BMS GROUP INTERNATIONAL LTD v. JUSTIN LIM SHAO CHERM AND OTHERS

HCA 22/2017

[2020] HKCFI 3088

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 22 OF 2017

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D E C I S I O N

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A. The Appeal

1.  In this appeal, the 7^th defendant (“D7”[1]) seeks to appeal against the decisions of Master Catrina Lam made on 15 May 2018:

(a)  allowing the summons dated 29 December 2017 (the “Amendment Summons”) taken out by the plaintiff (“P”) for leave to amend its Amended Statement of Claim (“ASOC”) in terms of the proposed Re-amended Statement of Claim attached to the Amendment Summons (the “Proposed RASOC/Ver 1”);

(b)  dismissing the summons taken out on 18 July 2017 (the “Striking Out Summons”) by D1, D2, D6 and D7 for an Order that P’s Statement of Claim be struck out and its claim against them be dismissed.

2.  Mr Walker Sham together with Ms Nicole Chun appeared for D7. Together they have filed 4 sets of submissions (dated 19 November 2018, 21 November 2018, 19 February 2019, and 19 March 2019 (respectively “Mr Sham/1”, “Mr Sham/2”, “Mr Sham/3” and “Mr Sham/4”) together with 23 authorities.

3.  Mr Jonathan Chan appeared for P.  He has filed 5 sets of submissions (dated 20 November 2018, 15 February 2019, 20 February 2019, 18 March 2019 and 20 March 2019 (respectively “Mr Chan/1”, “Mr Chan/2”, “Mr Chan/3”, “Mr Chan/4” and “Mr Chan/5”) with altogether 30 authorities.

B.  Affirmatory evidence

4.  There were before me 5 main affirmations:

(a)  on behalf of D1, D2, D6 and D7, the 1^st, 2^nd and 3^rd affirmations of Liu Chung Yin Terry of 18 July 2017, 5 December 2017 and 12 March 2018 (“Liu/1”, “Liu/2” and “Liu/3” respectively).  Mr Liu was the legal adviser of D1, D2, D6 and D7 having conduct of the proceedings; and

(b)  on P’s behalf, the 3^rd affidavit of Yip Ki Chi Luke of 14 September 2017 (“Yip/3”) and the affirmation of Yuen Chung Man Dennis of 30 April 2018 (“Yuen/Aff”).

C.  P’s claim and the relevant procedural history

5.  P was in the business of designing and developing footwear and sports shoes.

6.  D2 and D1 are father and son.  It is P’s case that they controlled D3 to D7[2]. D3 to D7 are or were all foreign companies operating outside Hong Kong (D3 in India, D5 in Italy, and the other 3 in Malaysia).

7.  D1 to D7 were in the business of, variably, retailing, distributing, manufacturing or trading of footwear and sports shoes.

8.  P has called D3 to D6 the “Purchasing Defendants”, which term I adopt.

9.  In 2011, P received a number of purchase orders from the Purchasing Defendants for divers footwear.  P subsequently issued invoices for them.  It is P’s case that a number of those invoices have remained outstanding (the “Outstanding Invoices”).  The total outstanding amount is US$483,732.87 (the “Outstanding Sum”)[3].

10.  The Writ herein was issued on 4 January 2017.  It was indorsed with a Statement of Claim bearing that same date (“SOC”).

11.  On 17 February 2017, the SOC was amended pursuant to Order 20 rule 3, resulting in the ASOC.

12.  In the ASOC, and relevantly:

(a)  P avers that D3, D6 and D7 were under the substantial control of D1 and D2;

(b)  P pleads at §10 the business relationship between it and various Ds.  It pleads in particular at §10(j)[4] that:

“ At that time, the payment instructions for the Goods were given by [D6] to ship through [D4], and payment of the goods for [D3] was financed by [D7]. As instructed by [D2], all shipping documents to [D3] would need to be renamed as [D7] as the actual buyer of the Goods”;

(c)  P avers that it had reached various sale and purchase agreements with the Purchasing Defendants, and that D7 had variably been informed when the shipments were ready or of the confirmed prices and been demanded to pay.  Certain payments had in fact been remitted through D7[5]. P claims that “in breach of” those agreements, either D3 or D4, depending on who placed the order, and D7 have failed to pay the relevant invoiced sums[6]. Specifically at §§32 and 33[7], P pleads that:

“ 32.  Despite repeated requests made by [P] to [D3] to [D7] … as well as [D1] and [D2] … each of [D3] to [D7] has still failed to settle its respective share of the Outstanding Sum up to the date hereof.

33.  By reason of the aforesaid, [P] is entitled to claim against [D3] to [D7] for their respective share of the Outstanding Sum.”  

