LAU FU WING AND OTHERS v. DAO HENG BANK LTD AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an application for leave to re-amend the Statement of Claim. The chronology and progress of this action are features to which I have had some regard.

2. The writ was issued on the 13th September 1990 in respect of causes of action which arose on and after September 1988 through to in or about November 1989.

3. The Statement of Claim was served on the 28th December 1990. It was amended in January 1991. The Defences were served on 20th March 1991 with a counterclaim by the Second Defendant.

4. On 1st April 1992, Liu, J. (as he then was) dismissed the Plaintiffs' appeal against the dismissal of its summons seeking judgment against the First Defendant on the basis of an implied admission in its Defence. It is worth looking at the judgment of Liu, J. to get some flavour of these proceedings. It is not necessary to deal with the arguments advanced by the Plaintiffs in respect of the form of the Defence and the consequences alleged to flow from it. Suffice it to say that Liu, J. gave the appellants short shrift. In relation to the Amended Statement of Claim the Learned Judge said:

"The Amended Statement of Claim is convoluted in its assertions ... The form in which the Plaintiffs set out their claims against the 1st Defendant, might have been used for tactical or other reasons. But as it stands, the Amended Statement of Claim is not a ... document which is easy to comprehend. It is a document the purport of which is even less easy to grasp. I share the 1st Defendant's predicament in its attempt to respond to a pleading in the way in which this ... has been formulated."

I agree entirely. The Amended Statement of Claim needed re-amendment to clarify matters. Four years have elapsed since and now the Plaintiffs seek to take that step. The action went to sleep for 19 months between the end of March 1994 and early October 1995 (The Plaintiffs changed their solicitors in or about June 1994.). Discovery by the Defendants was given in May and September 1992. Inspection by the Plaintiffs' solicitors on a piecemeal basis took place thereafter with the Defendants disclosing further documents up to quite recently.

5. What is the essential basis of the Plaintiffs' claim against the 1st Defendant? The action is itself a pre-emptive strike since it is anticipated that the Defendants (The 2nd Defendant as assignee of the assets, rights, etc. of the 1st Defendant) would seek to enforce guarantees, and foreclose on mortgages against one or more of the Plaintiffs.

6. The 1st and 3rd Plaintiffs were directors of a company "Fuk Shing". It went into partnership with another company, "Hansom", whose proprietor was Shuen Kwok Tung, and that partnership was called "Fuk Shing Hansom", the 4th Defendant. Lau and Shuen were General Manager and Manager, respectively, of the partnership ("Fuk Shing Hansom").

7. The partnership was to use the Hang Lung Bank (First Defendant). Shuen knew the Bank and a manager Ho Lai Ling. Hansom's accounts were already at the bank (Yaumatei branch).

8. Hansom obtained a Highway Contract in 1985. It sub-contracted it to "Fuk Shing Hansom" (the partnership). An account was opened with Hang Lung Bank by the partnership. It was called the Hansom No. 2 account. Out of that all payments under the contract were to be made, the cheques being signed jointly by Lau and Shuen. It was called the No. 2 account to distinguish it from the No. 1 Hansom account which had been opened by Shuen some years earlier and was in no way to be concerned with this Highway Contract and the "Fuk Shing Hansom" partnership.

9. In respect of that No. 2 account, Lau entered into a guarantee, and he, his mother (2nd Plaintiff) and Chow (3rd Plaintiff) transferred mortgages in respect of properties they held from other banks to the Hang Lung Bank (1st Defendant) where they became subject to legal and/or equitable mortgages in favour of the 1st Defendant. This account was subsequently transferred to the Tsim Sha Tsui branch in August/September 1987, whose the manager was Mme. Ho Lai Ling, allegedly a personal friend of Shuen.

10. An account in the name of the 4th Plaintiff ("Fuk Shing Hansom" partnership) was opened in December 1986 at the Jordon Road branch of the 1st Defendant, and transferred to the Tsim Sha Tsui branch in July 1987. This account was to receive transfers from the No. 2 Hansom account in order to meet the overheads of the Highway Contract.

