ANTHONY ERIC RYAN HOTUNG v. HO YUEN KI

HCA 1216/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1216 OF 2006

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D E C I S I O N

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The application

1. This is the plaintiff’s (“P’s”) application for leave to amend the Amended Statement of Claim.

2. The application is contested by the first defendant (“D1”), P’s claims against the other defendants having been discontinued.

3. The parties are legally represented.[1]

The factual background

4. Briefly stated, P claims against D1 for breach of trust, P being the beneficiary of two trusts set up by his father with D1 as the trustee of those two trusts (“the Ho Trusts”).

5. The Ho Trusts are comprised of:

(a) A trust created by a Declaration of Trust made in 1979 whereby D1 held as trustee 10,001 shares in a private company known as Hotung Enterprises Limited (“HEL”) upon trust for P and two of his brothers; and

(b) Another trust created by a Declaration of Trust executed in 1980 whereby D1 held as trustee 3 shares in another private company called Hotung Investment (China) Limited (“HICL”) upon trust again for P and his two brothers.

6. There is no dispute that at the time when the Ho Trusts were established, P was still a minor.

7. The main asset of HEL was its 93.75% shareholding in HICL. HICL had held as assets various plots of land in the New Territories (to be referred to as “the HICL Lots”) until they were subsequently sold to D3 in December 1998.

8. P’s case is premised upon various duties and obligations D1 owes, as the trustee of Ho Trusts, to the beneficiaries.  P says D1 has been in breach of her continuing duties as trustee and thereby adversely affected the interests of the Ho Trusts.

P’s case

9. Specifically P complains that (i) the sale of the HICL Lots to D3 in December 1998 was at a gross undervalue; and (ii) there were financial irregularities and mismanagement in HICL.

10. P pleads that D1 was or reasonably should have been put on notice about these irregularities in HICL but failed to fulfill her duties as trustee in that she failed to preserve and safeguard the interests of the Ho Trusts.  P further avers D1 has on an ongoing basis prevented him from preserving the value and interests of the Ho Trusts.

11. P claims against D1 a declaration that she has breached her duties as trustee and damages/compensation for breach of trust.[2]

D1’s case

12. D1 admits that she is the bare trustee of the Ho Trusts.  As such, D1 admits that she had a duty to keep an accurate account of the trust assets; she owes a duty of fidelity and loyalty and has a duty to preserve the assets of the trusts.  She denies she has other duties and was in breach of her duties as alleged.

13. D1 denies that she had or would have been put on notice of the alleged financial irregularities and mismanagement in HICL.

14. D1 further denies breach of duty by failing to preserve the interests of the Ho Trusts, favouring one beneficiary over the others, or consistently obstructing P from obtaining information about the Ho Trusts.

15. D1 also seeks to rely on the statutory time bar and the equitable doctrine of laches and/or acquiescence as defence.[3]

16. P identifies the following issues of dispute for the trial:

(a) The nature and scope of D1’s duties and obligations as trustee towards the beneficiaries of the Ho Trusts;

(b) Whether D1 has breached her various duties and obligations as the trustee of the Ho Trusts;

(c) Whether D1 should be responsible for any financial irregularities or mismanagement in HEL and/or HICL as may be proved;

(d) Whether D1’s breach of trust (if proved) has resulted in any loss on the part of the Plaintiff;

(e) Whether the Plaintiff’s claim against D1 is time-barred;

(f) Quantification of loss/compensation (if any); and

(g) Whether an award of exemplary damages is warranted.[4]

Discussion

17. The relevant legal principles on Order 20 RHC relating to this application are not in dispute.  They are set out in:

(a)  §§20/5 – 20/8/51 of the White Book 2016;

(b)  Natamon Protpakorn v Citibank N.A. [2009] 1 HKLRD 455;

(c) Tsang Foo Keung v Chu Jim Mi Jimmy (unrep., HCA 7140/1995, 8 October 2013); and

(d) Kwong & Another v John David Andrew Ip & Another (unrep., HCA 7927/2000, Chow J, 25 September 2014).

