D-H. What was said in those cases does not, of course, impinge upon the question of whether a cause of action which had arisen after the date of the writ could be included as part of the claim by later amendment.

12. In the case of Vax Appliances Limited v Hoover Plc [1990] RPC 656, Mummery J, as he then was, dealt with an application to amend a counterclaim in a patent action. The defendant had been sued in respect of infringement of a patent for a cleaning head. Initially the counterclaim had sought revocation of the patent. Later the defendant had redesigned the cleaning head which it manufactured and sought a declaration of non-infringement by the redesigned head as part of the counterclaim. The application to amend the counterclaim met with the argument that the cause of action for a declaration of non-infringement had arisen after the date of the original counterclaim. Mummery J said at page 661, lines 27-29:

"I do not find in the rules or in the cases any absolute rule against granting leave to amend to introduce a new cause of action which has arisen since the date of the writ or the relevant pleading."

He then went on to distinguish those cases where a plaintiff had no cause of action at all at the date of the writ, specifically a situation where if the cause of action was subsequently acquired and the original writ would be incurably bad. He also distinguished cases such as Eshelby where the amendment had to be made to the writ which, by reason of the application of the "relation back" doctrine, meant that the writ would pre-date the cause of action.

13. In the Vax case, Mummery J adopted a benevolent view towards the amendment sought in the counterclaim in that he came to his decision on the basis that it did not constitute a wholly new cause of action. He clearly regarded it as convenient to allow the introduction of the claim of non-infringement because the same arguments might also have affected the form of the injunction which would be granted.

14. There were two further decisions which Ms Chan relied upon. The first was Hendry v Chartsearch Limited [1998] CLC 1,382. That case concerned breaches of three agreements which had been entered into by the defendants with a company owned by the plaintiff and his wife. The plaintiff alleged that the defendants had also induced the company's employees to break their contracts. Amongst other applications which were made, was one by the plaintiff to amend the pleadings to rely on an assignment of what was termed the third contract. The assignment had been taken after the date of the writ. The third contract contained no provision restricting assignment. In paragraphs 19 to 23 of the judgment Evans LJ considered the cases of Vax and Eshelby. At paragraph 24 he said:

"I therefore proceed to consider whether leave should be granted in the present case. The statement of claim in its original and amended forms contains a clear statement of the causes of action relied upon under the exploitation agreement. The claims are made in the name of the plaintiff although it is also pleaded that the contracting party was Interface (the company). The purpose of the re-amendment is to specify the reason why the plaintiff alleges that he is entitled to bring the claim. The cause of action remains the same: the additional facts cause no prejudice or embarrassment to the defendants. I cannot see any ground for refusing leave to make the re-amendment, and as the exploitation agreement does not contain an assignment clause there is no contractual basis for objecting to the amendment. In any event, I do not consider that the tort claim so lacks 'viability and substance' that the case is equivalent to Roban Jig, where the plaintiff had no existing cause of action at the date of the writ." (Underlining added)

15. That decision of the Court of Appeal was referred to and followed in the case of Maridive & Oil Services (SAE) and Another v CNA Insurance Co. (Europe) Ltd [2002] 2 Ll. Rep. 9. Mance LJ referred to paragraph 23 of the judgment in the Hendry case which read:

"The scope of the Rules of the Supreme Court has been extended since the days when Eshelby was decided in 1932. In accordance with modern practice generally, the court has a general discretion which should not be restricted by hard-and-fast rules of practice, if not of law, such as that which is suggested here. The judge therefore was wrong to consider that the court had no power to give leave to make the re-amendment. ... It is a general power which in modern parlance has to be exercised in accordance with the justice of the case."

16. But after referring to that passage he then encapsulated what was said in paragraph 24 of Hendry case, specifically, the parts which have been underlined above, and said

"We are in my view bound by Hendry v Chartsearch Ltd which appears to me also to reflect the modern approach."

17. The distinction which was thus drawn by the Court of Appeal in the case appears to be between permitting an amendment which allows the real dispute in the case to be determined and one which introduces into the action a cause of action which could be said to be incurably bad because it did not exist at the date of the original claim. Both Ward LJ and Chadwick LJ in the Maridive case expressed the view that there should be a flexible attitude dependent on the justice of the case.

18. In the light of those cases it cannot be said that the original rule in the Eshelby case has disappeared. The courts in England have clearly been disposed to adopt a more flexible attitude, specifically, where they have permitted the pleading of subsequent events which clarify why a claim could be made based on a cause of action which existed at the date of the issue of the writ. No decision has been brought to our attention which has gone so far as permitting, in the face of opposition, an amendment which would introduce into a writ a cause of action which simply did not exist at the date of the issue of the writ.

19. In those circumstances Master Au-Yeung was clearly justified in refusing the amendment whereby the plaintiff had sought to plead the cause of action based on repudiation. Indeed, even if Master Au-Yeung's decision had simply been an exercise of discretion it was an exercise of discretion which was justifiably exercised and was, as Ma J said, binding upon the parties. In those circumstances any suggestion that this action, the second action, was an abuse of process was and is entirely groundless.

20. It should finally be mentioned that the application before Ma J was not only an appeal against the order of Master Wong striking out the statement of claim in the present action but was also an application for leave to appeal out of time against the order of Master Au-Yeung. Those applications were quite understandably brought on together since it was the plaintiff's case that it should be allowed to bring a claim in respect of the wrongful repudiation of the contract in one or other of the actions. Ms Chan's answer to this was that the claim should have been brought in the first action but that, because the plaintiff had already sought summary judgment in the first action and obtained an order, it was too late for the cause of action for wrongful repudiation to be added to that action. That argument was wrong for two reasons. In the first place, Master Au-Yeung refused the application because the cause of action had arisen after the date of the writ. In any event, the order on the summary judgment application was only in partial satisfaction of the plaintiff's claim. Part of the plaintiff's claim, namely that for damages based upon the indemnity costs which the plaintiff claimed, was left over to be decided later.

Hon Le Pichon JA:

21. I agree.