11. The purpose of this account and the background to the Highway Contract (i.e. awarded to "Hansom" but subcontracted to "Fuk Shing Hansom", hence the opening of the No. 2 and the No. 4 accounts) was, it is alleged, well known to the Manager, Lee Hing Ming, and his colleague, Ho Lai Ling, at their respective branches.

12. Furthermore the bank well knew by reason of the mandate in respect of the No. 2 account and/or by reason of the original agreement at a meeting in October 1986 at which Lau, Shuen and Lee Hing Ming were present, that payments out of the No. 2 Hansom account were to be made only on the authority of both Lau and Shuen. The guarantee by Lau, and the legal and/or equitable mortgages by Lau, his mother and Chow (1st, 2nd and 3rd Plaintiffs) were only in respect of the Hansom No. 2 account. They had no interest in the Hansom No. 1 account or the Hansom business (Shuen) at all although it is accepted that Lau was a personal guarantor of the Hansom No. 1 account up to a maximum of $50,000.00.

13. The same applied in respect of the Hansom No. 3 account - it was a Hansom account solely and in no way concerned either with the Highway Contract or with the "Fuk Shing Hansom" partnership.

14. It is alleged that the bank, in breach of its agreement(s) with the 1st and 4th Plaintiffs, deliberately or negligently, or in collusion with Shuen, and in breach of any constructive or express trust, diverted money from the Hansom No. 2 account to the Hansom No. 1 and/or No. 3 accounts to the detriment of the Plaintiffs and to the sole advantage of Shuen and "Hansom".

15. Eventually when the alleged misappropriations in respect of the accounts came to light, Hansom and Shuen agreed to repay the misapplied/misappropriated monies, and to secure the release of the Plaintiffs from any guarantee and/or mortgages in respect of the said account. By way of fortification of this agreement Hansom issued a post-dated cheque for part of the money to be repaid. The cheque was dishonoured. Shuen left Hong Kong and the Plaintiffs, suing on the dishonoured cheque obtained judgment in 1990.

16. The other aspect of the claim emanates from the Defendants' attempt to impose upon the Plaintiffs' liability for money owing to the Bank on the Hansom No. 1 and Hansom No. 3 accounts, the Defendants contending that the guarantee and legal/equitable mortgages executed by the Plaintiffs extended to all accounts, the Plaintiffs knowing, as a result of a demand from the Bank, that this was going to be the stance adopted by the Bank. Hence, what I have referred to as the pre-emptive strike. Accordingly the Plaintiffs allege mistake induced by the Bank's servants or agents, and pray for rectification.

17. This is a summary of the background and the issues culled from the Amended Statement of Claim. Although the pleading is not the happiest and clearest of documents the nature of the claim is, in fact, quite clear. The oral witnesses for one side or the other are the first three Plaintiffs, Shuen and the Defendants' servants or agents, Lee Hing Ming, Ho Lai Ling and her successor Gary Tam. A significant number of documents, essentially emanating from and in possession of the Defendants, are crucial to this case. They are alleged to support the Plaintiffs' contentions. They are in any event documents to aid the Defendants' employees in their recollection of what took place.

18. Such is the background to the application for leave to re-amend the Statement of Claim and the Defendants' objections which are that it discloses new causes of action and substantial prejudice has been caused.

19. It is no easy task for a pleader coming to a case some years later, when discovery has been completed and that on a piecemeal basis, and inspection of substantial documents has taken place, to ensure that the pleading he has inherited does justice to the case as he sees it. Ideally he would prefer to start again but this is not possible. It is virtually impossible to present a wholly logical, chronological and easy to follow case within the framework of a convoluted preceding pleading.

20. I have however to look at the proposed new amendments to see if they do in fact fall foul of the criteria argued by Mr. Winston Poon on behalf of the Defendants. I have considered each paragraph individually but I do not propose to set out each paragraph and my conclusion in respect of each if I can view them as falling within categories. An item by item consideration would be repetitive, tedious and pointless.