18. D1 opposes this application on the following grounds:

(a) the proposed amendment would cause her prejudice that could not be adequately compensated by an award of costs so that it would be wrong in principle for the Court to grant leave to amend (“the 1st ground”);

(b) the inordinately dilatory way in which P has conducted this litigation to date and the fact that the proposed amendment introduces for the first time serious charges of impropriety and misconduct akin to fraud which ought not to be added by way of late amendment, causing prejudice to D1 whose health condition does not allow her to give further instructions to prepare for the allegations and P has given no satisfactory explanation for the delay(“the 2nd ground”);

(c) the lack of prospect of success of the claim (“the 3rd ground”); and

(d) P’s claim will be time barred under the Limitation Ordinance if P is not allowed to amend his pleadings with the effect of relation back of the amended fact to the date of the writ (“the 4th ground”).

19. Each of those grounds above will be discussed below.

20. The 1^st ground depends on whether the other grounds are valid grounds.  Only if other grounds are established should this ground be taken into consideration before this Court exercises its discretion in granting leave.

21. The 2^nd ground is P’s inordinate dilatory conduct in the proceedings for which P has given no explanation and that this is the first time that P has raised serious charges of impropriety and misconduct akin to fraud.  D1 is unable to give further instructions to prepare for her defence and P’s father, another possible witness, has been held by another trial judge to be too old to give reliable evidence.

22. In reply to the complaints, P says that he has complied with the court’s direction to take out the interlocutory application within time provided.  Secondly, the matter has not been set down for trial, with no milestone date to be affected.  Thirdly, the decision to amend is also due to a new team of legal representatives coming into the picture.  Here, it should be noted that the court’s direction to take out the interlocutory applications within time is not any indication of the court in respect of any applications such as the present which should have been taken out long time ago, that the applications are not late and the applicant’s conduct being clear of dilatoriness.  The purpose of the court’s direction is to limit all interlocutory applications before trial to be taken out within a period of time for case management only.

23. As to prejudice, P replies saying that those amendments arise out of the material facts already pleaded in the Amended Statement of Claim and D1 should not be taken by surprise.[5]

24. D1 argues that on the existing pleadings the bona fides of D1’s actions or omissions is not in issue and hence in the witness statement prepared so far it was unnecessary for D1 to address the point. If the proposed amendment is allowed, fairness dictates that D1 must be given an opportunity to adduce additional evidence to refute the allegations of deliberate wrongdoing and wilful misconduct.  D1 has difficulty in getting evidence from witnesses, who are all aged, to oppose the allegations.

25. Each side has not identified which amendments give rise to such difficulty in their written submissions. In the circumstances, the burden is on D1 to show which part or parts of the amended pleadings have brought about such serious allegations akin to fraud which were not pleaded in the original pleadings.  Absent such particulars, I should accept P’s submission that the amendments arise out of the material facts already pleaded in the Amended Statement of Claim, for which D1 should have prepared evidence to countervail.

26. On this basis, even if P has not given sufficient reason for the delay in making the application, if the application will not cause prejudice to D1, the court should not refuse to entertain P’s application for this reason alone.

27. However, throughout the discussion in court this morning, it has become clear that D1’s complaint is focused upon paragraph 11A, the proposed amendment, particularly on the allegation that D1 deliberately refused to disclose or inform P of the existence of and his entitlement under the Ho Trusts.  Furthermore, Mr. Wong, counsel for P admits that the allegation of D1’s non-compliance of the court order, which P relies upon to found his claim for exemplary damages as pleaded in paragraph 49A(e) was the fact that arose after the issue of the writ.  This will require this Court to consider O.20, r.5(5) as I have written to the parties for assistance as discussed below.

28. The 3^rd ground is for the trial judge’s determination.  It does not assist D1 here.

29. As to the issue of limitation ie the 4^th ground, I had directed my clerk to inform the parties two days before to address this Court on Order 20, rules 5(2) & (5) and, in particular, the following propositions and authorities:

“For the application of O.20, r.5(5), the court might grant leave to amend if the amendment arose out of the facts pleaded and the court should adopt a liberal approach in its determination see Leung Kin Fook v Eastern Worldwide Co Ltd (No 2) [1997] 1 HKC 524 at 528 per Litton VP (as he then was). The Court held “one should look at the matter broadly, and apply a degree of common sense in judging whether the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action.” §30 in Tang Hing Kwong & Another v John David Andrew Ip & Another (unreported, HCA 7927/2000, Chow J. 25 September 2014)”

30. D1 submits that if a fresh action were to be started today to claim exemplary damages based on the allegations of deliberate wrongdoing and wilful misconduct, it could be met by a cast-iron defence based on limitation.  But because anything added by way of amendment would relate back to the date of the writ, allowing the proposed amendment would have the effect of depriving D1 of the benefit of an accrued limitation defence to the claim of exemplary damages based on the new allegations of deliberate wrongdoing and wilful misconduct.

