HERAEUS LTD v. CHAN YUN MUI AND ANOTHER

HCA 878/2011

[2019] HKCFI 1072

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 878 OF 2011

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DECISION

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I. INTRODUCTION

1.  On 13 October 2017, Registrar KW Lung (“Registrar”) dismissed (a) the 2^nd defendant’s (“D2’s”) summons filed on 6 February 2017 (“D2 Summons”) for leave to amend his Defence and Counterclaim (“D2 D&C”) in the manner marked in violet as per the draft annexed thereto (“Draft”) with consequential directions, and (b) D2’s summons filed on 3 October 2017 for leave to amend the D2 Summons (“Amend Summons”) which essentially was to adduce a revised draft amended D2 D&C (“Revised Draft”) with revised amendments marked in violet (“Violet Amendments”) (“Order”).

2.  On 17 December 2018, I dismissed D2’s appeal against the Order (“D2 Appeal”) with liberty to the plaintiff (“P”) to set the present action down for trial as per the order of the Registrar dated 9 December 2016, and with direction that P shall within 7 days apply to the Listing Clerk to restore its summons filed on 23 February 2018 for amendment of the Amended Statement of Claim (“ASoC”) for 3-minute hearing before master (“Appeal Order”). For convenience, I shall adopt the abbreviations in my written decision dated 17 December 2018 (“Decision”), and “§xx” hereunder refer to paragraphs in the Decision.

3.  On 28 December 2018, D2 filed a summons for leave to appeal against the Appeal Order based on the grounds set out in the Draft Notice of Appeal (“Draft Notice”) annexed thereto (“Leave Summons”), and also for the following reliefs:

(a) time for appeal against the Appeal Order to the Court of Appeal be extended;

(b) P’s summons filed on 23 February 2018 not to be restored pending the determination of “this appeal”;

(c) trial of the present action not to be set down pending the determination of “this appeal”;

(d) costs of the application be costs in the cause of the appeal.

4.  It was rather unclear from reliefs sought under the Leave Summons in paragraph 3(b)-(c) above whether by referring to the determination of “this appeal” D2 was in fact referring to determination of the Leave Summons (given the use of the word “this”) or determination of the intended appeal against the Appeal Order (if leave was necessary/granted and if D2 lodged his notice of appeal). But given my conclusion as regards the Leave Summons, such ambiguity was beside the point.

5.  D2 originally marked 1 day as the estimated hearing time for the Leave Summons, but it was shortened to 30 minutes when the Leave Summons was filed on 28 December 2018. This court could not understand why D2 would have thought in the first place that the Leave Summons would require a 1 day hearing.  Be that as it may, this court find it even more perplexing that the Leave Summons was fixed to be heard by this court only on 26 June 2019 (ie returnable 6 months after filing of the Leave Summons) when (a) there were half hour hearing slots before this court long before 26 June 2019, and (b) by the Appeal Order this court already granted liberty for P to set the present action down for trial. Such significant delay gave pause for concern, especially against the procedural background that the present action was commenced in May 2011 and leave to set the present action down for trial was granted in December 2016.

6.  Common/legal sense would have dictated that the Leave Summons must be brought on for hearing by this court much earlier than June 2019. Merely as a matter of fortuity, the Leave Summons was brought to this court’s attention in early March 2019, but regrettably by such time more than 2 months had elapsed since the filing of the Leave Summons.

7.  By written directions dated 5 March 2019, I drew the parties’ attention to the guidance by the Court of Appeal in Tsang Wing Kwai v Tsang Wing Fai,[1] and directed D2 and P to lodge written submissions. Having considered the written submissions and notwithstanding P’s request for an oral hearing of 1 hour to “more fully and properly develop and clarify the relevant arguments”, I find an oral hearing unnecessary and the Leave Summons is fit for paper disposal. In any event, Mr Fong, counsel for P, in his written submissions did not explain how there could be an oral hearing of 1 hour when the hearing of the Leave Summons scheduled to be heard on 29 June 2019 was for just 30 minutes. It would be wholly inappropriate to delay the Leave Summons even further by re-fixing and re-scheduling another oral hearing for 1 hour.

