HONG KONG GOLDEN DEVELOPMENT (HOLDINGS) LTD v. CHAN MA CHOI

HCA 2368/2015

[2022] HKCFI 2281

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2368 OF 2015

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DECISION

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THE APPLICATION

1.  By summons filed on 16 June 2021 (“the Joinder and Amendment Summons”), the plaintiff applies to (i) add Chiu Koon Shou as the 2^nd plaintiff herein and (ii) amend the Amended Writ of Summons and the Amended Statement of Claim. 

2.  For the sake of convenience, the plaintiff and Chiu Koon Shou will be referred to as “the 1^st plaintiff” and “the 2^nd plaintiff” respectively in this Decision.

PROCEDURAL HISTORY

3.  To understand the present applications and the arguments raised herein properly, it is necessary to set out the procedural history of the present case.

4.  The Writ of Summons herein was filed on 13 October 2015.

5.  According to the general indorsement of the said Writ, the 1^st plaintiff’s claim herein was initially made on the basis of a loan agreement dated 15 April 2013 between the 1^st plaintiff and the defendant (“the Alleged Loan Agreement”) pursuant to which it was alleged that the 1^st plaintiff had lent a total sum of $1.6 million to the defendant at the interest rate of 38% per annum. 

6.  As no Notice of Intention to Defend was given by the defendant, the 1^st plaintiff entered judgment against the defendant on 1 December 2015 (“the Default Judgment”).

7.  The Default Judgment was subsequently set aside by Master Lai on 29 May 2018.

8.  The 1^st plaintiff filed its Statement of Claim on the basis of the Alleged Loan Agreement on 6 June 2019.

9.  On 11 May 2020 and 4 June 2020, the 1^st plaintiff applied for leave to amend its Statement of Claim and Writ of Summons respectively.  As usual, the draft Amended Writ of Summons and the draft Amended Statement of Claim were attached to the respective summonses (hence, the defendant was well aware of the content and extent of the proposed amendments).  Leave to amend was subsequently granted by Master Hui on 9 July 2020 by consent.

10.  Pursuant to the aforesaid order made by Master Hui, the 1^st plaintiff filed its Amended Writ of Summons and Amended Statement of Claim on 14 July 2020. 

11.  In the Amended Writ of Summons, the 1^st plaintiff made a wholesale amendment to its pleaded case.  The original content of the Statement of Claim was completely crossed out.  The Alleged Loan Agreement was no longer relied on.  In its place, it was pleaded, in a gist, that:

(1)  On around 15 April 2015, the 2^nd plaintiff, on behalf of the 1^st plaintiff, entered into a written agreement (“the Sale and Purchase Agreement”) with the defendant, pursuant to which the defendant agreed to sell to the 1^st plaintiff the property rights of Lot No.2483 in Demarcation District No.19, She Shan Tsuen, Tai Po (“the Lot”) at the purchase price of $1.8 million.

(2)  The defendant had received a total sum of $1.5 million from the 1^st plaintiff pursuant to the Sale and Purchase Agreement.

(3)  Insofar as it was necessary, the 1^st plaintiff relied on section 122 of the Companies Ordinance (Cap.622, Laws of Hong Kong).

(4)  In reliance and in anticipation of the defendant’s performance of the Sale and Purchase Agreement, the defendant, on behalf of the 1^st plaintiff, entered into an agreement with a Lau Wai Kwong (“Lau”) on 10 July 2013 for the construction of a small house (“the Small House”) on the Lot for the fee of $1,272,000 (“the Construction Agreement”).

(5)  The 1^st plaintiff, as the undisclosed principal, had, through the 2^nd plaintiff, paid Lau the total sum of $992,000 directly.  It was agreed between the 1^st plaintiff and Lau that the remaining $280,000 would not be payable because of various defects relating to the construction of the Small House.

(6)  The defendant was in breach of the Sale and Purchase Agreement:

(a)  The defendant had failed to apply for the land premium notice;

(b)  The defendant had refused to take any steps towards completion of the Sale and Purchase Agreement, but had moved into the Small House and resided therein.

(7)  The 1^st plaintiff therefore claimed for damages in lieu of specific performance of the Sale and Purchase Agreement, or alternatively, damages for wasted expenditure in the sum of $992,000.

12.  On 5 November 2020, the defendant took out a summons and asked the Court to strike out the Amended Writ of Summons and the Amended Statement of Claim (“the Striking out Summons”).

13.  On 12 January 2021, the defendant took out another summons under Order 14A of the Rules of the High Court (“the Order 14A Summons”) and applied for an order that the Court do determine two matters which concern section 122 of the Companies Ordinance and the defendant’s time-bar defence respectively.

14.  On 16 June 2021, the 1^st plaintiff took out the Joinder and Amendment Summons, pursuant to which the 1^st plaintiff sought leave to add the 2^nd plaintiff and to amend the Amended Statement of Claim.  Attached to the said summons was a draft Re-Amended Statement of Claim in which it was proposed that, among other things, the followings be added to the Amended Statement of Claim:

(1)  At all material times, it was the common understanding between the 2^nd plaintiff and the defendant that the Sale and Purchase Agreement would be performed in the following way:

(a)  the 2^nd plaintiff, as principal, intended to enter into the Sale and Purchase Agreement with the defendant through a corporate vehicle (as his agent) such that the defendant would assign his right to develop the Lot (“the Development Right”) to the 2^nd plaintiff beneficially.

(b)  The 2^nd plaintiff initially identified a shelf company known as “Hong Kong Golden Development Limited” (“Golden Development Limited”) as such a vehicle.  However, while Golden Development Limited was described as the “purchaser” in the Sale and Purchase Agreement, it was discovered before the execution thereof that this shelf company was no longer available.

