CHEUNG WEI MAN VIVIEN v. CHAN KIM THIAM AND OTHERS

HCA 286/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 286 OF 2000

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REASONS   FOR   DECISION

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1.  On 14 March 2006, the 20^th day of the trial, after close of the Plaintiffs’ case and in the midst of the evidence of the 2^nd Defendant, Mr Chang SC applied for leave to further amend the Re-re-Amended Statement of Claim.  According to counsel, the amendments were to make clear that,

(a) In the context of the second of the five representations pleaded in Paragraph 21 of the Statement of Claim, namely the unauthorized structure representation (paragraph 21.2), the Plaintiffs would rely on the context in which, according to the evidence of the Plaintiffs’ witnesses, Kang told the Plaintiffs during inspection that the vendor had informed the Defendants that consent for alterations at the subject property had been obtained in order to contend that it amounted to a representation that the structure was authorized;

(b)    The Plaintiffs contend that the context in which the representations were made includes failure on the part of the Defendants to advise the Plaintiffs that the Defendants had not made any independent verification regarding the legality of the alterations and the financial standing of the vendor.  This formed part of a misleading context under which the other representations should be considered.

2.  The application was strenuously opposed by the Defendants.  Counsel made extensive submissions over two days.  Ultimately, this court granted leave to amend on 15 March 2006.  The following are my reasons for the decision.

The existing pleas in the Statement of Claim

3.  I would start by analyzing what causes of action have been pleaded against the defendants in the original pleadings.  Although Paragraphs 25 to 27 pleaded several causes of action against the 1^st Defendant and the 2^nd & 3^rd Defendants respectively, all those paragraphs were prefaced by explicit reference to facts and matters pleaded earlier.  Paragraphs 25 to 27 should not be read as pleading new claims independent of previous paragraphs.  Hence, one must refer to those earlier paragraphs in discerning what were the claims advanced in the original pleadings. 

4.  After pleading the background and some material events, the pleader formulated the Plaintiffs’ case in terms of five representations set out in Paragraph 21.  He went on to plead inducement in Paragraph 22, falsity of representations in Paragraph 23 and knowledge of the Defendants in Paragraph 24.

5.  Mr Ronny Wong SC submitted that the five representations formed the backbone of the Plaintiffs’ claim.  In my judgment, that is a fair description and it is also borne out by the Plaintiffs’ written opening.  In Paragraphs 77 to 83 of the opening, Mr Chang gave a summary of the Plaintiffs’ case on the facts and it was basically a synopsis regarding the five representations.  Paragraphs 84 to 105 of the opening were the legal analysis on how the five representations fit into the respective causes of action, viz. deceit, Misrepresentation Ordinance, negligence and breach of contract, breach of fiduciary duty.  There is nothing in the opening to suggest that there were any causes of action stemming from matters other than the five representations.

6.  Given the arguments of counsel, it is necessary to analyse the nature of the negligence claim at greater length.  The original pleadings apparently advanced the claim as one for misrepresentation, hence the structure of the pleadings in Paragraphs 21 to 24 set out above.  In addition to contractual claim against the 1^st Defendant based on negligent misrepresentation, tortious claims were also advanced against all the Defendants.  In the context of torts, misrepresentations could sustain claims in deceit (based on fraudulent misrepresentations) and claims in negligence, see the discussion in Treitel, The Law of Contract, 11^th Edn, p. 341-50.  The latter, based on developments from Hedley Byrne v Heller [1964] AC 465 is more commonly known as claims based on negligent misstatements.

7.  Mr Ronny Wong and Mr Horace Wong SC submitted that the Plaintiffs had not pleaded a claim based on negligent misstatements in the original pleadings.  In particular, Mr Ronny Wong stressed that there was no plea of the Defendants giving any advice (as opposed to mere representation, information or notification) to the Plaintiffs.  Mr Horace Wong submitted that there was no plea of special relationship of proximity which is essential to a claim based on negligent misstatement and he referred to Hydrocarbons v Cammell Laird (1991) 25 Con LR 131 to illustrate how such a claim should be pleaded and the distinction between a plea of negligence in act and that of negligence in words.