 II. JURISDICTION

8.  Section 14AA(1) of the High Court Ordinance Cap 4 (“HCO”) provides that “[except] as provided by the rules of court, no appeal lies to the Court of Appeal from an interlocutory judgment or order of the Court of First Instance in any civil cause or matter unless leave to appeal has been granted by the Court of First Instance ……” Order 59 rule 21(1) of the RHC provides that “[judgments] and orders to which section 14AA(1) of the [HCO] (leave to appeal required for interlocutory appeals) does not apply and accordingly an appeal lies as of right from them are the following – (a) a judgment or order determining in a summary way the substantive rights of a party to an action; ……” Order 59 rule 21(2) of the RHC goes further to provide that “[without] affecting the generality of paragraph (1)(a), the following are judgments and orders determining in a summary way the substantive rights of a party - ……(i) an order refusing to allow an amendment of a pleading to introduce a new claim or defence or any other new issue; ……”

9.  Given the existing D2 D&C (summarised in §12-13) and the Violet Amendments (summarised in §§10, 14, 57 and 82), it was plain that the Violet Amendments raised new defences or at the very least new issues not previously pleaded. Indeed, at the hearing of the D2 Appeal, Mr Fong acknowledged that the Violet Amendments raised a new alternative plea of fraud that the Invoices in the ASoC had been settled by reason of the Practice (which Practice was newly added by the Violet Amendments) (ie §82), and the other additional pleas that concerned Invoices that over-charged the Finance Charge and double-charged for 1 Invoice (ie alleged “manifest errors”) as detailed in the RSM Report were premised not on material facts in the existing pleas but drawn from extraneous evidence yet to be raised/pleaded.

10.  I find the Appeal Order that dismissed the Violet Amendments plainly fell within Order 59 rule 21(2)(i) of the RHC, and this court had no jurisdiction to entertain P’s application for leave to appeal against the Appeal Order,[2] which is liable to be dismissed. That being the case, the consequential reliefs sought by D2 in paragraph 3(a)-(c) above also fall away.

11.  Actually, after Mr Fong’s written submissions, P’s solicitors wrote to D2’s solicitors on 29 March 2019 inviting D2 to withdraw the Leave Summons on the basis of lack of jurisdiction. But D2’s solicitors responded by letter dated 1 April 2019 to say inter alia that “we are of the view that the scope of the amendments sought by [D2] is wider than merely introducing a new claim or defence or new issue. As such, [D2] has applied for leave to appeal by [the Leave Summons]”. I find such reply quite unhelpful. First, D2’s solicitors did not identify what aspects of the Violet Amendments were beyond “a new claim or defence or new issue”, and indeed Mr Fong did not highlight any in his written submissions. Secondly, even if there were aspects of the Violet Amendments that went beyond “a new claim or defence or new issue” that would have required leave to appeal (which I disagree), there is still no jurisdiction for this court to grant leave to appeal against refusal of those parts of the Violet Amendments that attempted to introduce “a new claim or defence or new issue”.

12.  In my view, D2’s failure to withdraw the Leave Summons despite P’s express invitation to do so is necessarily conduct that ought to be taken into account on the question of costs, including the basis of assessment.

 III. LEAVE TO APPEAL

13.  However, in case I am wrong on the matter of jurisdiction, I shall proceed to deal with the application for leave to appeal against the Appeal Order.

14.  Under section 14AA(4) of the HCO, leave to appeal shall not be granted unless the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard. In SMSE v KL,[3] Le Pichon JA pointed out such leave to appeal is not lightly granted. Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (p 129). Chu J (as she then was) explained in Wynn Resorts (Macau) SA v Mong Henry [4] that to meet the “reasonable prospect of success” test, an applicant is required to show more than just an arguable case, ie an appeal that has merits and ought to be heard although he does not have to demonstrate that the appeal will probably succeed.

