HCA 5587/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5587 OF 2000

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REASONS FOR DECISION

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1.  This case has already gone through a pre-trial review (“PTR”) and the trial is due to start in 6 days, ie. on 18 October 2010. Today, I am faced with a summons taken out on 8 October 2010 for leave to re-re-amend the defence and counterclaim and to file supplemental witness statements of the defendant and his daughter (“Mang”). It is a classic case of a late application for amendment arising out of a change in the legal team.

Background

2.  The plaintiff is a securities brokerage entity and money lender.  It employed the defendant’s daughter in 1999.  At the invitation of  Mang, the defendant became a margin account customer of the plaintiff in November 1999 and traded through the plaintiff.

3.  The writ was issued in 2000 for sums due and payable by the defendant in respect of his dealing in securities through the plaintiff.

4.  In March 2010, the defendant has applied for legal aid.  For unknown reasons, legal aid was only granted about 20 days ago on 21 September 2010. Counsel Mr. Leung was assigned on 28 September 2010.  In a week’s time, on 6 October 2010, the new legal team has very ably delivered a proposed set of amended pleadings and supplemental witness statements to the plaintiff’s solicitors requesting  for consent to file them.  Two days later, the plaintiff’s solicitors, understandably, informed the defendant’s solicitors that they were not in a position to confirm their agreement to the proposal, hence the present application.

The Proposed Amendments

5.  The proposed amendments centre on 2 issues:

(i) Illegality of the transactions in securities as Mang, not having been registered as an authorized dealer, executed them. This was to the knowledge of the plaintiff and Mang’s supervisor (one Mr. Tam). Mang was even convicted for so acting.

(ii) Forgery of or material alterations to core documents after the defendant had signed thereby rendering the transactions void.

6.  In support of this admittedly very late application, Mr. Leung, counsel for the defendant relied on an affirmation from his instructing solicitor setting out the facts in paragraph 4 above.  However, without disrespect to the affirmant, the affirmation disclosed no factual basis as to why it was only at such a late stage that the amendments were considered necessary despite the fact that the defendant had remained represented up to early August 2010. 

7.  Counsel on both sides referred to authorities which allow late amendments sought to be introduced for the purpose of determining the real question in controversy between the parties or of correcting any defect or error in any proceedings.  The principle was that it was the object of the court to decide the rights of the parties and not to punish them for mistakes they made in the conduct of their cases by deciding otherwise than in accordance with their rights.  Further, amendments should not be refused however late the application was made provided that they were not designed to over-reach and provided that no prejudice was caused to the other side which could not be cured by costs and an adjournment if necessary: Tang Kam Wah & ors. V. Tang Ming Yat & anor [2003] 1 HKC 532; Chan Kwan Yin Shirley & anor v. Wu Wing & anor,  HCA 7718/2000.  Those authorities were pre-Civil Justice Reform. 

8.  Post-Civil Justice Reform, the Court views any application that might affect trial dates with vigilance.  The present case is one example.  The case has been instituted for 10 years.  It has gone through numerous case management sessions before Masters before it was set down for trial  It has gone through PTR.  The defendant has been represented by solicitor and counsel since pleadings stage until shortly before the PTR.  He has a counterclaim which he has a duty to prosecute diligently. 

9.  Further, the prejudice to the plaintiff is clear.  The defendant presents new evidence as to how Mang handled the relevant transactions 10 years ago.  It might require the plaintiff to dig up documents prepared under an old system and stored away.  The plaintiff may have to find someone to explain the new system.  The defendant is on legal aid and according to the legal aid certificate, he is only required to contribute up to $2,000.  One wonders whether any costs order arising out of an adjournment of the trial can adequately compensate the plaintiff.

10.  However, late as the application may be, one must not forget that under Order 1A, rule 2(2), “in giving effect to the underlying objectives of these rules, the Court shall always recognize that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.” The substance of the proposed plea becomes of importance.

Illegality

11.  The issue of illegality is not new to this case.  As the defence presently stands, it is alleged that Tam knowingly procured or encouraged Mang to act illegally as dealer representative in breach of section 48 of the Securities Ordinance, Cap. 333.  Ms. Lam then procured the defendant to open a trading account with the plaintiff.  Ms. Lam acted as the dealer representative to execute the defendant’s sale and purchase orders that were made pursuant to the advice and information of Tam and/or Ms. Lam.  All the transactions in respect of the sale and purchase of the stocks in the accounts of the defendant were performed by illegal means and by reason thereof the transactions were void ab inito.

