PEACE MARK (HOLDINGS) LTD (IN LIQUIDATION) AND ANOTHER v. CHAU CHAM WONG PATRICK AND OTHERS

HCA 2371/2009

[2022] HKCFI 1623

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2371 OF 2009

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DECISION

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1.  This is the Plaintiffs’ application for leave to amend their Re-Amended Statement of Claim in 2 ways: (i) to include a plea of wilfully negligent or in wilful default in answer to the reliance by various Defendants on Article 166 of the Articles of Association of the 1^st Plaintiff; and (ii) to make a plea that the 1^st Plaintiff was suffering losses and was insolvent at the time of its declaration of dividends.

2.  The application is resisted by the 2^nd and 3^rd Defendants (“Leung” and “Tsang”) only.  Tsang’s opposition is confined to Amendment (i) identified above.  

3.  Firstly, it is fair to say that the Amendments should not take Leung or Tsang by surprise because the issues raised were, inter alia, in the List of Agreed Issues.  Although, upon careful reading, the wilfully negligent or in wilful default issue was not agreed by Tsang in the List of Agreed Issues, it was pleaded in the Plaintiffs’ Amended Reply to his Re-Amended Defence.

4.  I have been asked to bear in mind the principles referred to in China Forestry Holdings Co Ltd v KPMG (a firm) [2021] HKCFI 1519, [7]-[9]. 

5.  It must be accepted that this application is very late.  PTR is not meant for further interlocutory application (see PD 5.2, [34]).  Moreover, there is no evidence explaining the lateness of the application. 

6.  On the other hand, although litigants are duty bound to ensure that their pleadings are adequate and all the necessary procedural steps are taken in good time, oversight or minor slip is a fact of life.  In this case, I believe that there was likely an oversight on the requirement that the plea of wilfully negligent or in wilful default should be set out in the Statement of Claim instead of or in addition to the Reply.

7.  Given that the issue had been pleaded in the Reply against Tsang, the oversight, whilst unfortunate, is understandable.  For the same reason, I am unable to accept the submission that Amendment (i) seeks to expand the Plaintiffs’ case against Tsang.

8.  In respect of Leung’s complaint that he is not relying on Article 166 and therefore Amendment (i) should not be allowed against him, I accept that this is a valid ground for resisting the Amendment. With respect, the Plaintiffs’ suggestion that the Amendment should be made against all Defendants is no answer to the fact that it will be moving the goalposts against Leung at a very late stage of proceedings.

9.  Amendment (ii) is, I believe, a tidying up exercise because it is abundantly clear from day one that the Plaintiffs’ case is that the fraudulent scheme operated against them by the Senior Directors, along with other senior management of the Group, had the effect of substantially overstating their profitability when in fact they were making substantial losses.  Leung had agreed to paras 1.6 and 3.2 of the List of Agreed Issues in which the issue whether the 1^st Plaintiff was suffering losses and was insolvent can be found. 

10.  As regards any prejudice which may be suffered by Leung or Tsang in the event of allowing the Amendments, I bear in mind that neither of them has advanced much of a positive case on how they had discharged their duties as senior directors of the 1^st Plaintiff and the Group and why, despite having done so according to their cases, they were unable to detect the fraudulent scheme. 

11.  Therefore, despite the submissions to the contrary, I am unable to see any real prejudice which cannot be compensated with costs.  Indeed, it is questionable whether the Amendments would require any consequential amendment to the pleadings of Leung or Tsang, bearing in mind their blanket denial to both the allegations of fraud and negligence.  The same applies to the need for any supplemental witness statement from them.  Their existing statements already covered their areas of responsibility as director and why they did not detect the fraudulent scheme at the material times. 

12.  On behalf of Leung, it is submitted that the issue of loss is not, according to the evidence on Bermudan law, relevant to the declaration of dividends.  The issue is one of solvency.  I believe that the issues of loss and solvency are intricately tied, and I would not disallow Amendment (ii) based on this distinction. 

13.  For these reasons, I allow the Amendments, save and except Amendment (i) as regards Leung.  I hope that all parties, with the benefit of legal advice, will not be incurring any unnecessary costs by making pointless consequential amendments despite having been granted leave to do so. I shall hear the parties on the appropriate order to be made.