8.  On the other hand, Mr Chang submitted that a claim for negligent misstatements had already been pleaded and counsel took the court through several paragraphs scattered at different parts of the pleadings (some in the Statement of Claim and some in the Reply) to demonstrate that the essential ingredients to sustain such claims had been set out.  Mr Chang further highlighted that in his written opening, reference had been made to Henderson v Merrett [1995] 2 AC 145, a case on negligence based on the principle laid down in Hedley Byrne v Heller.

9.  Although in most cases claims for negligent misstatements arise from negligent advice, I do not think the cause of action is confined to statements formally regarded as advice.  Rather it is a claim based on negligent words as opposed to negligent acts.  In Henderson v Merrett [1995] 2 AC 145, at p. 204 Lord Browne-Wilkinson traced the pedigree of this cause of action to Norton v Lord Ashburton [1914] AC 932 and cited the following dicta from the judgment of Viscount Haldane LC at p. 948,

“Although liability for negligence in word has in material respects developed in our law differently from liability for negligence in act, it is nonetheless true that the man may come under a special duty to exercise care in giving information or advice.” (My emphasis)

10.  The same point was made by Judge Forbes QC in Hydrocarbons v Cammell Laird (1991) 25 Con LR 131 at 135,

“The only established category of negligence in which the duty of care gives rise to a liability for purely economic loss is the Hedley Byrne category of case.  This category of case is concerned with negligence in word, information or advice and is distinct from negligence in act …”

11.  Hence, the lack of any plea of advice does not rule out any claims of negligent misstatements by the Plaintiffs.  Representations, information or notification, may support such a claim if the relationship between the parties and the circumstances surrounding the making of such statements generate a special duty to exercise care.

12.  I turn to the question whether the original pleadings contained all the essential ingredients to sustain claims for negligent misstatements.  The special relationship giving rise to the special duty has been formulated in different manners in the authorities.  Mr Horace Wong referred to the formulation by Lord Oliver in Caparo Industries v Dickman [1990] 2 AC 605 at 638 and that  by Neill LJ in McNaughton v Hicks Anderson [1991] 2 QB 113 at 125-126.  Treitel, ibid., summarized the tests into two different approaches: the ‘threefold test’ and the ‘assumption of responsibility test’ at p. 345 to 348.  Clerk & Lindsell on Torts 19^th Edn, discussed the topic at length at Paras.8-84 to 8-110.

13.  I do not propose to analyse in this Reason for Decision how these different tests should be applied in the present context.  Counsel will no doubt have further submissions to make on the relevant legal principles in their closing speeches.  Suffice for me to say, for present purposes, having been taken through the various paragraphs in the existing Statement of Claim, I think there are just enough materials pleaded to sustain arguable causes of action based on negligent misstatements.

14.  I must emphasize at this stage I am not adjudicating on whether the facts and matters pleaded in the original Statement of Claim were established by the evidence and whether such facts and matters were sufficient to generate that special duty.  These would be matters I shall have to decide at the end of the trial after hearing all the evidence and submissions.  All I said is that the Statement of Claim as it stood before the amendments put forward by Mr Chang did aver facts that might arguably be sufficient to substantiate causes of action based on negligent misstatements. 

Defects in the original pleadings

15.  Although with the benefit of Mr Chang’s elucidation, I can now see that the real causes of action in negligence is one based on negligent misstatements, I have some sympathy with Mr Ronny Wong and Mr Horace Wong’s contention that this was not how the Defendants had understood the Plaintiffs’ case.  Mr Horace Wong reminded this court of the observation of Nourse LJ in Balfour Beatty Construction Ltd v Parsons Brown & Newton (1990) 7 Const LJ 205,

“The question was one of construction of the statement of claim as originally drawn.  Construction must not be unduly literal or pedantic.  Yet a pleading, being a formal document could not be held to include a cause of action which its language did not adequately express.”

16.  Ma CJHC made some general observations about pleadings in Wing Hang Bank Ltd v Crystal Jet International [2005] 2 HKLRD 795 at p. 799.  It is important that issues are pleaded properly, distinctly and adequately so that the opposite party as well as the court is clearly informed as to the parameters of the trial.  Only then can every one involve in the trial prepare properly.  At p. 799D to F, the Chief Judge said,

“…the primary responsibility of ensuring that any issue is properly before the Court is on the party seeking to advance that issue.  He must do so clearly and not ambiguously, and the usual way of doing so is through the pleadings.  Care must be taken to plead issues clearly, and not draft pleadings either vaguely or ambiguously perhaps in the hope that the other side might not readily or easily understand a party’s real case.”