31. This Court is aware of the case of the Court of Appeal in Global Bridge Assets Ltd & Others v Sun Hung Kai Securities Ltd [2012] 4 HKLRD 474 per Kwan JA at §§28-29 where the plaintiff applied for leave to amend to add a new claim, which had been time-barred under the Limitation Ordinance on the ground that the defendant had concealed the fraud, which was discovered by the plaintiff recently, the Court of Appeal held that the proper order to be made is by way of dismissing the application for leave to amend.  The plaintiff may start another action and the issue of limitation may then be argued in that case.  If the application were allowed, the defendant might be deprived of the right under section 26 of the Limitation Ordinance because section 35 of the Ordinance would restate the cause of action to the date of the writ.  This approach should be adopted if the court is certain that the intended amendment is adding a new claim, which is not part of the pleaded claim.  This Court has to ascertain the nature of the intended amendments by reference to those authorities mentioned in paragraph 29 supra.

32. In the supplemental skeleton submissions, Mr. Wong, counsel for P submits that this Court does not have to reach any definite conclusion on the issue of whether the proposed amendments will be to add a new cause of action because the proposed amendments clearly arise from the same facts (or substantially the same facts) as those that have already been pleaded.  In light of the discussion as mentioned in paragraph 27 above, it becomes clear that this Court has to consider D1’s arguments on prejudice before it can exercise its discretion under O.20, r.5(5).

33. D1 submits that there are two sorts of prejudice caused by the proposed amendments, one being that it is time-barred under the Limitation Ordinance, and the other being that D1 is now unable to give instructions or search for evidence to deal with the new allegations.

34. I shall consider the second issue on evidence first.  There is no dispute by P that D1 is under such health condition that she is unable to give proper instructions to her solicitor or obtain evidence for the time being.  For this reason, I have to consider whether the proposed amendments will cause unfairness to D1, and if so, such unfairness can be compensated by costs.  Also, for this reason, I have to consider the witness statement of D1.  P refers to 1^st defendant’s witness statement on page 187 of the bundle.  At paragraph 12 she said: “I agree with Edward Hotung that I would observe his wishes before I agreed to hold the trust shares for the said three sons.  This is the reason why I have never informed the three sons of their entitlement of such shares of and in HEL and HICL.”  She has clearly given her reasons for deliberately not disclosing the trusts to the three sons.  It is therefore clear that such proposed amendments would not require further evidence from her.

35. The new allegation of deliberate refusal of disclosing the trusts to the beneficiaries obviously arises out of the same facts as originally pleaded.  Therefore, even if such alleged facts were outside the limitation period, by virtue of O.20, r.5(5), leave should be given to P to re-amend.

36. As to the new allegation of non-compliance of the court order, D1 cannot complain because this has been found as fact by the court and the Court of Appeal in HCMP 1956/2009 delivered on 8 July 2011 at paragraph 17 and also paragraph 22 on costs.  It is also clear that it is part of the originally pleaded case of P.

37. Having considered D1’s objections, I am not persuaded that P’s application should be dismissed on those reasons.  The general legal principles on Order 20 should apply.  P should be given leave to amend the pleadings so that all the merits of the matter should be brought before the court for adjudication.

Costs and Order

38. As to the costs of this application, the costs of and occasioned by the proposed amendments should be awarded to D1 to be taxed if not agreed in any event, but the costs for today’s hearing (with counsel’s certificates) should be awarded to P, to be summarily assessed at $120,000 to be paid by D1 in any event after set-off of D1’s costs herein mentioned.

39. I shall now make an order in terms as follows:

(a) Leave to P to amend its Amended Statement of Claim as per the annexed to the summons;

(b) D1 be at liberty to make the consequential amendments to the Re-Amended Defence and to file and serve the same within 42 days from the date of service of the Re-Amended Statement of Claim;

(c) P be at liberty to serve the Reply within 28 days thereafter;

(d) The costs of the application and the costs for the hearing today together with the costs reserved for this summons be to P as per §38, supra; and

(e) The Case Management Conference scheduled on 22 November 2016 be varied to 11:30 a.m. on 26 April 2017 for the 3rd Case Management Conference.