(d)  P’s further or alternative claim against D7, as pleaded at §34 of the ASOC[8], is that:

“ Further or in the alternative, [D7] was at all material times and is the paying and financing agent of [D3] and [D6] as evidenced by [D7’s] settlement of various invoices … such that it has the obligation to pay [P] the Outstanding Sum.”

13.  On 2 June 2017, D1, D2, D6 and D7 filed their Defence:

(a)  D1 and D2 admit that they were 2 of the shareholders and directors of D3, D6 and D7[9];

(b)  It is admitted that the Purchasing Defendants and P had some trading disputes;

(c)  D6 pleads that it has fully paid P the claimed amount;

(d)  D7:

(i)   specifically denies[10] that it had any contractual relationship with P over the claimed purchases made by the Purchasing Defendants;

(ii)   avers that D7 is not liable for any of the claimed purchases made by the Purchasing Defendants, D7 being a legal entity separate from each of them[11]; and

(iii)   denies §§31 to 35 of the ASOC, and specifically denies that it had any contractual relationship with P or had any legal obligation to pay P for the Outstanding Sum[12].

14.  On 18 July 2017, D1, D2, D6 and D7 took out the Striking Out Summons.

15.  On 28 July 2017, P filed its Reply.  P mostly adopts certain contents of its ASOC in reply.

16.  On 29 December 2017, P took out the Amendment Summons.

17.  The main proposed amendments relate to the liability of D7.  P proposes to plead that that D7 is liable to the Outstanding Sum as the undisclosed principal of one or more of the Purchasing Defendants.  §34 of the Proposed RASOC/Ver 1 reads as follows:

“ (v) The 7^th Defendant (Power Tec Footwear Industries Sdn. Bhd)

34.  In the alternative to the above, [D7] was at all material times and is in fact the undisclosed principal of the 3^rd, 4^th, 5^th and/or the 6^th Defendants in respect of all or part of the agreements, orders, etc … (and hence such Defendants were and are agents having the actual authority and intending to act, and so acting, on behalf of [D7] in respect of such agreements, orders, etc), or has otherwise assumed the liability to pay in respect thereof in the light of the following …

(a)  [D7] has from time to time settled various invoices (full or partial payment) notwithstanding that such invoices were in respect of the orders which were on the face of it placed by the Purchasing Defendants …

(b)  …[D7] was eventually named, shown or revealed in various shipping documents as the actual buyer …

(c)  [D7] attempted to negotiate a settlement with [P] in around April 2012 regarding various invoices in respect of the orders which were on the face of it placed by the 3^rd, 4^th, 5^th and 6^th Defendants.

35.   By reason of the matters pleaded in paragraph 34 above, it is averred that [D7] is liable to pay all or part of the Outstanding Sum of US$483,732.87 (to the extent that it was the undisclosed principal in respect of all or part of the agreements, orders, etc. as pleaded in paragraphs 13 to 30 above to [P].”  

18.  It is common ground that if the Amendment Summons is allowed, the Striking Out Summons will have to be dismissed.

19.  On 8 January 2018, and by consent, P’s case against D1, D2 and D6 was struck out.  As a result, D7 has become the only remaining applicant under the Striking Out Summons.

20.  On 15 May 2018, Master Lam allowed the Amendment Summons and dismissed the Striking Out Summons. 

D.  The service of the Writ and the non-service of the Amendment Summons

D.1.  The first hearing

21.  The appeal first came before me on 22 November 2018.  In the course of the hearing, an issue arose as to whether the Concurrent Writ had been served upon D3 to D5 which were outside jurisdiction.  I was then informed by Mr Chan, supported by affirmations of service, that D3 and D4 had been, but D5 had not as it could not be located.  I was further informed that D3 and D4 had not filed any Acknowledgment of Service.  Mr Chan informed me that no default judgment had been obtained against D3 and D4, that P would like to go against D7, and that P was concerned that entering default judgments against D3 and D4 might prejudice P’s claim in that regard.  Mr Sham at that point protested.  He submitted that whilst he had raised the issue of service before, no one had informed him that D3 and D4 and in fact been served, and that no reason had been given as to why P chose not to enforce against D3 and D4 but to go after D7 only.  He submitted that the matter would bear upon the issue as to how this Court would exercise its discretion, and might even nullify P’s application to amend the ASOC.  It was then further revealed that the Amendment Summons in fact had not been served on D3 and D4.  Mr Sham submitted that it was a major irregularity. 

22.  Ultimately, the appeal was adjourned to 21 February 2019 so as to give parties time to consider the matters further.

