TIU SUM FAI AND OTHERS v. SHUN SING DEVELOPMENT LTD AND ANOTHER

HCA 1746/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1746 OF 2005

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D E C I S I O N

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The Dispute

1. The Plaintiffs apply to re-amend their Amended Statement of Claim.  The Defendants agree with certain amendments but object to those amounting to an addition of 2 new courses of action.

The Background

2. On 8 January 1997, the 2nd Defendant became the registered owner of the piece of land known as the Remaining Portion of Lot No. 208 in D.D. 14 (“the Land”).

3. By 2 written agreements (“the Agreements”) in Chinese dated 2 June 1997 and 25 September 1997, the 1st Defendant agreed to sell and the Plaintiffs agreed to purchase the 2nd Floor (including the roof thereof) and the 1st Floor of the building (“the Building”) to be erected on the Land at the respective prices of $2,250,000 and $1,800,000.  The Plaintiffs paid 10% of the purchase price as deposit.

4. However, on 11 April 2002, the Plaintiffs, through their then solicitors, gave notices  to terminate the Agreements:

“…… It was agreed, inter alia, that you shall proceed to apply for building licence and to construct the building of which the Property forms part as soon as possible after the signing of the Agreement and in any event to complete the transaction within a reasonable time.

……

However, in breach of the Agreement, you failed to apply for building licence of and to construct the said building and to complete the transaction with our client within a reasonable time.

We are instructed that our clients now accept your repudiation of the Agreement and to demand your return to our client the sum of ……”

5. The Defendants did not agree to the demand.  On 5 June 2002, the Plaintiffs commenced DCCJ 3440/2002 against the Defendants for the return of a total sum of $405,000, interest and costs.  The Defendants denied any breaches and counterclaimed for damages caused by the wrongful repudiation of the Plaintiffs.

6. The proceedings in the District Court went through the pleadings and discovery stage.  Trial was further fixed on 11 and 12 August 2005.  However, on 18 July 2005, by consent, the proceedings were transferred to the High Court to become the present proceedings HCA 1746/2005.

7. Thereafter, the parties appeared before the Listing Master of the High Court on a number of occasions.  On 26 October 2005, leave was given to the parties to set down the case for trial with 3 days estimated before a bilingual judge on the fixture list.  Nonetheless, there were some outstanding interlocutory matters to be disputed.

8. On 13 June 2007, I heard and dismissed an application by the Plaintiffs against the 2nd Defendant for specific discovery. It was because, among other grounds, the “lawfulness” of the Agreements had never been raised as an issue by the pleadings before the Court.

9. Probably, as a result of this ruling, on 18 September 2006, the Plaintiffs took out an application to re-amend their Amended Statement of Claim. They sought to put forward an alternative case that the Agreements were illegal and unenforceable because the 2nd Defendant, being an indigenous villager, had made a misrepresentation to the Government under the Small House Policy that he was the legal and beneficial owner of the Land.  However, under the arrangement between the Defendants, the 1st Defendant was the beneficial owner instead.  As a result, due to the “illegality”, the Defendants should return the deposits paid or pay damages because of:

(a) money had and received by them, and/or

(b) a breach of contract for the Defendants would never be able to pass good title of the Building to the Plaintiffs.

10. The Defendants opposed to the amendments concerning the “illegality”.  I heard the substantive arguments on 15 May 2007.  Ms. Eva Sit of Counsel acted for the Plaintiffs.  Mr. Eric Yao of Counsel and Mr. R. Hout of Messrs. Rene Hout & Co. represented the 1st and 2nd Defendant respectively.  Having heard from the parties, I reserved my decision to be handed down.  I now do so.

Ruling

11. Upon consideration of the evidence authorities and submissions from the parties, I have decided to allow the Plaintiffs’ application.  My reasons appear in below.

Reasons

12. The following extracts from paragraph 20/8/6 of the HKCP 2007 at page 364 and 365 provide a good starting point to determine the parties dispute.

“General principles for grant of leave to amend (rr.5, 7 and 8)—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 ……

It is a well established principle that the object of the Court is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights … I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party.  Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversy, and I do not regard such amendment as a matter of favour or grace … It seems to me that as soon as it appears that the way in which a party has framed his case will not lead to a decision of the real matter in controversy, it is as much a matter of right on his part to have it corrected if it can be done without injustice, anything else in the case is a matter of right.”

13. Further, if the proposed amendments amount to adding new course of action, Order 20 rule 5(5) RHC stipulates that:

“(5)  An amendment may be allowed …… 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.”

14. In considering whether the new cause of action arises out of the same facts or substantially the same facts, both Counsel agreed the following remarks made by Mr. Recorder Shieh SC in HCA 2741/1998, unreported, 5 January 2007.  In short, there is no hard and fast rule.  Each case depends on its own facts and the Court should adopt a “common sense” approach.

“26.      It has been said that whether the new cause of action arose out of the same or substantially the same facts is “a matter of impression” (see Welsh Development Agency [1994] 1 WLR 1409 at 1418D per Glidewell LJ).  In Paragon Finance, however, Millett LJ observed at 418 that this might be so in borderline cases.  In other cases it must be a matter of analysis.