(c)  The defendant then assured the 2^nd plaintiff that they shall proceed to sign the Sale and Purchase Agreement on the mutual understanding that:

(i)    The 2^nd plaintiff would perform the obligations under the Sale and Purchase Agreement with the 1^st plaintiff named as the purchaser (defined as “the Purchaser” in the pleading), either by himself or through the 1^st plaintiff;

(ii)   The effect of the transaction of which the Sale and Purchase Agreement formed part was that the Development Right shall be transferred to the 1^st or 2^nd plaintiff as the 2^nd plaintiff saw fit;

(iii)  All references in the Sale and Purchase Agreement to “Golden Development Limited” would be amended to the name of the 1^st plaintiff, which shall be the agent of the 2^nd plaintiff.

(d)  It was agreed between the 2^nd plaintiff and the defendant that the 2^nd plaintiff would commission and pay for the construction of the Small House and that the defendant shall, as the 2^nd plaintiff’s agent, enter into an agreement with a contractor.

(collectively, “the Common Understanding”)

(2)  Based on the Common Understanding, the 2^nd plaintiff and the defendant signed the Sale and Purchase Agreement.

(3)  The Sale and Purchase Agreement and the Common Understanding together constituted an agreement under which the defendant shall transfer the Development Right to the 2^nd plaintiff (“the Development Agreement”).

(4)  Pursuant to the Common Understanding, the contractual obligations under the Development Agreement and/or the Sale and Purchase Agreement may be performed by either the 1^st or 2^nd plaintiff as the 2^nd plaintiff saw fit.

(5)  The defendant had received a total sum of $1.5 million from the 2^nd plaintiff pursuant to the Development Agreement and/or the Sale and Purchase Agreement.

(6)  On around 8 November 2013, the Sale and Purchase Agreement was rectified such that the “purchaser” was amended to be the 1^st plaintiff instead of Golden Development Limited.

(7)  In relation to the reliance on section 122 of the Companies Ordinance, it was further averred that the 1^st plaintiff had ratified the Development Agreement and/or the Sale and Purchase Agreement such that the 1^st plaintiff would perform those agreements as the 2^nd plaintiff’s agent if the 2^nd plaintiff so directed.

(8)  The 1^st and 2^nd plaintiffs added, among other reliefs, an order of specific performance of the Development Agreement and/or the Sale and Purchase Agreement, and mesne profits to be assessed in the Prayer.

15.  On 9 August 2021, B Chu J ordered, by consent, that the Striking out Summons and the Order 14A Summons be adjourned sine die with liberty to restore after the disposal of the Joinder and Amendment Summons.

APPLICATION FOR LEAVE TO FILE AFFIRMATION OUT OF TIME

16.  By summons filed on 24 June 2022, the 1^st plaintiff asked for leave to file the 5^th Affirmation of the 2^nd plaintiff in reply out of time (“the Time Summons”). 

17.  As a matter of background:

(1)  The 3^rd Affidavit of Mark Andrew West (the defendant’s solicitor) was filed (in opposition to the Joinder and Amendment Summons) on 6 September 2021;

(2)  In the said 3^rd Affidavit, the defendant’s solicitor did not depose to any factual matters.  He only sought to place 4 documents before the Court:

(a)  The Writ of Summons filed by the 1^st plaintiff in DCCJ1832/2019 against the defendant;

(b)  The Statement of Claim filed on 24 August 2017 by LDZ Holdings Limited as plaintiff against the defendant herein in HCA 2656/2016;

(c)  The Answer to Request for Further and Better Particulars of the Statement of Claim filed on 22 December 2017 in HCA 2656/2016; and

(d)  The skeleton argument lodged by the 1^st plaintiff herein in HCMP 435/2016 on 25 May 2018.

(3)  Pursuant to B Chu J’s order dated 9 August 2021, the 1^st plaintiff should have filed its affirmation in reply by 4 October 2021;

(4)  Pursuant to the order of Master Kent Yee dated 11 October 2021, the aforesaid deadline was extended to 1 November 2021.

18.  Despite the expiry of the extended time, the 1^st plaintiff did not file any affirmation in reply.

19.  The 1^st plaintiff only took out the Time Summons on 24 June 2022 and sought leave to file and serve the 2^nd plaintiff’s 5^th Affirmation out of time.

20.  The Time Summons was supported by the 2^nd plaintiff’s 4^th Affirmation, in which he attempted to explain the delay in filing this affirmation as follows:

(1)  Much time has been taken by the 1^st plaintiff to retrieve documents (including further payment records to Lau and bank records dated back to 2013) which are not readily available;

(2)  The 1^st plaintiff wishes to provide the “most updated context” to the Court (including whether there has been any change in the shareholdings in LDZ Holdings Limited (“LDZ”));

(3)  The situation of COVID-19 has delayed the preparation of the affirmation because both himself and those assisting the 1^st plaintiff (including its solicitors) had taken serious precautionary measures (including working from home).

21.  These excuses are simply unacceptable:

(1)  The 2^nd plaintiff has not explained why it was so difficult to retrieve the payment records to Lau.  Neither has he explained where he had retrieved the records from.  If those records were all along kept by him, then it certainly would not take such a long time to retrieve them;

(2)  It would not take 7 months for the 1^st or 2^nd plaintiff to request for documents (such as cheque copies) from the bank;

(3)  According to the 2^nd plaintiff, a Mr Lai was the sole shareholder of LDZ, but his shares were transferred to the 2^nd plaintiff on 19 September 2013.  The 2^nd plaintiff did not say that he had transferred the shares to anybody else since then, so it can be assumed that he is still the sole shareholder of LDZ.  If that is the case, I do not understand why he would say that he had filed his 5^th Affirmation late so as to provide the Court with the most up-to-date information in relation to the shareholdings in LDZ.  If he had not transferred his shares away, he would always be the sole shareholder of LDZ;

(4)  While it is common knowledge that COVID-19 has had great impact to all walks of life in Hong Kong, blame should not be laid on such public health situation whenever there is non-compliance of court orders. The present case serves as a perfect example.  By the time the 5^th wave of infection of COVID-19 started at the end of December 2021, the deadline for the filing of affirmation in reply (1 November 2021) had already expired for nearly two months.