17.  I have explained why a plea couched in terms of representation can be read as a plea of misstatement.  Examples of pleadings of negligent misstatements by reference to representations can be found in Atkin’s Court Forms, 2^nd Edn, Vol 29(2) 2003 Issue, [253] [269] [276] and [305].

18.  What was unclear from the Statement of Claim before Mr Chang gave his explanation was how it was alleged that the special duty of care arose.  Paragraph 3.4 of the Statement of Claim simply pleaded as a term of the oral contract between the Plaintiffs and the 1^st Defendant that the latter would use the reasonable skill and care to be expected of an experienced reputable and honest estate agent practicing in Hong Kong in providing the Plaintiffs with the information which they reasonably requested and/or with the information which it was necessary for them to have and in ensuring that the information so given was correct.  The pleading is ambiguous as to whether it is an express or implied term.  It is also not clear as to how such a term came to be implied if it is an implied term.

19.  Paragraph 4 continued to plead that the same duty was owed by the Defendants to the Plaintiffs in tort.  Again no clue whatsoever was given in that paragraph as to how the tortious duty was said to have arisen.

20.  In the course of his submissions on application for leave to amend, Mr Chang was able to draw from pleadings scattered in different places to mount an arguable basis for putting forward a special duty of care.  Counsel further clarified that it was not meant to be a general duty arising from the estate agency relationship.  Counsel pinpointed matters such as requests from the Plaintiffs for information, the Defendants’ representation of sole agency over the property and their relationship with the vendor, the Defendants’ expertise over properties in Redhill, the answers or information given by the Defendants to the Plaintiffs regarding unauthorized structures and financial standing.  Mr Chang also invited this court to read several paragraphs together to build up a case that the Defendants knew or ought to have known the Plaintiffs’ reliance on the statements made by the Defendants.

21.  With respect, there had not been any clear plea of special duty of care and it is therefore understandable that Mr Ronny Wong and Mr Horace Wong had not examined the pleadings with causes of action based on negligent misstatements in mind.

22.  It is not right that a party has to second-guess what case he is required to meet.  Very often, the forensic significance of certain facts varies substantially depending on how a party formulates his cause of action.  For instance, in the present case, Mr Chang referred to several paragraphs under Paragraph 24 to assert that the lack of investigation on the part of the Defendants had been pleaded and then read them together with Paragraph 25.3 [2] to assert a breach of fiduciary duty on the part of the 1^st Defendant.  He then built upon that premise to mount a case of breach of tortious duties of care by the 2^nd and 3^rd Defendants by reference to Paragraphs 3.4 and 4.

23.  But the structure of the original pleadings was that Paragraph 24 related to the state of mind of the Defendants.  They were said to be “particulars of knowledge, absence of belief and recklessness”.  Hence, a reasonable pleader would focus on the causes of action based on fraudulent misrepresentations in reading the matters pleaded under that paragraph.

24.  In the absence of any specific and explicit cross-references, it is asking too much to expect the Defendants and their lawyers to read all these paragraphs together to decipher the real causes of action of the Plaintiffs based on negligent misstatements.  Mr Ronny Wong described Mr Chang’s formulation of the Plaintiffs’ case as “ecliptic”.  With respect, I think that criticism is justified.

25.  Another example of the unsatisfactory manner in which the Plaintiffs formulated their case in the course of the trial is Mr Chang’s attempt on 10 March 2006 to invite this court to read Paragraphs 24.2.6 and 24.2.7 together to conjure up a claim based on concealment of lack of investigation on the part of the Defendants.  Whilst the original Statement of Claim did contain factual allegations of lack of enquiry as to certain matters, I do not think these two paragraphs could be read as a complaint of concealment of lack of investigation.  The concealment referred to in Paragraph 24.2.7 was the concealment of illegal and unauthorized structure, not the lack of investigation on the part of the Defendants.  At the end, Mr Chang probably saw the distinction as well and this prompted him to make the application for leave to amend.