D.2.  The 2^nd hearing on 21 February 2019

23.  On 21 February 2019, and supported by the affirmations of service of Francois A/L Kulandai and Mahalingam Arumugam, Mr Chan informed this Court that, during the adjournment period, it was discovered that D3 and D4 had already, on 11 September 2018 and 8 June 2018 respectively, been struck off the relevant companies registers in India and Malaysia and had been dissolved.  P sought leave to adduce those new affirmations.  I granted it leave to do so.  In the circumstances, P decided to withdraw its claim against D3 and D4 and sought leave from this Court for the purpose.  I granted it the leave sought.

24.  In the light of the new development, and relying on the following grounds, Mr Chan invited this Court to proceed with the appeal despite the fact that the Amendment Summons had not been served on D3 and D4:

(a)  Given the withdrawal of P’s claim against D3 and D4, and given the effects of the proposed amendments which only affect D7, the non-service of the Amendment Summons upon D3 and D4 would cause no prejudice to any party in the present action; and

(b)  Order 65 rule 9 which provides that:

“ Where by virtue of these rules any document is required to be served on any person but it is not required to be served personally or in accordance with Order 10, rule 1(2), and at the time when service is to be effected that person is in default as to acknowledgment of service or has no address for service, the document need not be served on that person unless the Court otherwise directs or any of these rules otherwise provides.”

25.  Mr Sham’s main submissions made in opposition amounted to this.  He submitted that in so far as service out of jurisdiction is concerned, this case being one as D3 and D4 are foreign companies, Order 11 rule 9(4) and (5) form a code of their own so that Order 65 rule 9 has to be read subject to them.  He relied also on Kayden Ltd v SFC (2010) 13 HKCFAR 696 (§§36-38).

26.  I do not accept that submissions of Mr Sham:

(a)  Order 65 rule 9 expressly provides that it applies, inter alia, “unless … any of these rules otherwise provides”;

(b)  At §65/9/1 of Hong Kong Civil Procedure 2019, 3 examples have been given in which the Rules of the High Court provide otherwise:

(i)   Order 89 rule 2(3) read in conjunction with rule 2(4) in relation to actions in tort between husband and wife, which provides that:

“ (3) Notwithstanding anything in Order 13 or Order 19, judgment on failure to give notice of intention to defend or in default of defence shall not be entered in an action to which this rule applies except with the leave of the Court.

(4) An application for grant of leave under paragraph (3) must be made by summons and the summons must, notwithstanding anything in Order 65, rule 9, be served on the defendant.”

(ii)  Order 88 rule 6(1) read in conjunction with rule 6(2) in relation to notice under an originating summons in a mortgage action, which provides that:

“ (1)  Notwithstanding anything in Order 13 or Order 19, in a mortgage action begun by writ judgment on failure to give notice of intention to defend or in default of defence shall not be entered except with the leave of the Court.

(2)  An application for the grant of leave under this rule must be made by summons and the summons must, notwithstanding anything in Order 65, rule 9, be served on the defendant.”

(iii)  Order 37 rule 10(3) read in conjunction with Order 37 rule 1(2) in relation to notice to assess damages, which provides that:

“ 1.  Assessment of damages by a master (O. 37, r. 1)

…

(2)  Notwithstanding anything in Order 65, rule 9, a notice under this rule must be served on the party against whom the judgment is given.

…

10.  Application for award of further damages (O. 37, r. 10)

…

(3)  The plaintiff shall give not less than three months’ written notice to the defendant of his intention to apply for further damages and, if the defendant is to the plaintiff’s knowledge insured in respect of the plaintiff’s claim, to the insurers.”

(c)  In all of those examples, Order 65 rule 9 is expressly dis-applied;

(d)  Unlike those Orders, Order 11 rule 9(4) and (5) do not dis-apply Order 65 rule 9;

(e)  The part of Kayden which Mr Sham sought to rely on goes to the strict approach which the courts adopt when looking at an application for leave to issue a writ for service out.  It has no application to the issue that this Court is concerned with.

27.  In my view, Order 65 rule 9 applies. 

28.  I will come back to the separate issue as to whether the above matters may otherwise impact on this Court’s consideration of the present appeal (in the sense of affecting my exercise of discretion).