22.  Not only the excuses put forward by the 2^nd plaintiff were totally unpersuasive, there is also much to be said in relation to the content of his 5^th Affirmation.  Much of what were stated therein were in fact submissions but not evidence in reply to the 3^rd Affidavit of Mark Andrew West. 

23.  The only paragraph in his 5^th Affirmation which I am minded to allow the 1^st plaintiff to rely on in the present hearing is paragraph 9 thereof, by which he exhibited the Defence filed by the defendant herein in HCA 2656/2016.  As that pleading was filed by the defendant himself, I cannot see why he would suffer any prejudice by this decision.  On the other hand, I am of the view that justice requires that the full picture of the pleadings filed in HCA 2656/2016 should be placed before this Court as a matter of fairness.

24.  I will therefore dismiss the Time Summons, but allow the Defence filed in HCA 2656/2016 to be inserted into the hearing bundle.  I will deal with the costs of the Time Summons at the end of this Decision.

THE DEFENDANT’S GROUNDS OF OBJECTION

25.  The defendant opposed the Joinder and Amendment Summons on the following grounds:

(1)  The plaintiffs have put forward wholly inconsistent cases, and there are several material conflicts between the proposed pleadings, the prior pleadings and evidence in these proceedings and other proceedings.  Therefore, many matters presented to the Court by the plaintiffs must be false;

(2)  Certain aspects of the plaintiffs’ case are unsustainable;

(3)  The 1^st plaintiff is estopped from pursuing the newly pleaded case by reason of the Default Judgment which was obtained on the basis of the Loan Agreement;

(4)  The new claim introduced by the Re-Amended Defence and Counterclaim is time-barred;

(5)  The amended case has not been properly particularised;

(6)  Delay.

26.  I will consider these grounds in turn below, but before I do that, it may be helpful to set out the applicable legal principles even though they are trite.

THE LEGAL PRINCIPLES

27.  The applicable legal principles have been set out by the House of Lords in Ketteman & Others v Hansel Properties Limited [1987] AC 189, at 212 as follows:

“First, all such amendments should be made as are necessary to enable the real questions in controversy between the parties to be decided. Secondly, amendments should not be refused solely because they have been made necessary by the honest fault or mistake of the party applying for leave to make them: it is not the function of the court to punish parties for mistakes which they have made in the conduct of their cases by deciding otherwise than in accordance with their rights. Thirdly, however blameworthy (short of bad faith) may have been a party’s failure to plead the subject matter of a proposed amendment earlier, and however late the application for leave to make such amendment may have been, the application should, in general, be allowed, provided that allowing it will not prejudice the other party. Fourthly, there is no injustice to the other party if he can be compensated by appropriate orders as to costs.”

28.  These are still the guiding principles which are applicable after the implementation of the Civil Justice Reform.  As explained by Kwan JA (as she then was) in Topwell Corporation Limited v Kwan Kam Kee & Another [2014] 5 HKLRD 1:

“39. The principles in Ketteman v Hansel Properties Ltd [1987] 1 AC 189 at 212F to H on the exercise of discretion to allow or refuse an amendment of pleadings remain good law after the CJR, see Li Shiu To v Li Shiu Tsang, HCA 416/2003, 14 August 2012, Deputy Judge Lok, paras 14 to 16. Having said that, in the exercise of discretion, the court must of course have regard to the underlying objectives in Order 1A of the RHC or of the RDC, so it cannot be assumed that once the principles in Ketteman are satisfied, the amendment would be allowed. The court would need to balance all relevant factors to decide how its discretion should be exercised, if the application is made in circumstances offending one or more of the underlying objectives. In this particular case, a pertinent consideration in giving effect to the underlying objectives is that the court “shall always recognise 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” (Order 1A rule 2(2) of the RDC).”

DISCUSSION

Wholly inconsistent cases

29.  The first ground relied on by the defendant was that the plaintiffs had put forward wholly inconsistent cases of 4 different versions in this action, some of which in turn were inconsistent with the pleaded case of the 2^nd plaintiff in other actions:

(1)  Version 1 was pleaded in the original indorsement of claim and the Statement of Claim, which was based purely on the Alleged Loan Agreement;

(2)  Version 2 which was found in the Amended Statement of Claim was a case based on the Sale and Purchase Agreement of which the 1^st plaintiff was held out as a party.  The 2^nd plaintiff was not mentioned in the Amended Statement of Claim, save that he signed the Sale and Purchase Agreement on the 1^st plaintiff’s behalf;

(3)  Version 3 (as put forward in the draft Re-Amended Statement of Claim) was said to have changed the fundamental basis of the claim in that the Development Agreement and the Common Understanding were newly introduced and the 2^nd plaintiff was added as a contractual party;

(4)  Version 4 was stated to have addressed the Construction Agreement, pursuant to which it was alleged that Lau had agreed to construct the Small House at the fee of $1,272,000, while at the end of the day, it was alleged that only $992,000 was paid to Lau;

(5)  In HCA 2656/2016, LDZ (of which the 2^nd plaintiff was the sole shareholder) alleged that the defendant had asked LDZ to build a small house on a piece of land known as No.80 She Shan Tsuen, Tai Po[1] at the construction fee of $1,272,000, and that the fee was subsequently increased to $1,372,000.  It was further alleged that LDZ had paid Lau for the sum of $1,152,000, but not $992,000;

(6)  On 11 April 2019, the 1^st plaintiff commenced DCCJ 1832/2019 and claimed against the defendant for the sum of $1,372,000 pursuant to an alleged loan agreement dated 10 July 2013.