26.  Paragraph 25.3 contains some cryptic pleas.  The first part of that paragraph pleaded breach of fiduciary duty based on the 1^st Defendant’s preference of interest of the vendor over that of the Plaintiffs.  Given the opening words in Paragraph 25, I read this part of paragraph 25.3 as averring that in making the representations, the Defendants were acting in a manner preferring the vendor’s interest to that of the Plaintiffs.

27.  I confess I had difficulties in appreciating its relevance in this case when I read the second part of Paragraph 25.3 by itself without any assistance from Mr Chang.  It pleaded that the 1^st Defendant owed the Plaintiffs a positive duty to notify them, inter alias, the following matters,

(a)     That there were unauthorized structures on the property;

(b)    That the 1^st Defendant had no or no sufficient evidence of the vendor’s means.

28.  The paragraph did not go on to plead any breach of such duty.  Trying to make sense out of it, one would have to read that together with the earlier pleas of misrepresentation about unauthorized structures in Paragraphs 21.2 and 23.2 that there is an alleged breach of (a).  But that is not a plea of breach of a duty to advise the Plaintiffs to make independent verification nor a plea of breach of a duty to inform the Plaintiffs that the Defendants did not carry out any independent verification.

29.  As regards (b), one would have to read that together the representation pleaded in Paragraph 21.1.  That representation was generally referred to as representation of financial standing.  In substance, several statements were pleaded in the first part of that paragraph,

(a)     The vendor was a substantial company, with good financial standing and mainland China business connections;

(b)    The vendor owned many luxury residential properties in Hong Kong;

(c)     It was a company of means and the Plaintiff needed not be concerned about paying over the deposit instead of stakeholding.

30.  The second part of the paragraph pleads a representation of belief.  It was pleaded as an inferential representation deriving from several representations of facts: that the 1^st Defendant had acted for the vendor on numerous transactions; the 1^st Defendant knew the directors of the vendor well and therefore obtained the sole agency.  The representation of belief was that the 1^st Defendant believed and/or had reasonable grounds for believing that the facts pleaded in the first part of Paragraph 21.1 were true.

31.  Insofar as the first part of that paragraph pleads representation of facts, whether the 1^st Defendant had sufficient evidence is not essential to the pleading of a cause of action.  If the representation were false, by virtue of Section 3(1) of the Misrepresentation Ordinance, the burden is on the 1^st Defendant to prove (and therefore to assert in pleadings) belief and reasonable ground of belief that the representation were true.

32.  Regarding the representation as to belief and its alleged falsity, it could, with some cross-referencing, be read as a breach of the alleged duty in the second part of Paragraph 25.3.

33.  The original pleadings did not give any clues that these paragraphs should be read together in the manner spelt out above.  It is no surprise that both Mr Ronny Wong and Mr Horace Wong did not regard the second part of Paragraph 25.3 as adding anything significant to the Plaintiffs’ claims.

34.  It is not for this court to tell a party how his case is to be pleaded.  However, if a party chose to plead his case in a manner which tends to obfuscate rather than to focus attention on the real issues, the court could take steps to ensure that issues are raised clearly and fairly in order to avoid prejudice to the other parties.  In the present context, I do not see any reason why the Plaintiffs could not plead specifically under a paragraph how the special duty of care is said to have arisen instead of having the relevant facts set out under different places which give no clue that they are to be read together for the purpose of advancing a case based on such duty.

35.  If the facts and matters supporting the averment of special duty of care were clearly particularized under a paragraph, the Defendants would have to plead to it specifically.  The Plaintiffs and the court will then be in a position to know whether the Defendants disputed the existence of such special duty of care and how it is disputed.  After leave to amend has been granted, Mr Chang wisely took up the suggestion of this court to put forward some voluntary particulars to serve that purpose. 

36.  I think I have said enough about the defects in the original pleadings.  Notwithstanding such defects, given my analysis above, the Plaintiffs’ causes of action in negligence were without doubt negligence in words.  Although it was not happily drafted, the original Statement of Claim should be taken as putting forward claims for negligent misstatements albeit with defects identified above.  The misstatements were the five representations.

