CHINA CREDIT MOTORS TRADING CO. LTD. v. OR KWONG CHUEN AND OTHERS

HCA 6347/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6347 OF 1998

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R U L I N G

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1. This is an application by the Defendants to amend their Defence by adding a defence of set off and a new Counterclaim.

2. The claim by the Plaintiff as against the 1st Defendant is a claim arising from allegations of misappropriation of funds by him as a director and also breach of fiduciary duties. Yesterday, there was also a new claim added, and which I granted, against the 1st Defendant for his failure to repay the amount on the assumption that there has been an advance by the Plaintiff.

3. The claims made against the 2nd to 4th Defendants (which are property holding companies) arise from their holding of various properties and it is said that the 2nd to 4th Defendants are controlled by the 1st Defendant and that the properties which they hold had been acquired with the funds which the 1st Defendant had obtained from the Plaintiff.

4. However, it would appear that the 1st Defendant is not in a simple company-director relationship with the Plaintiff. He is also a shareholder through his shareholding in a company which holds a portion of the Plaintiff's shares, and it would appear that he, together with Mr Wu and Mr Kan and some other persons, are involved through a number of companies and partnerships in 7 companies or businesses which were interlinked in various business transactions with one another. One of those businesses is a partnership called Section Trading. It would appear that there were different partners in this partnership but that since 31 January 1997, it has become a sole proprietorship of the 1st Defendant.

5. The original Defence which was last amended in March 1999 contains a number of defences raised by the 1st Defendant. However, one week before the trial, the Defendants issued a summons for amendment. This morning, counsel for the Defendants have submitted a revised draft which, as I have said, contains a new Counterclaim by the 1st Defendant trading as Section Trading, which alleges that the Plaintiff was a co-venturer with Section Trading in a Joint Venture Agreement and that the Plaintiff has failed to account to Section Trading for proceeds of sale by the Plaintiff which, under the Joint Venture Agreement, the Plaintiff was obliged to share with Section Trading.

6. This application for amendment has been opposed by the Plaintiff. In considering whether I should exercise my discretion to grant leave to the Defendants, I have taken into account the main principles to be applied which have been set out in various judgments in Ketteman v. Hansel Properties Limited (1987) AC 189. Principally, what I have to do is to balance the duty of the Court to decide all relevant questions between the parties in a piece of litigation against efficient case management.

7. As far as case management is concerned, there can be no doubt but that this amendment has come very, very late. This is conduct which cannot be encouraged in any way. The 1st Defendant's allegation in his affirmation that he thought the Plaintiff was not very earnest in the pursuit of this litigation is not acceptable. As far as the Plaintiff's solicitors are concerned, at least, they have been diligent in ensuring the efficient despatch of the various stages of litigation up to trial.

8. Further, unfortunate though the 1st Defendant's personal circumstances may be, that is no excuse for neglecting preparation for litigation. However, I have taken into account the fact that he had previously been advised by counsel that no counterclaim could or should be mounted and it was not until March 1999 that the papers were put before an accountant who apparently has started the investigation which led to the mounting of this proposed Counterclaim.

9. Having said that, the pursuit of justice as between parties to a piece of litigation demands that all real issues should be considered and not just some issues between them piecemeal.

10. In the proposed Amended Defence and Counterclaim, it is alleged that there was an oral agreement in 1997 whereby the accounts of all 7 companies or partnerships in the group were to be settled. It would appear to be the case that the parties were considering a global settlement of accounts of all the companies and businesses in the whole group. It has been alleged that there was thereby a "financial arrangement agreement". It would appear that the accounts have gone through at least 3 revisions and that they are still not yet finalised.

11. Miss Wong has, in her challenge to the summons, alleged that these amendments would be useless and immaterial. First, she contends that the Plaintiff has had audited accounts which the 1st Defendant has signed. However, it would be noted that Section Trading is a separate entity from the 1st Defendant qua shareholder of the Plaintiff and it is under the Joint Venture Agreement that Section Trading is claiming an account from the Plaintiff.

12. Further, Miss Wong has submitted that in fact the Plaintiff had omitted all Section Trading entries in its ledgers in arriving at the amount which it is claiming from the 1st Defendant. However, that begs the question because Section Trading is saying that there has not been a proper account. The accounts have gone through a number of revisions with no final account and that throws the entire assumption of the accuracy of the accounts into doubt.

13. As far as the justice of the situation demands, it would appear that there is no irreparable damage that would be caused by the inevitable adjournment that would have to take place if I grant this amendment. It has not been suggested that any witnesses are missing and the Plaintiff is a company so there is not that sort of personal strain or anxiety that a delay in litigation would cause to a litigant who is a personal litigant.

14. I have taken into account Miss Wong's submissions that the delay itself would or may cause prejudice which would not be adequately compensated for by costs because there may be other creditors of the 1st Defendant. She points to the part of the 1st Defendant's affidavit in which he refers to his ex-wife's claim for ancillary relief in litigation started in mid-1996. However, there is no evidence before the Court that the 1st Defendant is financially incapable of satisfying this claim and his wife's claim for ancillary relief, and there is no evidence before the Court that he has any other creditors.

15. Finally, Miss Wong has submitted that this Court can grant a separate trial of the Counterclaim. However, it is quite clear that the general rule is that all issues should be tried at one and the same time. In the present case, it cannot be just and convenient for there to be separate trials because the same witnesses would have to be called, probably the same bundles of documents would have to be considered and the same factual background gone into. That would lead to a duplication of time and costs which would certainly not be just and convenient taking into account the positions of the Plaintiff, the Defendants or the court.

16. In all the circumstances, in the exercise of my discretion, albeit with great reluctance, I have to grant leave for the filing of the proposed Re-amended Defence and Counterclaim. I would now hear the parties as to costs.

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17. I take the view that this is a suitable case for an order to be made under Order 62 r. 9(4)(b) that there should be a gross sum in lieu of taxed costs.

18. The modern trend appears to be, not only in England but also in Hong Kong, that orders for costs in a gross sum in lieu of taxed costs should be made. In Mayfair Brassware Ltd v. Aqualine International Limited [1998] FSR 135, Lord Justice Morritt in the Court of Appeal said that:

"that rule is beneficial and one which the profession might well seek to operate more often because it avoids, given proper evidence as to the amount of costs, the delay and expense involved in taxation which will otherwise inevitably be incurred".

19. Thus, a gross sum assessment does not necessarily have to go hand in hand with only exceptional cases. But in any event, this is, in my view, an exceptional case where a gross sum order ought to be made. The application for amendment has been made very late. The trial date was fixed 5 months ago and it was fixed for a total of 5 days. The application for amendment was made one week before the start of trial and it was not finalized until today on the second day of the time allotted for the hearing. Not only has the court's time been wasted to the detriment of other court users but the Plaintiff has also had its legitimate expectations that the trial would be dealt with now dashed. I am told that if the order were for costs to be paid forthwith but to be taxed, the Plaintiff would have to wait another 6 months or so for the taxation process to take place.

20. In my view, therefore, it is appropriate for a gross sum order to be made in the present case. I have been given a skeleton bill in relation to the costs of the application and costs thrown away, the Defendants having conceded that the Plaintiff ought to be entitled not only to the costs of the application but also the costs thrown away.