30.  I am not minded to disallow the proposed amendments on the basis of the alleged inconsistencies.

31.  Firstly, I do not think it is now open to the defendant to complain that the case pleaded in the draft Re-Amended Statement of Claim is very much different from that pleaded in the Statement of Claim.  This is because, as aforesaid, the Statement of Claim had been replaced by the Amended Statement of Claim in its entirety by consent.  Indeed, it is recognised by Mr Brown and Mr Zhu for the defendant that:

“[…] taken to its highest, the Consent Summons would prevent D from challenging amendments made as between the SoC and the ASoC. D is not seeking to set aside those amendments in any event.”

32.  If it is accepted that the amendments made as between the Statement of Claim and the Amended Statement of Claim cannot be challenged at this stage, then, in my view, the defendant’s counsel are not entitled to make any point on inconsistencies in pleadings on the basis of the content of the Statement of Claim.  All they could do is to start their analysis from the Amended Statement of Claim.  This is because what is in issue before this Court is only the amendments from the version pleaded in the Amended Statement of Claim to that pleaded in the draft Re-Amended Statement of Claim.

33.  Secondly, I agree with the approach adopted by Suffiad J in Liang Jun Xian v Tsui Hin Jin & Another (HCA2288/2007, unreported, 26 January 2011) in which his Lordship held that:

“44. I can find nothing to even remotely suggest that the ‘statement of truth’ introduced by the Civil Justice Reform was intended to stranglehold amendments to pleadings such that a party would not be allowed to amend if the proposed amendment was inconsistent with the previous pleading.

45. The general rule is that an amendment, when made, would date back to the date of the original pleading. That is still the position after the Civil Justice Reform. On that basis therefore, there can be no difficulty for the plaintiff to verify the amended pleading with a statement of truth.

46. While it is true that the plaintiff can be cross examined at trial in respect of the inconsistent pleading being made at different times and verified by a statement of truth. But, depending on her answers, those matter would go to weight and/or credibility of the person verifying the inconsistent pleading.

47. The guiding principle whether amendments should be allowed is to ensure justice and fairness between the parties in that the cases of the parties are properly pleaded and the issues clearly defined when it comes to trial.  As long as there can be no prejudice to the other side which cannot be cured by the payment of costs, the general rule is that amendments ought to be allowed.”

34.  Such an approach was followed by Mimmie Chan J in Ng Kwok Piu Philip & Others v To Pui Kui & Others (HCA 51/2007, unreported, 29 December 2014) in which her Ladyship had the following to say:

“16. It is of course borne in mind that the original pleadings were verified by statements of truth signed by members of Philip’s Group. If there is evidence in due course of their making false statements, there will be legal consequences and penalties. The late change in case will no doubt be the subject of cross-examination and submissions to be made at the trial on questions of the credibility of the witnesses. Yet, I agree with the observation made by the Court in Liang Jun Xian v Tsui Hin Chi, unreported, HCA 2288/2007 (cited in para 41A/2/6 Hong Kong Civil Procedure), that statements of truth were not intended to stranglehold amendments to pleadings such that a party would not be allowed to amend, in that case, if the proposed amendment is inconsistent with the previous pleading. The guiding principle whether amendments should be allowed is to ensure justice and fairness between the parties, in that the cases of the parties are properly pleaded, and the issues clearly defined when they come to trial.”

35.  The defendant’s counsel, on the other hand, have drawn my attention to the case of Tong Kin Hing v Autron Mauritius Corporation & Others [2010] 1 HKLRD 77, in which Rogers VP held that:

“20. In my view, when faced with a situation where a pleading has been verified in circumstances where it has been demonstrated that the verification should never have been made, the Court should be very slow to permit any amendment to that pleading. If the part of the pleading that is defective is the central part of a claim then the Court may well consider that the pleading should struck out and the party left to whatever course is open to him in bringing new proceedings. It is a matter of discretion and in exercising that discretion the Court recognises that the primary aim in exercising its powers is to secure the just resolution of disputes in accordance with the substantive rights of the parties. Hence, there can be no hard and fast rule, but the onus lies heavily on the party in default.”

36.  However, as Rogers VP pointed out in the paragraph quoted above, there is no hard and fast rule.  Lam VP (as Lam PJ then was) in Yu Man Fung Alice v Chau Sing Chi Stephen (HCMP 307/2015 and CACV 13/2016, unreported, 20 January 2016) also stated[2] that he did not think Rogers VP was minded to lay down any inflexible rule as such.   It is a matter of discretion, and much would depend on the facts of each case.

37.  Adopting Suffiad J’s approach, I am of the view that it is appropriate to allow the amendments, so as to enable the real questions in controversy between the parties to be decided.  Although the draft Re-Amended Statement of Claim has added further details to the plaintiffs’ case (in particular, the addition of the 2^nd plaintiff who is now said to be the “real purchaser”), it is noted that the involvement of the 2^nd plaintiff in the subject transaction has also been mentioned by the defendant himself in his affirmation filed on 28 June 2017 in support of his application to set aside the Default Judgment. In the same Affirmation, the defendant further stated[3] that, in around May 2013, a Mr Chan of the 2^nd plaintiff’s solicitors’ firm asked the defendant to sign two wills (which he did sign accordingly) – Golden Development Limited was named as beneficiary of the Lot under one of the wills, whereas the 2^nd plaintiff was the beneficiary under the other will.  Again, this prima facie shows the 2^nd plaintiff’s involvement and personal interest in the transaction.  This matter must be taken into account.

38.  Thirdly, I do not agree with the defendant that the claim made on the basis of the Development Agreement should be regarded as a change of the fundamental basis of the claim.  On my reading of the draft Re-Amended Statement of Claim, the term “Development Agreement” was just given therein to cover: (i) the Sale and Purchase Agreement; and (ii) the Common Understanding – which was the alleged agreed manner by which the Sale and Purchase Agreement would be performed.  The basis of the claim is still, in substance, the Sale and Purchase Agreement.