The amendments

37.  Turning now to the amendments, Mr Chang told this court when he opened his application for leave to amend on 14 March 2006 that the amendments are very limited in scope.  Counsel expressly disavowed any intention to put forward any claim based on a general positive duty to investigate on the part of the Defendants.  Nor did the Plaintiffs intend to assert any general positive duty to advise.  Hence, regarding the addition at the end of Paragraph 10, Mr Chang said it was not a plea that Kang ought to have undertaken independent verification.  Mr Chang explained the purposes of the added sentence as follows,

“…[W]e do want to make it quite clear that in the context in which that representation was made, taking everything else that was said, the message conveyed was that the structures were legal and authorized and that he had grounds for saying so.”

“…[W]hat we alleging is that having made a positive statement that he was told by the vendor that these structures were lawful and authorized, if it is the case for the other side that we had to do verification because of that statement, it is our case then he ought then to have told us so.”

38.  As regards the use of the word “advice” in the amendments of Paragraph 3.4 and “advise” in Paragraph 25.3, Mr Chang said the Plaintiffs did not intend to argue that the Defendants had any general duty to advise.  The amendments were to emphasize the link between the information that was provided and whatever there was left out.  Therefore it was not intended to aver by the amendments that the Defendants had any positive duty to advise on illegal structures or financial standing of the vendor.

39.  Mr Chang explained about the plea of positive obligation to notify or otherwise advise in Paragraph 25.3 in these words,

“Now this is again not a general duty as such but it is simply in the context what actually was represented, and in the context of what was represented, there was a fiduciary duty imposed upon Centaline, a positive obligation to notify …”

40.  Regarding the amendments to Paragraph 26.2, Mr Chang submitted that they were merely particulars of breaches of tortious duties which the Defendants could have asked for but did not ask for.  Counsel also stressed that the particulars were always linked to the actual representations already pleaded.  Hence, the pleas should not be read as breaches of any free-standing general duties to inform or advise.  To make that point clear Mr Chang actually revised the draft and in the last version, the original plea of the Defendants’ failure to inform the Plaintiffs “of the need to verify any particular information” was deleted.  The plea was confined to the Defendants’ failure to inform the Plaintiffs the lack of verification or lack of need for verification on the part of the Defendants.  Counsel further submitted that the amendments were not averring a general duty to advise stakeholding.

41.  On 15 March 2006, Mr Chang further clarified his plea in Paragraph 26.2 on the unauthorized structures.  He confirmed that the effect of the amendment was that the Defendants had failed to inform the Plaintiffs of any one of the three matters pleaded,

(a)     the existence of unlawful structures;

(b)    the Defendants had not verified the information supplied by Kang regarding the structures; or

(c)     the Defendants had not needed to verify such information.

Counsel confirmed that if the Defendants had informed the Plaintiffs any one of above, they would have discharged their duties.

42.  Mr Chang also made clear that the added averments regarding representation of vendor saying consent for alterations having been obtained were not to be considered as a distinct representation on its own.  Instead, it was to put the existing plea of representation on unauthorized structure in its proper context, viz. the basis on which the Plaintiffs said a general representation of legality of the structures had been made.

43.  Given the above explanation by Mr Chang as to what was the Plaintiffs’ case and the stage and manner in which the amendments were applied for, the court and the Defendants are entitled to restrict the effects of the amendments to those advocated by Mr Chang.

44.  Construing the amendments in that light, I am of the view that the amendments are only added to clarify certain aspects of the causes of action that have already been pleaded.  The case against the Defendants is still founded upon the five representations and in substance, it is still a case of misfeasance as opposed to nonfeasance.  In other words, if the court were to find at the end of the day that none of the five representations could be established, the Defendants could not be held liable for not advising the Plaintiffs to conduct independent verifications.  However, the amendments did make it clear that in deciding whether the representations were made, the court will have to take into account the context in which certain statements were allegedly made including the lack of caution by the Defendants that those alleged statements had not been verified by the Defendants.

45.  In the circumstances, there is no question of new causes of action being added and no implication arising from the Limitation Ordinance and Order 20 rule 5(2).

Exercise of discretion

46.  Even though no new cause of action were added by the amendments, the court still has to consider whether leave to amend should be granted as a matter of discretion.  If the amendments could cause prejudice to the Defendants that could not be adequately compensated by costs, they should not be allowed.  In the present context, one relevant factor is the likelihood of the amendments disrupting the trial and its conclusion.  The trial commenced in January 2005 and it had to be adjourned part heard due to the substantial under-estimate as to the length of trial.  The second part of the trial is listed up to the end of March 2006 and there could be serious problems if we could not finish the evidence by then.