E.  Further adjournment of the appeal

29.  On 21 February 2019, having heard parties’ submissions on the issue of service, I directed Mr Chan to proceed with the balance of P’s appeal. However, in the course of his submissions, Mr Chan, intending to assist, produced an updated version of the proposed RASOC (the “Proposed RASOC/Ver 2”). It is slightly different from the Proposed RASOC/Ver 1.  It takes out the claim against D6 (as it was pointed out during the first hearing on 22 November 2018 that D6 had previously paid P its share of the Outstanding Sum).  It proposes to delete §33 of the ASOC (which the Proposed RASOC/Ver 1 does not).  It also contains a slightly different version of §§34 and 35.  The latest version of §§34 and 35 as contained in the Proposed RASOC/Ver 2 is as follows (the differences with the original proposed §34 underlined or struck-over):

“ (v)  The 7^th Defendant (Power Tec Footwear Industries Sdn. Bhd)

34.  In the alternative to the above, The Plaintiff avers that [D7] was at all material times and is in fact the undisclosed principal of the 3^rd, 4^th, 5^th and/or the 6^th Defendants in respect of all or part of the agreements, orders, etc … (and hence such Defendants were and are agents having the actual authority and intending to act, and so acting, on behalf of [D7] in respect of such agreements, orders, etc), or has otherwise assumed the liability to pay in respect thereof in the light of the following …

(a)  [D7] has from time to time settled various invoices (full or partial payment) notwithstanding that such invoices were in respect of the orders which were on the face of it placed by the Purchasing Defendants …

(b)  …[D7] was eventually named, shown or revealed in various shipping documents as the actual buyer …

(c)  [D7] attempted to negotiate a settlement with [P] in around April 2012 regarding various invoices in respect of the orders which were on the face of it placed by the 3^rd, 4^th, 5^th and 6^th Defendants.

35.  By reason of the matters pleaded in paragraph 34 above, it is averred that [D7] is liable to pay all or part of the Outstanding Sum of US$478,641.37 US$483,732.87 (to the extent that it was the undisclosed principal in respect of all or part of the agreements, orders, etc. as pleaded in paragraphs 13 to 30 28 above to [P].”

Mr Chan applied to amend the Amendment Summons accordingly.

30.  Mr Sham objected to the same.  He requested time to consider the matter.  The hearing of the appeal was hence further adjourned to 21 March 2019.

F.  The resumed hearing on 21 March 2019

31.  By another summons dated 25 February 2019 (the “25/2/2019 Summons”), P sought leave to amend the Amendment Summons by replacing the Proposed RASOC with the version of the proposed RASOC attached thereto (the “Proposed RASOC/Ver 3”).  The Proposed RASOC/Ver 3 is slightly different from the Proposed RASOC/Ver 2:

(a)  it makes clear that P’s case against D1, D2 and D6 has been struck out;

(b)  it makes clear that D3 and D4 had been dissolved and P’s case against them withdrawn;

(c)  it states expressly at divers places (including at the heading immediately above §34) that it is P’s case against D7 that D7 was the undisclosed principal of the Purchasing Defendants, and the Purchasing Defendants its undisclosed agents; and

(d)  it, like the Proposed RASOC/Ver 2, proposes to delete §33 of the ASOC.  §§34 and 35 in the Proposed RASOC/Ver 2 and the Proposed RASOC/Ver 3 are materially the same.  As explained by Mr Chan[13], the reasons for the proposed deletion of §33 from the ASOC and the words “In the alternative to the above” from §34 the Proposed RASOC/Ver 1 are that “P now can only claim against D7 and there is no longer any ‘alternative’ case”.

32.  On 21 March 2019 having heard parties, I allowed the 25/2/2019 Summons.  This appeal being a rehearing as if the matter first came before me, I was satisfied that this Court had the jurisdiction to do so.  Further, what the Proposed RASOC/Ver 3 seeks to do on top is simply to tidy up the matters which I have set out above.  It allows the true issues to be considered and decided.  No prejudice can be caused to D7.

G.  The appeal against the Order allowing the Amendment Summons

33.  I now return to the substantive appeal.

34.  Mr Sham has conceded that if leave to re-amend is granted, P’s re-amended claim on undisclosed principal should not be struck out[14].

35.  I therefore consider first of all the appeal in relation to the Amendment Summons (now as amended).

36.  Mr Sham summarized his 3 main objections[15] as follows:

“ (1)  P raises a ‘new claim’ which is time-barred and it does not arise out of the same or substantially the same facts as pleaded;

(2)  It would not be just to allow the new claim to be raised in the circumstances of the present case;

(3)  The Re-Amended Application is mala fide.”

G.1.  The applicable legal principles when an application to amend raises a limitation issue

37.  Order 20, rules 5(2) and (5) provide that:

“ (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.

…

(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.”

38.  A 3-stage test is to be applied when approaching an application for amendment which raises a limitation issue.  As observed and explained by Peter Ng J in Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd, unrep, HCA 2114/2007, 18 July 2016 (§16):

“ Where a party raises a limitation objection to proposed amendments to pleadings, it is useful to adopt the ‘three–stage test’ set out in Ballinger v Mercer Ltd [2014] 1 WLR 3597 at [15], as further explained in Michael Agapios Diamandis v Sir David Seton Wills [2015] EWHC 312 (Ch) at [46]:

(1)  Stage 1: Is it reasonably arguable that the opposed amendments are outside the applicable limitation period? If not, then the amendments fall to be considered in accordance with the general principles governing amendment applications.