39.  Fourthly, this is not the occasion to consider forensically the alleged differences between the pleaded case in the present action and those pleaded in other actions.  In this regard, the views expressed by Suffiad J and Mimmie Chan J are equally applicable: it is up to the defendant’s counsel to cross-examine the 2^nd plaintiff at the trial and make submission on his credibility accordingly if such counsel thinks fit.  In the event there is evidence in due course of any person having made false statements, it would be up to the defendant to take further action so as to cause the necessary legal consequences and penalties to be imposed.  It is not for this Court to conduct a trial on affidavits at this stage.

40.  The defendant further alleged that the following special circumstances also require explanations to be given by the 1^st plaintiff:

“a. If the claim as now pleaded is true and P2 was all along aware he was the proper plaintiff why was the claim originally pleaded as a Loan by P1, which now does not feature anywhere as part of the claim.

b. If the claim as now pleaded is true and P2 was all along aware he was the proper plaintiff, why was this not reflected in the (sic) when the claim was amended to the ASoC, where the claim remained only as a claim by P1;

c. How can P2 maintain the ‘wasted costs’ claim against D for paying the Builder where the same is claimed by P2’s own company, LDZ, in proceedings brought by P2’s firm that LDZ is the contracting party and has not in fact be (sic) paid at all.”[4]

41.  Paragraph (a) can be dealt with quickly.  As aforesaid, the defendant had allowed the 1^st plaintiff to amend its Statement of Claim by replacing the claim made pursuant to the Alleged Loan Agreement altogether.  It is now not open to the defendant to make any complaint in relation to that particular amendment, not to mention to demand any explanation from the 1^st or 2^nd plaintiff.

42.  In relation to paragraph (b), Mr Brown submitted that the 2^nd plaintiff had not given any explanation as to why he did not add himself as a party earlier if “it has all along been [his] position that it was [him] (in [his] personal capacity) who contracted with the defendant”[5]. Relying on the case of Hesson Development Limited v Tang Ki Fan Tso with Tang Tin Kwai as Manager (HCA 5584/1998, unreported, 30 September 2003), he submitted that “the Court cannot even begin to consider whether the considerations set out in cases such as Ketteman”[6].

43.  With respect, it must be borne in mind that the facts in Hesson Development Limited (supra) are quite different from those in the present case, and therefore what Chu J (as Chu JA then was) said therein must be understood in the proper context.  In that case, while leave to set down for trial was given in September 1998, it was not set down until February 2002.  A pre-trial review had been heard on 3 March 2003, with the trial fixed to commence on 31 March 2003.  However, the trial date had to be vacated because the defendant only made an application to file and serve expert report at the PTR.  Also at the PTR, it was intimated to the judge that an amendment to the defendant’s pleading would be required to which the learned Judge directed that a formal application had to be made.  Although it appeared that the draft amended pleading was ready by the time of the PTR, yet, there was no reason given as to why the summons for leave to amend could not be taken out earlier and made returnable before the learned Judge at the PTR.  Such an application was eventually only made on 8 April 2003. It was upon the above background that Chu J took the view that the defendant’s failure to explain the delay meant that the Court could not even begin to consider the considerations set out in Ketteman. 

44.  However, the procedural background in the present case is very different.  As I will elaborate further below, the action is still in pleading stage.  Although there is no doubt that it would have been better if the present application was taken out earlier, I do not think there is undue delay on the part of the 1^st plaintiff to make the present application.  While the absence of explanation is one of the matters which this Court should take into account, I do not think it would be fatal.  On my part, I would give more weight to the Court’s desire to ensure justice and fairness between the parties, such that the real question in controversy can be tried.

45.  In respect of paragraph (c), insofar as it is the defendant’s argument that the 2^nd plaintiff’s claim for wasted costs against the defendant is inconsistent with another action caused to be commenced by the 2^nd plaintiff himself against the defendant, I am of the view that this is a matter which the defendant’s counsel may, if considered necessary, cross-examine the 2^nd plaintiff at the trial.

46.  To conclude, I do not think this “lack of explanation” argument can assist the defendant.

Sustainability of the plaintiffs’ case

47.  While they were comparing the different versions of the plaintiffs’ case, counsel for the defendant also submitted that the plaintiffs’ case is incomprehensible.  Their arguments may be summarised as follows:

(1)  If the parties to the contractual relationship in question were the 2^nd plaintiff and the defendant, then the 1^st plaintiff should have no claim to assert.  Yet, the 1^st plaintiff is still claiming for specific performance of the Development Agreement and the Sale and Purchase Agreement;

(2)  It is not clear how the 1^st plaintiff could ratify the Development Agreement if it was not even a party thereto;

(3)  The 1^st plaintiff was not in existence at the time when the Sale and Purchase Agreement was entered into and performed;

(4)  Golden Development Limited (which had nothing to do with the 2^nd plaintiff) was initially named as the purchaser in the Sale and Purchase Agreement.  The 2^nd plaintiff had no authority to enter into any binding agreement on its behalf, and would require a novation of the Sale and Purchase Agreement with Golden Development Limited’s consent before the rights thereunder could be transferred to the 1^st plaintiff.

48.  I take the view that these arguments cannot assist the defendant.

49.  The defendant’s argument that the 1^st plaintiff had no claim to assert was made in total disregard of the plaintiffs’ pleaded case that the 1^st plaintiff had ratified the Development Agreement and/or the Sale and Purchase Agreement such that the 1^st plaintiff would perform those agreements if the 2^nd plaintiff so directed[7].