15.  Further, it is pertinent to bear in mind that even if there is a reasonable prospect of success on appeal, the court still retains a discretion whether to grant leave to appeal, and the court may refuse leave to appeal in the interests of procedural economy and proportionality even though the fact that there is, ex hypothesi, a reasonable prospect of success will heavily influence the court’s exercise of discretion.[5]

16.  In respect of Ground 2 of the Draft Notice (ie the CEC was only conclusive as to quantum and not liability), Mr Fong repeated his submissions at the hearing of the D2 Appeal, and argued the CEC was only conclusive as to quantum and not liability because it made no mention of the “Indebtedness” referred to in clause 2.01 of the D2 Guarantee and defined in clause 1.01 thereof, and the wording of “an amount due” in the CEC was at best ambiguous. In my view, such argument rested on a blinkered reading of the CEC which stated the conclusive evidence as to “the amount so due” (my emphasis) was “[any] statement of account purporting to show an amount due from [SKL] or from [D2] under this Guarantee ……” (my emphasis), which went to liability and not just to quantum.

17.  As for the authorities, I have analysed them in §§68-77, and Mr Fong did not point out any error in the legal analysis. In particular, I draw attention to Blair J’s observations in Carey Value Added SL v Grupo Urvasco SA [6](which case Mr Fong particularly referred to in his written submissions) that there was a major difference between a certificate as to “amount” and as to “amount due and payable” (see §73), the latter of which was akin to the CEC. I am not persuaded Ground 2 of the Draft Notice had reasonable prospect of success.

18.  In respect of Ground 3 (ie the CEC was not applicable on D2’s existing pleaded case), Mr Fong reiterated his submissions at the hearing of the D2 Appeal that the existing pleas of non est factum and fraudulent misrepresentation in the D2 D&C already put fraud in issue, and hence the Violet Amendments introduced nothing new. This court found that notwithstanding the existing pleas of non est factum and fraudulent misrepresentation in the D2 D&C, the Violet Amendments introduced a new alternative plea as explained in §§82 and 85. However, this court did not conclude “therefore the CEC was not applicable” merely by reason of such view. This court’s view that the Violet Amendments amounted to a new alternative case was to put the proposed pleas in their proper context as part of the relevant matters to be taken into account.

19.  I am not with Mr Fong in his “circular logic” argument. He suggested that if D2’s presently pleaded defence of fraudulent misrepresentation was taken to its highest, then the D2 Guarantee would be voidable and the CEC would fall away. First, such argument is irrelevant as reliance on existing defence would not have required the Violet Amendments and P had not pleaded the CEC in the D2 R&DC in response to D2’s existing defence plea. Secondly, scrutinising an application to amend pleadings, especially to introduce amendments on fraud which require utmost particularity and early application (see §§51-54), the court is bound to consider the subject of the proposed amendments and disallow those which are bound to fail.

20.  As explained in §§60-62, the fact the CEC was not presently pleaded in the D2 R&DC would not have precluded P from pleading the CEC as consequential amendment to the amended D2 R&C if the Violet Amendments were allowed. Hence, it was for D2 to show that there is a reasonable prospect of overcoming it, otherwise the proposal to amend will be an exercise in futility. But this court did not conclude the Violet Amendments were unarguable merely by operation of the CEC. This court also found the proposed amendments inherently unarguable and failed to provide the full particulars necessary for pleading fraud (see §§83-96). I am not persuaded Ground 3 of the Draft Notice had reasonable prospects of success.

21.  In respect of Grounds 1, 8 and 11 (ie this court adopted wrong test and approach), it was said this court erred in taking into account the inconsistencies between the Draft and Revised Draft in concluding D2’s new case by the Violet Amendments were unbelievable. Mr Fong submitted that amendments were often inconsistent with the original pleas verified by statement of truth, and a fortiori inconsistencies between draft amendments and revised draft amendments were irrelevant. It was also said this court erred in considering whether the Violet Amendments were believable as opposed to arguable.