27.       I do not read these judgments as laying down any mechanical rule whereby one has first of all to decide whether a case is “borderline” and then decide the question by (i) impression (if “borderline”) or (ii) analysis (if not “borderline”).  In my view these judgments simply set out a common sense approach (and in Paragon at 418g-h Millett LJ expressly referred to and agreed with the first instance judge’s application of common sense).  It is not possible to judicially “legislate” for all types of new causes of action that the Courts will have to consider.  There will invariably be a spectrum of possibilities.  Some will obviously involve (or not involve) substantially the same facts; some less so.  The question will have to be addressed on a case by case basis.

28.        It has been observed that the words in Order 20 rule 5(5) are not to be narrowly construed and that they should be given a broad and liberal interpretation in order to attain the objective of the rules: Leung Kin Fook v Eastern Worldwide Co. Ltd. (No.2) [1997] 1 HKC 524 at 528C-D per Litton VP (as he then was).

29.        ……

30.        ……

31.       In my view it must be right that in order for a new cause of action to fall within Order 20 rule 5(5), the material facts supporting that new cause of action need not be identical to, or the same as, or be a “complete overlap with”, those supporting the originally pleaded cause of action.  This is clear from the wording of Order 20 rule 5(5) itself, in that the sub-rule expressly recognized the possibility that an amendment to add a new cause of action could arise out of substantially the same facts (i.e. facts which are not “the same” but only “substantially the same”) as the cause of action originally pleaded.

32.      Thus the originally pleaded cause of action may rely on material facts A, B and C.  The new cause of action may rely on material facts A, B, C and D (or A, B and D).  The additional of new fact D (or the substitution of new fact D for old fact C) does not necessarily mean that the facts are not substantially the same.  It depends (among other things) on the nature of the causes of action concerned (see, e.g. Millett LJ in Paragon at 418g-h) and the nature and importance of the new facts averred.  There can be no hard and fast rule.”

15. Applying the above principles to Ms. Sit’s application, I am satisfied that, by adopting a common sense approach, in the proposed Re-amended Statement of Claim, the Plaintiffs are relying on substantially the same facts as contained in the original pleadings.  It is always the Plaintiffs’ case that they are entitled to the return of the 10% deposit paid due to the breaches on the part of the Defendants.  To employ the analysis of Mr. Recorder Shieh, SC, the material facts A, B and C of the original case are the Plaintiffs, the Defendants and breaches of the Agreements.  The additional new fact D will be the fact that the Agreements are illegal.  The Plaintiffs, by the new courses of action, is still asking for the 10% deposit, but simply putting two further alternative basis ((a) money had and received and (b) further breach of contract for failure to prove good title) in case that this Court will find the arrangement between the Defendants amounting to a contract to commit a civil wrong, namely the tort of misrepresentation on the Government.

16. Mr. Yao further argued that discretion of the Court should be exercised against the Plaintiffs because of the lateness of the application and the prejudice suffered which could not be compensated by costs.  Ms. Sit did not attempt to argue that the Plaintiffs were not late.  However, she said that it was not too late, and I agree.  Fortunately, no trial dates have been fixed and the application for amendment for pleadings is not made at the first day before the Trial Judge.  There is still time for the parties to put forward the real question in controversy before the Court.

17. As to prejudice, Mr. Yao said in his skeleton that:

“34.      The late amendment causes prejudice to D1 which cannot be compensated for by costs:

(i)         D1 will have to put in further effort to amend Defence, make further discovery and supplemental witness statements;

(ii)        there will be another significant period of delay until the matter gets finally adjudicated by the Court (the delay so far is wholly caused by Ps); and

(iii)       there is a significant and real risk that D1’s witnesses will suffer from a fading of memory of events happened in as early as 1997.”

With respect, these prejudice are not specific enough to persuade me to accept that they cannot be compensated by costs.

18. Finally, I certainly realize that both Counsel, in the context of arguing when the limitation period should start to run, have spent quite some efforts arguing on the “knowledge” of the Plaintiffs about the “illegality” of the Agreements, if any.  However, in any opinion, I need not make any ruling on the dispute as the amendments can be allowed under Order 20 rule 5(5) RHC as aforesaid.  Further, probably, the determination of such dispute does have some bearings on the ultimate result of the proceedings, and as such, the Trial Judge, with the benefit of oral testimony of the witnesses and full documentation, must be in a far better position than me to make a finding on the same.

Directions

19. In the circumstances, I direct that:

(a)       The Plaintiffs do have leave to re-amend the Amended Statement of Claim as per the copy marked exhibit  “TSF-1” and file and serve the same within 7 days from the date hereof.

(b)       The Defendants do have leave to file and serve their Re-Amended Defence and Counterclaim within 14 days thereafter.

(c)       The Plaintiffs do have leave to file and serve their Re-Amended Reply and Defence to Counterclaim within 14 days thereafter.

(d)      Liberty to apply for further directions.

Costs

20.  Costs usually follow the event.  I propose to adopt the approach as suggested by Yam J. in Lessy Sarl v Pacific Star Development Ltd & Another [1996] 2 HKLR 1; [1991] 2 HKC 326.  Hence, there will be an order nisi that:

(e)       Costs of and occasioned by the Plaintiffs’ Summons filed on 18 September 2006 and the Amendment shall be borne by the Plaintiffs to the Defendants, including costs reserved on 4 October 2006, to be taxed if not agreed, in any event.

(f)        Costs of the hearing on 15 May 2007, including Certificate for Counsel, are paid by the Defendants to the Plaintiffs, to be taxed if not agreed, in any event.