50.  In relation to the defendant’s argument that the 1^st plaintiff only came into existence 2 years after the date of the Sale and Purchase Agreement, it has been pleaded by the 1^st plaintiff in the Amended Statement of Claim that insofar as it is necessary, it would rely on section 122 of the Companies Ordinance (that is, ratification of the Sale and Purchase Agreement).  The said section 122 provides that:

“Contracts made before company’s incorporation

(1) This section applies if a contract purports to have been made in the name or on behalf of a company before the company was incorporated.

(2) Subject to any express agreement to the contrary—

(a) the contract has effect as a contract entered into by the person purporting to act for the company or as an agent for the company; and

(b) the person is personally liable on the contract and is entitled to enforce the contract.

(3) After incorporation, the company may ratify the contract to the same extent as if—

(a) the company had already been incorporated when the contract was entered into; and

(b) the contract had been entered into on the company’s behalf by an agent acting without the company’s authority.

(4) Despite subsection (2)(b), if the contract is ratified by the company, then on and after the ratification, the liability of the person mentioned in that subsection is not greater than the liability that the person would have incurred if the person had entered into the contract after the company’s incorporation as an agent acting without the company’s authority.”

51.  Hence, even before the incorporation of the 1^st plaintiff, it was possible for a person who purported to act on its behalf to enter into contracts either in the name of or on behalf of the 1^st plaintiff.  Once the 1^st plaintiff was incorporated, it might ratify the contract so that it would have the same effect as if the company had been incorporated at the time when the contract was entered into and as if the person who entered into the contract had done so on behalf of the company or as an agent acting with the authority of the company.

52.  I should further note that the 1^st plaintiff’s pleaded case that the Sale and Purchase Agreement was entered into on its behalf at the time when it was not yet incorporated was already there in the Amended Statement of Claim which had been filed by consent.  This is not a new case introduced by virtue of the draft Re-Amended Statement of Claim.

53.  In respect of the defendant’s point that the party to the Sale and Purchase Agreement was Golden Development Limited, I am afraid this argument is without merits, because the draft Re-Amended Statement of Claim had made it sufficiently clear that while this shelf company was originally intended to be used by the 2^nd plaintiff as his corporate vehicle when entering into the Sale and Purchase Agreement, this company was no longer available at the material time, and hence he had to use another shelf company (i.e. the 1^st plaintiff).  If the pleaded case is properly understood, it was clearly not intended by the 2^nd plaintiff to have the Development Right transferred to Golden Development Limited which was not his company at all.

54.  Mr Brown further referred to the 2^nd Affirmation of Kwok Ka Lun (“Kwok”) which was filed by the 1^st plaintiff on 10 August 2017 in response to the defendant’s application to set aside the Default Judgment (“Kwok 2^nd”), in which Kwok, who claimed himself to be the debt recovery manager of the 1^st plaintiff, stated that “the parties agreed that a loan agreement with interest obligation should be signed and executed in replacement of the [Sale and Purchase] Agreement”.  He submitted that, if the Alleged Loan Agreement had already replaced the Sale and Purchase Agreement, then the plaintiffs’ claim as pleaded in the draft Re-Amended Statement of Claim is bound to fail.

55.  I do not accept such an argument, because, as Mr Brown himself recognised, the Alleged Loan Agreement has no longer been part of the 1^st plaintiff’s case herein since the amendment made by virtue of the Amended Statement of Claim.  Whether the plaintiffs are able to establish their claim against the defendant on the basis of the Sale and Purchase Agreement despite what Kwok stated in Kwok 2^nd is a matter which has to be resolved by the trial Judge.

Estoppel

56.  The defendant’s counsel argued that once the 1^st plaintiff had elected to obtain the Default Judgment on the basis of the Alleged Loan Agreement, they should be regarded as having made an election, and as a result of which it cannot pursue another claim pursuant to the Sale and Purchase Agreement. 

57.  With respect, this argument is bad because:

(1)  The pursuit of that “another claim” had already been done when the 1^st plaintiff filed the Amended Statement of Claim by consent.  In other words, this complaint, even if it were a valid one, should have been made when the 1^st plaintiff applied to make a wholesale amendment to its Statement of Claim.  However, the defendant chose to give its consent to such amendments.  I do not think it is right for the defendant to be allowed to reopen this matter this time, when the reliance of the defendant’s breach of the Sale and Purchase Agreement as a cause of action was already pleaded in the Amended Statement of Claim.  As aforesaid, the claim made on the basis of the Sale and Purchase Agreement is not the subject matter of amendment as far as the proposed re-amendment of the Statement of Claim is concerned. Hence, it is not a matter in issue in this hearing;

(2)  In any event, the Default Judgment had been set aside.   Mr Brown and Mr Zhu cited the case of Nexus Communication Group v Michael Lambert [2005] EWHC 345 (Ch) and Chinachem Charitable Foundation Ltd v. Chan Chun Chuen & Others [2009] 5 HKC 190 and relied on the principles summarised therein to support their argument that the 1^st plaintiff was bound by the rule of election.  With respect, those principles are clearly inapplicable to the present case.  The rule of election is simply not engaged herein.

The limitation defence

58.  The defendant argued that the amendments should not be allowed because of its “more than arguable” limitation defence.