(2)  Stage 2: If the answer to (1) is yes, do the proposed amendments seek to add or substitute a ‘new cause of action’? If not, then again the amendments fall to be considered in accordance with general principles.

(3)  Stage 3:  If the answer to (2) is yes, does the new cause of action arise out of the same or substantially the same facts as are already in issue in the existing claim?  If not, the amendments cannot be allowed.  If yes, then the court retains a discretion to allow or refuse the amendments in accordance with general principles.”

39.  On the general principles governing amendment applications, I respectfully refer to those set out also by Peter Ng J at §15 of Shenzhen Futaihong, having cited previous authorities, that:

“ 13.  It is a guiding principle of cardinal importance on the question of amendment that generally speaking, all such amendments ought to be made ‘for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings’: Re Playmates Investments Ltd [1996] 4 HKC 577 at 582E–H (per Le Pichon J as she then was); Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 at para 25 (per Cheung JA); Hong Kong Civil Procedure 2014 Vol 1 para 20/8/6.

14.  Leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail. While the court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation: Natamon Protpakorn v Citibank NA supra at para 25 (per Cheung JA).

15.  If the proposed amendments are bound to fail, no leave to amend should be granted. In this regard, the court will take the applicant’s proposed pleaded case to the highest: Bank of China v Leigh Hardwick unrep, HCA 1110 of 2006, 28 August 2013, per Anthony Chan J at para 2.

16.  Absent any real prejudice, an application for amendment, albeit late, must be decided upon the general principle that a court of law seeks to adjudicate on the real issues and disputes between the parties and, if possible, technical and procedural rules should not stand in the way of allowing the parties to raise their real claims or defences before the court for adjudication: VSC Building Products Co Ltd v Kono Insurance Ltd, unrep, HCA 947/2005, 9 September 2009, per A Cheung J (as he then was) at [22].

17.  Where prejudice is claimed, the burden is on the party opposing the amendment to show prejudice. There is no injustice to the opposing party if he can be compensated by appropriate orders as to costs: Re Playmates Investments Ltd supra at 582H, 584C (Le Pichon J as she then was).

18.  Lastly, in giving effect to the underlying objectives of the Rules of the High Court, the court shall always recognize 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’: RHC O 1A r 2(2).”

G.2.  Stage 1

40.  The pleaded dates of the Outstanding Invoices are between 9 May 2011 and 30 November 2011[16]. The Writ was issued on 4 January 2017.  The Amendment Summons was issued on 29 December 2017 (more than 6 years after the date of the latest pleaded Outstanding Invoices).  Given the doctrine of “relation back”, the present application clearly raises a limitation issue.

41.  I proceed to Stage 2.

G.3.  Stage 2

G.3.1.  The legal principles

42.  When considering whether the Proposed RASOC/Ver 3 seeks to add or substitute a “new cause of action”, I bear in mind, apply and adopt the principles and approach explained by the Court of Appeal in Shenzhen Futaihong [2018] HKCA 408, and in particular:

(a)  a cause of action in this context is not so much the label attaching to a claimant’s claim (for example ‘breach of statutory duty’ or ‘money paid under a mistake of law’), but it is the set of facts which entitles the plaintiff to relief[17]；

(b)  the assessment is objective and the consideration must be of the substance of what is pleaded, rather than the form[18]；

(c)  the determination of whether a proposed amended claim is a new claim involves comparing the essential factual elements in a cause of action already pleaded with the essential factual elements in the cause of action as proposed. The amendment will introduce a new cause of action if there is a “change in the essential features of the factual basis” relied upon[19]；

(d)  when making the comparison, the material facts are to be selected at the “highest level of abstraction”[20].

G.3.2.  Discussion

43.  Mr Sham submitted that the proposed amendment introduced a new cause of action.  He submitted that without any amendment, the ASOC discloses no reasonable cause of action.  The proposed cause of action hence must be a new cause of action.  He submitted that the change from D7 being a “paying and financing agent” to it being the “undisclosed principal” must in any event be the introduction of a new cause of action.

44.  To consider whether the proposed amendments introduce any new cause of action, it is necessary to identify first of all what the cause or causes of action is or are as presently pleaded in the ASOC.

45.  Mr Chan submitted that there are 2:

(a)  relying on the facts pleaded at §§1 to 33 (in particular those I have summarized in §12 above), Mr Chan submitted that a set of facts has been pleaded against D7, supporting the cause of action that D7 is liable for the Outstanding Invoices as a party to the relevant agreements; and

(b)  a further or alternative cause of action pleaded at §§34 to 35 on the basis that D7 is liable as the paying and financing agent.