47.  Although the amendments were put forward at a very late stage, bearing in mind their scope as explained by Mr Chang, I do not consider that they would cause any prejudice to the Defendants that could not be compensated by costs.  Mr Ronny Wong and Mr Horace Wong pinpointed several aspects regarding the conduct of the defence case that might be different had the amendments been incorporated into the pleadings before the trial commenced.  Having considered their submissions, I am not persuaded that the course of trial would be so different that it would occasion irremediable prejudice to the Defendants or it would so disrupted the trial that the evidence could not possibly be completed by the end of March 2006.

48.  Counsel suggested that the defence might call evidence to testify what a reasonably competent estate agent would do.  However, the basis on which the Plaintiffs contended for the liabilities of the Defendants is said to have arisen from the special facts in the present case, in particular the five alleged representations.  The Plaintiffs are not alleging any general duty of care applicable to all estate agents.

49.  If the Defendants considered the evidence of trade practice could assist them in rebutting the five representations, they should have already prepared the same to meet the case as originally pleaded.  As analysed above, the Plaintiffs’ claims remain as claims founded upon the five representations after the amendments.

50.  Having regard to the limited extent to which the Plaintiffs relied on the lack of caution about the Defendants’ non-verification of the matters, I do not think the evidence from trade practice is absolutely essential.  To the contrary, I think the significance of such evidence, if any, would only be marginal.

51.  Defence counsel also contended that had the amendments been included in the original pleadings, they would have cross-examined the Plaintiffs and their witnesses about how Vivian had operated her own estate agency before, how they sought advice from solicitors regarding the transaction, their perception as to the different roles played by estate agent and solicitors, and what were communicated between Edward Kwan and the Plaintiffs.  To some extent these matters had been canvassed in cross-examination.  In any event, if counsel considered it necessary to go into greater details on these topics, this court can entertain application for Plaintiffs’ witnesses to be recalled for such purposes.

52.  Mr Ronny Wong also suggested he might need to have some further discovery on the agency business of Zako.  I believe any further discovery should be limited in scope and with co-operation on the part of the Plaintiffs, the necessary documents could be made available well before the close of the evidence.

53.  Mr Ronny Wong was concerned that the phrase “instead of advising stakeholding” in the amendments of Paragraph 26.2 could be construed as an oblique way of pleading a new cause of action of failure to advise stakeholding.  I can understand the concern if the amendments were read without the explanations from Mr Chang set out above.  However, given Mr Chang’s clear and unequivocal indication to this court that the Plaintiffs are not asserting an independent cause of action for failure to advise, this court granted leave to amend on that basis and the Plaintiffs are bound by such concession.

54.  Whilst there are defects in the pleadings, the Plaintiffs did plead the following matters, albeit in a rather obscure manner, in the original pleadings,

(a)     A duty on the part of the Defendants to ensure that information supplied was correct (Paras.3.4 and 4);

(b)    The representations from the Defendants included representations of belief and/or having reasonable grounds for belief as to legality of structures and financial standing (Paras.21.1 and 21.2);

(c)     The Defendants did not made reasonable attempts to verify the accuracy of the representations as to legality of structures and financial standing (Paras.24.1.1, 24.1.2, 24.1.4, 24.2.6);

(d)    A positive duty on the part of the 1^st Defendant to notify the Plaintiffs that it had no sufficient evidence of the means of the vendor (Para.25.3[2]).

55.  In my judgment, it would not be fair to deny the Plaintiffs an opportunity to remedy defects in their pleadings by the amendments in these circumstances.  As I said in several cases, ultimately it is a balancing exercise (see Guangzhou Green-Enhan Bio-Engineering Ltd v Green Power Health Products Ltd HCA 4651 of 2002, 21 August 2004 Para. 7 and cases cited therein)and all the competing considerations have to be put into the scale.  Although the Plaintiffs should have pleaded their case in a clear and proper manner much earlier, on the special circumstances of the present case, given the limited extent to which the amendments would be relied upon as indicated by Mr Chang, coupled with my conclusion that there would not be any undue prejudice to the Defendants, I consider that the proper course is to grant leave to amend.