59.  In this regard, the defendant’s counsel have referred this Court to the Court of Appeal decision in Global Bridge Assets Limited & Others v Sun Hung Kai Securities Limited [2012] 4 HKLRD 474, in which Kwan JA (as she then was) had the following to say:

“21. Leave to amend should not be given if the effect of this would be to deprive the defendant of an accrued limitation defence, which would be lost as a result of the operation of the relation-back rule in s 35(1)(b). In that situation, the correct approach is to refuse leave to amend, unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation, or that the new claim arises out of the same or substantially the same facts as a cause of action in respect of which relief has already been claimed in the existing action. ‘By this means the injustice to the defendant of depriving him of an arguable limitation defence is avoided without denying the plaintiff the right to bring a fresh action to which, if he is correct, there is no limitation defence.’ ” (emphasis added)

60.  This was further explained by G Lam JA in paragraph 34 of Securities and Futures Commission v Lu Ruifeng [2022] 1 HKLRD 1349, [2022] HKCA 326:

“It is plain that, ordinarily, an order giving leave to the plaintiff to join a defendant and amend the statement of claim is not one that determines any substantive rights. What it decides, usually, is merely that the plaintiff has an arguable case against the defendant. But an amendment that adds a claim based on a new cause of action or against a new defendant in the face of an objection that the applicable limitation period has expired stands on a different footing. Section 35(1)(b) LO means that, once added, the new claim relates back to the date of commencement of the original action. If the limitation period for the new claim had not expired by that earlier date, the time-bar defence would be lost to the defendant forever. This is why before such an amendment is to be permitted, the court has to be satisfied that the limitation defence is not reasonably arguable anyway: Sun Focus Investment Ltd v Tang Shing Bor [2012] 1 HKLRD 738, §§11-15; Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd [2012] 4 HKLRD 474, §§14-26. As stated in Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409 at 1425G-H: ‘In such a case, leave to amend by adding a new claim should not be given unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation which will be prejudiced by the new claim, or can bring himself within R.S.C. Ord. 20 r. 5.” It follows that a decision giving leave to amend in such a case necessarily determines that the defendant does not have a limitation defence.’ ”

61.  The defendant’s argument on limitation defence was run in the following way:

“a. The claim for the breach of the [Sale and Purchase Agreement] is a claim for the breach of a simple contract, and the limitation period ran from the date on which the cause of action accrued, namely, the time of breach.

b. In the present case, according to Kwok 2^nd, the alleged breach of the [Sale and Purchase Agreement] was on entry to the [Sale and Purchase Agreement] on 15 April 2013.

c. Alternatively, even on P’s highest case, the breach of the [Sale and Purchase Agreement] took place after the issuance of the Certificate of Compliance and D’s move into the Small House, which was in April 2015.

d. The Joinder and Amendment Summons, was only taken out on 16 June 2021.”[8]

62.  With greatest respect, the reliance of Kwok 2^nd on the part of the defendant is misconceived, because the content therein is not the case pleaded in the draft Re-Amended Statement of Claim.

63.  The breach of the Development Agreement and/or the Sale and Purchase Agreement as pleaded in the draft Re-Amended Statement of Claim occurred on 18 June 2015[9]. Counting from this date, it was still within 6 years when the Joinder and Amendment Summons was filed on 16 June 2021.

64.  Furthermore, the alleged breach of the Sale and Purchase Agreement on the part of the defendant was already pleaded in the Amended Statement of Claim filed on 14 July 2020 which was well within the 6-year limitation period even if the date of breach was taken to be April 2015.

65.  The defendant’s limitation defence is therefore not reasonably arguable at all.

66.  In any event, I am satisfied that the amendment should be allowed pursuant to Order 20 rule 5 of the Rules of the High Court which provides that:

“(1) […]

(2) Where an application to the Court for leave to make the amendment mentioned in paragraph (3), (4) or (5) is made after any relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so.

(3) – (4) […]

(5)        An amendment may be allowed under paragraph (2) notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if 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 by the party applying for leave to make the amendment.”

67.  In WDA Architects Limited v MHS Planners, Architects & Engineers & Another (CACV 116/2014, unreported, 21 July 2015), McWalters JA stated that:

“68. The question then becomes whether this new cause of action can be brought within the exception provided by O 20 r 5(5). The relevant principles for determining whether the new cause of action arises out of the same facts or substantially the same facts as the cause of action originally pleaded are not in dispute and it is accepted were correctly set out in the judgment of Bharwaney J who explained the focus of the court’s enquiry as follows:

‘The reason why an amendment is only permitted if it is based on the same facts, or substantially the same facts, pleaded to support the original cause of action, is to avoid putting a defendant in the position where, if the amendment is allowed, he will be obliged, after the expiry of the time period, to investigate facts, and other evidence, relating to matters which are completely outside the ambit of, and unrelated to, those facts which he could reasonably be assumed to have investigated for the purpose of defending the claim as originally pleaded without the amendment. The exception in sub-paragraph (5) is based on the assumption that the party, against whom the proposed amendment is directed, would not be prejudiced because that party, for the purposes of the pre-existing matters in issue, will already have had to investigate the same or substantially the same facts.’ ”

68.  I am of the view that, even if the proposed amendments to the Amended Statement of Claim are allowed to be made, the defendant would not be obliged to investigate into matters which are completely outside the ambit of, and unrelated to, those facts which he could reasonably be assumed to have investigated for the purpose of defending the claim made in the Amended Statement of Claim.  One only has to make reference to what the defendant himself stated in his Affirmation filed on 28 June 2017 (when he sought to set aside the Default Judgment), in which he unequivocally referred to his negotiation with the 2^nd plaintiff.

Want of particulars

69.  In their submission, the defendant’s counsel complained that some of the proposed amendments are lacking in particulars. 

70.  Firstly, it was argued that there is no indication of whether the Common Understanding was in writing or oral or when or where it was made. 

71.  When I pointed out to Mr Mak that these particulars seem to be usual particulars which one might expect the plaintiffs to provide, he agreed, and requested to have the matter stood down so that he could take further instructions on the matter.  When the hearing resumed, he handed up a revised draft Re-Amended Statement of Claim, in which further particulars had been included. 