46.  Mr Chan then submitted that at the highest level of abstraction, both of those pleaded causes of action are breach of contract.

47.  Mr Chan then submitted that at the same highest level of abstraction, the proposed cause of action based on D7 being the “undisclosed principal” is also contractual.  He relied on Bowstead and Reynolds on Agency 21^st ed, Article 76 at §8-068, that an undisclosed principal may sue or be sued on a contract made on his behalf by his agent acting within the scope of his actual authority.

48.  I accept Mr Chan’s submission that at §§1 to 31 of the ASOC, a set of facts have been pleaded.  From that set of facts, if traversed but proved, liability could flow.  But I do not accept his submissions that the pleading of “paying and financing agent” or “undisclosed principal” are mere labels:

(a)  In this regard, I find the observation made by the Court of Appeal at §101 of Shenzhen Futaihong illuminating.  That case concerned the cause of action of wrongful receipt and use of confidential information.  The Court of Appeal observed at §101 that:

“ Making the comparison on the basis of a selection of material facts at ‘the highest level of abstraction’, it is not necessary to include the precise means, manner or routes in which the confidential information came to be received by the defendants, or the defendants’ knowledge as to the precise means, manner or routes. It suffices that, when the defendants obtained information which they did use, a reasonable person in the defendants’ position would have appreciated it was confidential, wherever it came from.”

(b)  In that case, the Court needed not be concerned with matters like the precise means, manner or routes in which the confidential information came to be received.  But the factual basis of obtaining and use would still have to be identified;

(c)  In the present case, classifying claims on the basis of “paying and financing agent” and “undisclosed principal” all under the generic umbrella of “breach of contract” in my view involves too high a level of abstraction, to the extent that the essential factual elements become unidentified.

49.  In my view, the Proposed RASOC/Ver 3 does introduce a new cause of action which is based on D7 being the “undisclosed principal” of one or more of the Purchasing Defendants.

50.  I proceed to Stage 3.

G.4.  Stage 3

G.4.1.  The legal principles

51.  In WDA Architects Limited v MHS Planners, Architects & Engineers & Ors, unrep, CACV 116/2014, 21 July 2015, McWalters JA observed at §68 that:

“ 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.’ ”

52.  In Siberian Mining Group Company Limited v Cheung Keng Ching & Ors, unrep, HCA 706/2010, 10 February 2017, Deputy Judge Alex Lee (as he then was) observed at § 35 that:

“ … in determining the issue should consider what facts would have to be investigated on the original statement of claim and what facts would have to be investigated on the amended statement of claim. Having obtained two series of facts from these two considerations, the court should ask itself whether the two were the same or substantially the same.”

53.  In Shenzhen Futaihong, the Court of Appeal observed at §113 that:

“ For the Stage 3 test, the ‘highest level of abstraction’ approach in Stage 2 does not apply. The proper approach is to consider the entire range of facts which would have to be investigated at trial if the amendments are to be allowed, even though many of them may not be essential to the establishment of the plaintiff’s cause of action (Finlan v Eyton Morris Winfield at §57). The question here is what is the whole range of facts which could reasonably be assumed to have been investigated for the purpose of defending the claims in RASoC. The objective is to avoid obliging a defendant, after the expiry of the limitation period, to investigate matters that are completely outside and unrelated to the facts which could reasonably be assumed to have been investigated for the purpose of defending the existing claim.”

54.  I have also considered the various passages from P & O Nedlloyd BV v Arab Metals Co [2005] 1 WLR 3733 and BP Plc v Aon Ltd [2006] 1 Lloyd’s Rep 549 which the Court of Appeal cited at §47 in Moulin Global Eyecare Holdings Ltd v Olivia Lee Sin Mei [2013] 1 HKLRD 744, which Mr Sham cited to me.

G.4.2.  Discussions

55.  Mr Chan submitted that the cause of action based on “undisclosed principal” in any event arises out of the same or substantially the same facts as pleaded in the ASOC.  He gave 5 reasons[21]:

(a)  the original claim and the amended claim have the same factual origin and are about the same agreements and orders with P;

(b)  the original claim and the amended claim require the trial judge to investigate the same set of facts as pleaded to determine the relationship between D7 and the Purchasing Defendants under the business arrangement, and whether D7 was under any liability to pay as a party, or as the paying and financing agent, or as the undisclosed principal;

(c)  the evidence involved will be the same;

(d)  the witnesses will be the same; and

(e)  relying on WDA, the facts already pleaded in the ASOC can be relied upon to support the amended claim that D7 was the undisclosed principal.

56.  I accept Mr Chan’s submissions in this regard.  The Proposed RASOC/Ver 3 involves no material change to the facts as pleaded in the ASOC.  The same set of facts are sought to be relied upon.