12.  The proposed amendments (new paragraphs 8, 11D and 11E) added that the transactions were not only performed illegally but were illegal in themselves and unenforceable. Mang was not a registered dealer representative of the plaintiff but was performing the functions thereof upon the instructions and under the supervision of Tam.  That was in contravention of section 50 of the Securities Ordinance, Cap. 333 and she was convicted thereunder.  Mang was one of 5 trainees recruited by Tam.  Tam knew that Mang was not registered as a dealer’s representative.  He was convicted of aiding and abetting persons to act as dealer’s representatives without being registered.  The defendant was not, up to the end of March 2000, aware that Mang was not a registered dealer’s representative. 

13.  The proposed amendments, in my view, was to plead an alternative legal conclusion based on illegality and was not a complete change of focus.  Where a court is satisfied that there had been an illegality the court was bound to take the point of its own motion even if neither of the parties did so.  The overriding basic principle of public policy is that the courts would not assist a plaintiff by enforcing an illegal contract: Snell v. Unity Finance Co. Ltd. [1964] 2 QB 203; Chan Yau v. Chan Calvin & another, HCA 666/2007.  Mr. Wong has fairly conceded this principle.

14.  Moreover, the fact of Mang and Tam being convicted was not a new plea (see paragraph 25 of the Re-Amended Defence and Counterclaim).  The defendant has pleaded that the convictions and facts upon which the convictions were based are relevant to the issues of illegal stock trading transaction and negligence of the plaintiff.  The plaintiff, in reply, simply did not admit it.  There was some discovery concerning Tam’s conviction but not Mang’s. There was no specific discovery sought concerning Mang’s conviction prior to today.   Today, Mr. Leung agreed to provide discovery of those documents.

15.  Tam also featured significantly in the pleadings and in the defendant’s case throughout.  There is no question of the plaintiff being prejudiced in the sense of being deprived of the chance to locate a witness as Tam has never given a witness statement on behalf of the plaintiff.  

16.  The proposed amendment ought in principle to be allowed.

Forgery

17.  The defendant claims that certain core documents (Client Information Statement, Margin Client’s Agreement and Loan Facility Letter) relied on by the plaintiff against him had been materially altered and/or forged after he had signed them.  The defendant avers that any contract has by reason of the unauthorized material alterations become void.

18.  If forgery were the only amendment proposed, I would have dismissed the application. Forgery is a fact that the defendant can, upon reading a document disclosed by his opponent, immediately point out (if that be the case) without the need for legal advice.  The relevant documents had been disclosed in 2006 which gave ample time for the defendant and his lawyers to plead the defence properly.

19.  However, the forgery here is closely related to the plea of illegality under the Money Lenders Ordinance.  The “forged” documents appear to reflect a loan of $200,000 from the plaintiff to the defendant.  (It could not be a reference to the money which the defendant deposited to open any trading account because that $200,000 referred to interest at HSBC prime rate + 4%. It is noteworthy here that the plaintiff’s case was totally silent on this amount. )  If it purported to be a loan, the defendant points to a lack of a note or memorandum in writing of any terms of agreement required by the Money Lenders Ordinance.  The defendant has always put the plaintiff to strict proof (this is pre-CJR pleading) of any agreement and the plaintiff has to prove compliance with that Ordinance anyway.

20.  For the same reasons given in paragraph 13 above, I am of the view that this proposed amendment ought in principle to be allowed.

Other Considerations

21.  Mr. Wong points out the difficulty in obtaining instructions at this very late stage.  That is understandable.  Effectively, the plaintiff is given only 12 days before trial to respond to this application.  Mr. Wong, however, very kindly agreed to try his best to respond and meet the trial date.  He asked for specific discovery, leave to amend the reply and defence to counterclaim and to file supplemental witness statements.  These are all reasonable requests and Mr. Leung has no objection to them.  I will allow the plaintiff’s witness(es) to give supplemental evidence orally, provided the plaintiff can deliver bullet points of such evidence to the defendant beforehand.

22.  I therefore order as follows;

(1) The defendant do have leave to file the following documents within 2 days from today:

(i) Re-re-amended defence and counterclaim;

(ii) Supplemental witness statement of Lam Kwen Yuen; and

(iii) Supplemental witness statement of Lam Yik Mang now known as Lam Hay Nam

(2) Service of the documents on the plaintiff be dispensed with.

(3) The plaintiff do have leave to file and serve its re-amended Reply and Defence to Re-Amended Counterclaim before 12 noon on 15 October 2010;

(4) The Plaintiff do have leave to serve bullet points of supplemental evidence that their witnesses would give orally at the trial on or before 12 noon on 15 October 2010;

(5) Time for service of this summons be abridged.

(6) The defendant is to give discovery of the summons WSS 8369/2001, brief facts of the case and transcript of proceedings by 12:00 noon on 15 October 2010.

(7) Costs of this application together with certificate for counsel be to the plaintiff, to be assessed on 18 October 2010.

23.  The parties shall report on progress  on 18 October, by whence I can decide whether and how to proceed with the trial.

24.  I thank counsel for their assistance, in particular Mr. Wong for his cooperative attitude.