72.  Upon perusal of those further particulars, Mr Brown pointed out that they had created even more problems because they were inconsistent with what the 2^nd plaintiff stated in his 1^st affirmation[10] in that:

(1)  In the 2^nd plaintiff’s 1^st Affirmation, he stated that just before meeting to conclude the sale with the defendant, his company vendor told him that Golden Development Limited was no longer available, and that he informed the defendant about it during the meeting he had with the defendant on 15 April 2013;

(2)  However, in the latest version of the draft Re-Amended Statement of Claim, he alleged that it was around 2 to 3 months before 8 November 2013 that it was discovered that Golden Development Limited was no longer available.

73.  Mr Brown also stated that the latest draft was also vague as to how the oral common understanding was reached.

74.  While there is clearly discrepancy as pointed out by Mr Brown, I am of the view that the approach adopted by Mimmie Chan J as quoted in the earlier part of this Decision is equally applicable here. Whether the 2^nd plaintiff will be able to establish his pleaded case as contained in the latest draft Re-Amended Statement of Claim despite what he stated in his 1^st Affirmation will be a matter for the trial Judge to decide.  This Court cannot make any finding of fact as such at this stage without hearing the 2^nd plaintiff’s evidence. 

75.  In relation to the circumstances under which the oral common understanding was reached, I am of the view that this is evidence but not material facts.  Having considered the entirety of the latest draft Re-Amended Statement of Claim, I take the view that the plaintiffs’ case is clear enough for the defendant to plead his Amended Defence.

76.  Secondly, it was alleged that the draft Re-Amended Statement of Claim did not state the date of the Sale and Purchase Agreement. 

77.  In the Amended Statement of Claim, while the date of the Sale and Purchase Agreement was not stated, it was pleaded that the said written agreement was entered into on 15 April 2013.  However, for unknown reason, this was deleted in the draft Re-Amended Statement of Claim.  Such part of the pleading was added back to the latest draft Re-Amended Statement of Claim.  As a result, Mr Brown’s point had been dealt with.

78.  Thirdly, the defendant’s counsel submitted that the draft   Re-Amended Statement of Claim had not made clear the capacity in which the 2^nd plaintiff signed the Sale and Purchase Agreement and that the draft of the amended pleading had deliberately used the term “purchaser” so as to cloud the issue.  

79.  I do not think this is a fair criticism.  The plaintiffs’ case in this regard has been clearly pleaded in paragraph 3B(c)(i) and (iii) of the draft Re-Amended Statement of Claim:

(1)  The 2^nd plaintiff would perform the obligations under the Sale and Purchase Agreement either by himself or through the 1^st plaintiff, with the 1^st plaintiff named as the purchaser therein;

(2)  the 1^st plaintiff was intended to be the agent of the 2^nd plaintiff.

80.  Viewed in that light, I do not agree with Mr Brown’s suggestion that the defendant had difficulty in understanding who actually the purchaser was under the Sale and Purchase Agreement. 

Delay

81.  The defendant then submitted that the present application is late and the plaintiffs have failed to offer any explanation in this regard.

82.  While it is true that this action was commenced in October 2015, it should be noted that, at the end of the day, the 1^st plaintiff only filed its Amended Statement of Claim by consent on 14 July 2020.  Because various interlocutory applications had been made by the parties in the meantime, the defendant is yet to make consequential amendments to his Defence (which was still pleaded to the Alleged Loan Agreement).  In other words, the action is still at pleading stage. 

83.  In such circumstances, I do not think it can be said that this application is late, at least not in the sense as discussed in various authorities relied on by the defendant, in particular Hesson Development Limited v Tang Ki Fan Tso with Tang Tin Kwai as Manager (supra).

84.  Having taken the above into account, I do not think this is a factor which would weigh heavily in the exercise of the discretion of this Court in the present application.

CONCLUSION

85.  Having considered all the circumstances discussed above, I am of the view that the Court should exercise its discretion in allowing the 1^st plaintiff to add the 2^nd plaintiff herein, to make the proposed amendments to the Amended Writ of Summons and the Amended Statement of Claim.

ORDER

86.  I therefore make the following orders:

(1)  Leave be granted for Chiu Koon Shou to be added as the 2^nd plaintiff in this action;

(2)  The plaintiff do have leave to amend the Amended Writ of Summons and Amended Statement of Claim both filed on 14 July 2020 as per the draft Re-Amended Writ of Summons annexed to the summons filed on 16 June 2021 and the draft Re-Amended Statement of Claim handed up to the Court in the hearing on 20 July 2022;

(3)  Leave be granted to the plaintiffs to file and serve the Re-Amended Writ of Summons and the Re-Amended Statement of Claim within 7 days from the date hereof;

(4)  Leave be granted to the defendant to make consequential amendments to the Defence and file and serve the Amended Defence within 28 days thereafter;

(5)  Leave be granted to the plaintiffs to file and serve their Reply within 28 days thereafter.

COSTS

Costs of the Time Summons

87.  Mr Mak conceded at the hearing that the 1^st plaintiff should bear the costs of the Time Summons.  I therefore order that the 1^st plaintiff shall pay the defendant’s costs of the Time Summons in any event, to be taxed if not agreed.

Costs of the Joinder and Amendment Summons

88.  It is trite that there are two sets of costs in an application for leave to amend, namely:

(1)  the costs of and occasioned by the amendment; and

(2)  the costs of the hearing.

89.  I do not think there can be any dispute that the 1^st plaintiff should bear the costs of and occasioned by the amendment.

90.  However, as far as the costs of the hearing is concerned, it is less straight-forward.

91.  On one hand, at the end of the day, the 1^st plaintiff has succeeded in its application.  However, on the other hand, leave was only given upon the 1^st plaintiff’s provision of particulars at the hearing.  Having considered the above matters in the round, I make the following costs order nisi:

(1)  The plaintiff do bear the defendant’s costs of and occasioned by the amendment to the Amended Statement of Claim in any event, to be taxed if not agreed;

(2)  Costs of the hearing be in the cause.

92.  The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on papers) within 14 days hereof.