XCHRX JEANLY (HONG KONG) LTD. v. RALSEY GROUP LTD.

HCA447/1999 & HCA11605/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS. 447 AND 11605 OF 1999

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J U D G M E N T

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1. This is an appeal by the plaintiff against the refusal by Master Cheung of an application to amend the reply and defence to counterclaim of the plaintiff.

2. The history of this matter is a little bit unusual. The plaintiff, by its claim, claims against the defendant in relation to Purchase Order 726 and the amount of the claim is in the sum of some US$140,000. The defendant counterclaims and prays in aid some nine orders altogether, including Purchase Order 298, and says that in one way and other, the plaintiff was in breach of some five of those nine orders and a substantial sum was sought by way of counterclaim from the plaintiff.

3. The plaintiff files its original reply and defence to counterclaim and although there was reference in the reply to Purchase Order 736, there was no specific relief sought by the plaintiff in the reply arising out of Purchase Order 736. The matter took a turn when the plaintiff first sought to apply to amend its reply and defence to counterclaim by adding a counterclaim to the counterclaim which sought to rely on Purchase Order 736 by alleging that there was a breach of Purchase Order 736 by the defendant, thereby entitling the plaintiff to certain damages which is put in the sum of about $300,000 against the defendant.

4. When the application to amend came before Master Barnes, indication was given by the master that perhaps the proposed counterclaim to counterclaim might have been better put by way of an amendment to the Statement of Claim. I think that hint or suggestion was accepted by the solicitors who appeared before Master Barnes, and the summons to amend the reply and defence to counterclaim was withdrawn. The withdrawal of that summons would seem (from the latest affidavit that has been put before the court) to be somewhat ill-advised in the sense that it was against the instructions of the client and certainly counsel had subsequently advised against it. A decision was therefore made that instead of amending the Statement of Claim, a new summons would be taken out in identical terms to the one that was put before Master Barnes to amend the reply and defence to counterclaim.

5. The matter came before Master Cheung who refused the application. I do not think it matters very much what happened before Master Cheung. What is important is that the matter now has been fully argued before me, and the question therefore is whether leave should be given to the plaintiff to amend the reply and defence to counterclaim. In particular, the contention is whether the proposed counterclaim to counterclaim should be allowed to be tucked into the reply or must it really appear by way of amendment to the Statement of Claim.

6. Two objections were taken by Mr Kenneth Chan for the defendant to the proposed amendment. One is as to the fact that the form of the proposed amendment, i.e. the counterclaim to the counterclaim, was really by way of a free-standing counterclaim and not by way of a shield to the counterclaim in the sense expressed in the case of Renton Gibbs & Co., Limited v. Neville & Co. [1900] 2 QB 181. I think that case and the related case of Toke v. Andrews (1882) 8 QBD 428 certainly show that the court would readily grant an application to put in a counterclaim to counterclaim if such a counterclaim to counterclaim is really by way of a shield as opposed to an independent sword in the form of an additional claim by the plaintiff. Mr Chan accepts that if it is by way of a shield, then the court certainly has the discretion to allow such a counterclaim to counterclaim to be raised. The question therefore really is : what is the nature of proposed pleading of counterclaim to counterclaim before the court?

7. The formal documents have been closely looked at and, at the suggestion of the court, the proposed amendments have now been somewhat reframed by the deletion of paragraph 35 and the prayer at page 286, and by a new formulation of a counterclaim to counterclaim, with a new paragraph 35 which reads :

"35. The plaintiff repeated paragraphs 29 to 34 herein.

36. In the premises, in the event of the Defendants' succeeding any part(s) of their Amended Counterclaim, the Plaintiff is then entitled to set-off any such part(s) by the Plaintiff's counterclaim to Amended Counterclaim together with interests thereon pursuant to Section(s) 48 and/or 49, Cap.4, for such period and at such rate as the High Court deems just."

The new prayer reads : "And as against the 1st and 2nd Defendants, the Plaintiff counterclaims in terms of paragraph 36 above."

8. So, it seems to me that it is now quite clear that the proposed counterclaim to the counterclaim is really in the form of a shield and not in the form of an independent sword by way of an additional claim in any event. The proper place for it is, therefore, pursuant to Order 15, rule 2(2) at the place of the reply and defence to counterclaim and by way of counterclaim to counterclaim. So, on the matter of the substance to the objection to the proposed amendment, I hold in favour of the plaintiff's submission.

9. The second objection raised is as to the exercise of discretion of the court having regard to the way that the plaintiff had withdrawn its previous application. In the normal course of litigation when mistakes are made - this is perhaps an example of such a mistake - it would normally result in some costs order against the party making the mistake. It does not necessarily follow that the party who had made the mistake should be denied the remedy of amendment, in fact that is the whole point of amendment. The normal situation where a party withdraws an application is that it is free to make a fresh application. It is quite different from a dismissal of the application and it is quite different where the court has imposed a term granting leave to withdraw, the term being that "no further application of a similar nature be brought". No such term was imposed, and in fact the affidavit that was put before the court from the plaintiff's solicitor shows how this unfortunate state of affairs had come about. Certainly the plaintiff is already paying a heavy price for it.

10. The order granting leave to withdraw was on terms of the plaintiff paying the costs of that application. I can see really no reason why the court should shut out the plaintiff from making the present application. I certainly do not regard the circumstances of this case as a case of abuse. The plaintiff had made an error in withdrawing the application and realizing its error, it wanted to come back and put its house in order. I think it should be allowed to do so.

11. I therefore allow the amendment in terms as I have indicated earlier. The appeal is allowed to that extent. I will now hear the parties on the matter of controversial costs.