57.  Mr Sham’s submissions, relevant to this stage, may be summarized as follows[22]:

(a)  without the proposed amendment, P’s case against D7 is bound to fail, and there was nothing for D7 to investigate;

(b)  if the proposed amendment is granted, a whole range of facts and evidence will have to be investigated by D7:

(i)  the actual authority of the Purchasing Defendants, express or implied, the identity of the persons who gave the authority, and the scope of the authority;

(ii)  the nature of the disputes between P and the Purchasing Defendants, so as to if necessary avail D7 of the defences open to the Purchasing Defendants;

(iii)  whether the Purchasing Defendants might have gone beyond their authority so as to entitle D7 to claim indemnity from them.

58.  I do not accept Mr Sham’s submissions that on the facts pleaded in the ASOC, D7 has nothing to investigate. 

59.  In the ASOC, common directorship and ownership amongst D3, D6 and D7 has been pleaded.  A rather unusual course of dealings or business relationship with D7 having been intervened as the paying party or the “actual buyer of the goods” has been pleaded.  D7’s significant involvement in the business arrangement warrants (or would have warranted) investigation as to whether contractual liability as a contractual party, as an agent or as a principal would attach.  In particular, relevant to its possible liability as an agent, its scope of authority as an agent would need to have been investigated; and relevant to its possible liability as a principal or a contractual party, the scope of the authority of any of the other defendants who could have been its agents would need to have been investigated.   

60.  I regard also as important that D7 has in its Defence specifically denied that it had any contractual relationship with P over the claimed purchases, and avers that it is not liable to P for the same.  I do not see how it can plead those denials and averments without itself having investigated into the facts.

61.  In my view, the range of facts which Mr Sham submitted the proposed amendment gives rise to are matters which could reasonably be assumed to have been investigated for the purpose of defending the claims in ASOC. 

62.  In my view, the proposed new cause of action based on the allegation that D7 was the undisclosed principal arises out of the same facts or substantially the same facts as the causes of action originally pleaded in the ASOC.

H.  Not just to allow the new claim to be raised in the circumstances of the present case?

63.  Mr Sham’s next ground of opposition is that it would not be just to allow the new claim to be raised in the circumstances of the present case.  He submitted that if the Purchasing Defendants were negligent in the course of placing the orders, D7 could sue them for an indemnity.  But as the limitation period for it to do so has expired, it would suffer prejudice if the proposed amendment is to be allowed.

64.  Before considering the submission, I need to consider firstly the burden of proof.

65.  Mr Sham submitted that the burden lies on P to show that it would be just to allow the amendment.  He relied on Hancock Shipping v Kawasaki Heavy Industries [1992] 1 WLR 1025 at 1030C.

66.  With respect, the position is not as clear cut as Mr Sham submitted.  In Hancock Shipping, at p 1030 C-D, what Staughton LJ said were in fact as follows:

“ In my judgment, it is not helpful to speak of the burden of proof, but rather of the burden of persuasion. If the court concludes that it cannot decide whether or not it is just to allow the amendment, the party applying for leave must fail. The burden of persuasion lies on him, and if it is not discharged his application should not succeed. But the party making the application cannot be expected to adduce evidence on all points which might conceivably affect the justice of the case. He must undertake the task of establishing the factors which he relies on as relevant; his opponent in turn may say that there are other relevant factors pointing in the other direction, and those are for him to prove.”

67.  Those observations of Staughton LJ made in Hancock Shipping should also be understood in the light of the elucidation made by the Court of Appeal at §§126 and 130 of Shenzhen Futaihong, that:

“ 126. The principles governing an amendment application in a case within Order 20 rule 5(2) are different from the governing principles in a case of an ordinary amendment under Order 20 rule 5(1), in that respect we would agree with Mr Yu. As Staughton LJ has stated in Hancock Shipping at 1029H to 1030B, when considering a case under rule 5(2), ‘the court may, and indeed must, take into account that the defendant will, if leave is granted, be deprived of an accrued defence’. Nevertheless, the court may grant leave to amend ‘if it thinks it just to do so’, ‘after taking into account together with all other relevant factors’. Hence, ‘what justice requires under [rule 5(2)] has to be decided in a different context from that which exists in the case of an ordinary amendment under [rule 5(1)]’.

…

  130.  Notwithstanding that the judge had not considered the amendment application for other claims in this light, we do not think this would have a material impact such that we should interfere with the exercise of his discretion.  As stated in Hancock Shipping at 1030D to E, the applicant must undertake the task of establishing the factors which he relies on as relevant, the opponent in turn may say there are other relevant factors pointing in the other direction, and those are for the opponent to prove.  In respect of the defendants’ contention they will suffer significant prejudice if the amendments are allowed, it is for the defendants to establish that.”