21. Order 20 rule 5 sets out the criteria I must apply. Sub-rule I sets out the Court's general discretion to permit amendments to pleadings. Sub-rule 2 forms the basis of Mr. Poon's contentions. When the application for leave "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 [5] if it thinks it just to do so.". Paragraph [sub-rule] 5 says that "the 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...."

22. I have concluded that, with the exception of the allegations in relation to undue influence and the bank's duty to the Second Plaintiff, all the other amendments concern existing causes of action. They amplify or particularise them, and much evidence is pleaded in relation to them. I am bound to say that there is much repetition and this accounts to a significant extent for the increase in the sheer size of the pleading - forty-three pages as against twenty-six pages though of course there is much deletion of the former Amended Statement of Claim. But I can well understand why Mr. Chiu has decided to go to such lengths to plead evidence substantially from what he contends are very telling documents formerly in the hands only of the bank. A few of those documents have been shown to me. It is not for me to form any view of the merits of the Plaintiffs' claims, I clearly cannot, but I accept Mr. Chiu's argument that some of those documents are capable of bearing a particular inference and have been used to form the basis of the paragraphs pleading evidence.

23. Accordingly, those amendments fall within Order 20 rule 5(2). I think it is just to allow them to be made. The Defendants are not in my view in any way prejudiced. The three employees in respect of whom substantial new detail is pleaded, were in any event identified in the Amended Statement of Claim. Since 1991 the Defendants have known that they would have to meet these allegations, at least in a more general form, in relation to their former employees. Furthermore the detail emanates substantially from documents created by them so in that respect their task is a good deal easier.

24. That is not of course the end of the matter. Even where contemporaneous documents are in existence, the lapse of time can be an enormous disadvantage for witnesses called upon to cast their minds back many years. I have already commented upon the delay since the decision of Liu, J. It is frequently and fairly said that justice delayed is justice denied, albeit in a different context. However given the nature of the allegations and the documentary evidence in existence, I do not consider that the Defendants have been prejudiced and it would be unjust to the Plaintiffs if I were to put a halt to their pleaded case at this stage.

25. Before I go on to consider that part of the proposed Re-Amended Statement of Claim which does raise a new cause of action, I should indicate what my view would have been if those amendments, which I have categorised as simply supporting or particularising a cause of action already pleaded, had in fact raised a new cause of action. I am quite satisfied that those amendments arise "out of the same set of facts or substantially the same set of facts as a cause of action in respect of which relief has already been claimed in the action". I refer back to my "culled" digest of the Plaintiffs' claim. For the reasons already set out I am satisfied that no prejudice has accrued.

26. I now turn to those amendments which raise the new cause of action in respect of the second Plaintiff. It is clear from the Amended Statement of Claim what the position of the Second Plaintiff was. The claim comes late because of some recent decisions of the Court of Appeal and House of Lords in England. Barclays Bank v. O'Brien [1994] 1 A.C. p. 180, C.I.B.C. Mortgages Plc v. Pitt [1994] 1 A.C. p. 200, T.S.B. Plc v. Camfield [1995] 1 A. ER. p. 951. But the claim nonetheless arises out of substantially the same facts as the cause of action already pleaded. I do not consider that the Defendants are in any way prejudiced. The facts will be easily resolved. Then it is a question of the law to be applied. Accordingly, I allow the amendments in this regard as well.

27. It may well be that Mr. Chiu will want to rationalise parts of his new pleading. There is duplication, particularly in the prayers. The Defendants will clearly need time to plead to the new pleading although I anticipate much will be subject to a simple denial. Three months would be a reasonable period. Given that five years have elapsed since the original Amended Statement of Claim was served, I would view an application for an extension of time sympathetically.

28. I make this one observation. Despite what I have just said, this action needs to come on for trial quickly. The Plaintiffs delay its further progress at their peril.

29. The costs of and occasioned by this application shall be the Defendants in any event.