68.  I repeat my discussions in §59 above.  Following on from there, it is my view that the liability inter se between D7 and the Purchasing Defendants are also matters which could reasonably be assumed to have been investigated for the purpose of defending the claims in ASOC.

69.  In any event, D7 has attempted to adduce no evidence on any recourse it may claim against any of the Purchasing Defendants.  Given the admitted common directorship and shareholding amongst D3, D6 and D7, there ought not to have been any difficulty for D7 to do so.  There is however none in Liu/1, Liu/2 or Liu/3.  In fact, no officer of D7 has filed any evidence in support of the Striking Out Summons or in opposition of the Amendment Summons (Mr Liu being the legal adviser of D1, D2, D6 and D7).

70.  I reject this ground put forward by Mr Sham.

I.  The Re-Amended Application is mala fide?

71.  With reference to Liu/1, Liu/2 and Liu/3, Mr Sham pointed out and submitted[23] that:

(a)  P has previously commenced HCA 2271/2012 against the Purchasing Defendants for the Outstanding Sum.  In an affirmation filed by P’s legal adviser for leave to serve the proceedings outside jurisdiction[24], it was said that notwithstanding that D7’s name appeared in some of the proforma invoices and shipping documents, the ultimate payments were still expected to be made by the Purchasing Defendants to P and that D7 was merely used by D3 and D4 herein as agent for handling payments; and

(b)  The present action was “totally unmeritorious which was created deliberately to serve P’s ulterior purpose” to delay the other 3 High Court Actions between the parties.

72.  On the first point summarized above, I accept Mr Chan’s submissions[25] that given the unusual business arrangements adopted by the defendants and the significant involvement of D7, doubt and confusion could be created as to who the genuine principal was, and that the facts at the very least admit of different interpretations, one of which being that D7 was the undisclosed principal.  I have also considered §§15 and 16 of Yuen/Aff[26] where Mr Yuen explained how he, in his words, “came to realise that the truth could/might be that [D7] was in fact the undisclosed principal” and thus gave instructions to his lawyers to issue fresh proceedings against all 7 defendants.  It is unfair and unreasonable for the defendants to seek to rely on one version of P’s interpretation to allege mala fide against it[27].

73.  On the second point summarized above, I accept Mr Chan’s submissions[28] that a finding of bad faith is a serious one to make, and there is no sufficient evidence on the facts of this case to make one.

74.  I have considered in this regard P’s decision to go after D7 instead of D3 and D4.  In my view, this is in fact quite consistent with P’s proposed re-amended claim it was D7 who was the principal (though undisclosed).  This does not support any allegation of mala fide.  Nor does, given my view on the applicability of Order 65 rule 9, the non-service of the Amendment Summons on D3 and D4 suggest any mala fide on the part of P.

75.  I reject also this ground put forward by Mr Sham.

J.  General principles on amendments

76.  I come back to the general principles on amendments. 

77.  I repeat my observations above, that given the unusual business arrangements adopted by the defendants and the significant involvement of D7, doubt and confusion could be created as to who the genuine principal was, and that the facts at the very least admit of different interpretations, one of which being that D7 was the undisclosed principal.  The proposed amended claim is not in my view bound to fail.  I have dealt with D7’s objection on the basis of prejudice which I do not accept.  In my view, the proposed amendments allow the real question in controversy between the parties to be tried.

78.  I have again in the present context considered the non-service of the Amendment Summons on D3 and D4.  Given my view on the applicability of Order 65 rule 9, that has in my view no bearing on my exercise of discretion.

79.  I allow the Amendment Summons as amended.  I dismiss D7’s appeal in this regard.

K.  D7’s appeal against the dismissal of the Striking Out Summons

80.  Mr Sham has fairly conceded that if leave to re-amend is granted, P’s re-amended claim on undisclosed principal should not be struck out[29].

81.  Given my conclusion on P’s application for amendment, the Striking Out Summons is bound to be dismissed.  I dismiss D7’s appeal in this regard.

L.  Overall disposition

82.  I dismiss D7’s appeal.  I allow P’s application for amendment of the ASOC as per the Proposed RASOC/Ver 3.  I grant D7 leave to file defence and counterclaim (if any) within 21 days from the date hereof.  The Rules of the High Court are to be followed in respect of the further conduct of the proceedings.

M.  Costs

83.  I make a costs order nisi that P shall have the costs of the appeal save the costs occasioned by the 2 adjournments that I have mentioned above, which costs are to D7.  Any party who seeks any variation of the above or summary assessment should file submissions within 14 days from the date hereof, submissions in response within 14 days of receipt, and submissions in reply within 7 days.  Any application on costs is to be dealt with on the papers.