22.  I am not persuaded that such contentions had real prospects of success. Taking the last point first, this court was alive to the criterion for amendment of pleadings, especially when adding a plea of fraud (see §§47-48, 51, 87 and 96). The concern of the court in the discussion in §§83-96 was whether P’s contention had any merit at all because if the Violet Amendments were unbelievable and unarguable, they ought not to be allowed. Secondly, as Mr Lai, counsel for P, submitted, proposed amendments to pleadings represented material facts which the pleader (or party) is prepared and willing to verify their truth. Plainly inconsistent facts called for explanation, and the absence of cogent explanation must be a highly relevant consideration in any late attempt to introduce plea of fraud that ought to have been supported by cogent evidence (see §§51-54). Here, the inconsistent factual accounts were not a mere matter of differences between the existing pleadings and Violet Amendments and/or between the Draft and Revised Draft. As explained in §§88-96, the Revised Draft (which claimed all payments due to P had been paid before issuance of invoices by P) upon which the allegation that P’s claim was fraudulent was based contradicted the Thomas/D2 Affs (which claimed there was outstanding indebtedness due from SKL to P that had been paid/cleared by the HSBC Cheques and payment by D2 himself in 2009). Mr Fong’s submissions did not explain how the Violet Amendments on the fraud issue could be allowed in light of the contradictory accounts in the Thomas/D2 Affs that were made on affirmation.

23.  In respect of Grounds 4-7 of the Draft Notice (ie there existed “manifest errors”), Mr Fong referred to Re Skydon Development Ltd [7] to say the court could have regard to extrinsic evidence, but I have noted in §111 that even if (as Mr Fong suggested) the court could have done so, “the authorities had steadfastly adhered to the principle that a “manifest error” was one that was obvious or easily demonstrable without extensive investigation, and rejected any full-blown trial or investigation”. P did not say how this court erred in approaching P’s arguments “[on] this note”.

24.  As regards the 3 alleged “manifest errors” raised by Mr Fong at the hearing of the D2 Appeal discussed in §§112-115, save for reiterating the arguments made at such hearing, D2 did not identify how such alleged errors were manifest such that they did not require the investigations outlined in §§112-115.

25.  As for the error referred to in §116, there was no dispute the Invoices List in the ASoC showed an arithmetical error (§§116 and 118), and the Claimed Sum was less than the aggregate of invoiced amounts less credits shown in the Invoices List. But such arithmetical error could be cured either (a) by leave to amend pursuant to P’s summons filed on 23 February 2018 (see §117) given that the error was an arithmetical error (and such amendment if allowed would take effect from the date of the original SoC) or (b) by the issuance of a new comprehensive certificate (see §§78(c) and 118). The court will not allow the Violet Amendments in relation to the alleged “manifest error” in §116 which was an arithmetical error if it would be wholly met by the CEC, and it would not be correct to allow an amendment in futility. Mr Fong’s discussion of the authorities in paragraph 14 of his written submissions would not bring the matter further. I am not persuaded Grounds 4-7 of the Draft Notice had real prospects of success.

26.  As for Ground 10 of the Draft Notice, Mr Fong submitted this court fell into error in failing to consider the 2 documents in §24(a)-(b) in concluding that the Violet Amendments were unbelievable. I should point out that this court in §96 did consider the Audit Letter in §24(b). Further, in rejecting the Violet Amendments on the fraud issue, this court proceeded on the premise of the proposed pleas themselves and found them inherently unconvincing even on D’s own case (see §§83-96). Thomas claimed the document in §24(a) was to demonstrate the existence of the Metal/Cash Accounts and the Practice, but this court concluded that even on the premise that “D2 averred SKL’s business model and the Practice adopted by the industry and between SKL and P” the proposed amendments were wanting in particulars of actual operation of SKL’s business model and the Practice that constituted the alleged fraud (see §96). There is no merit to this intended ground of appeal, and as pointed out by Mr Lai, D2 did not address the detailed analysis of D2’s contentions in §§83-96, and the lateness of the proposed amendments to plead fraud in §§97-104.

27.  In respect of Ground 11 of the Draft Notice, I am not persuaded by Mr Fong’s arguments. The prejudice to P could not be brushed aside by the assertion that P “would at most require legal and accounting exercises and P could be compensated by costs or interest on the judgment debt”. The trial, which should have been set down pursuant to leave granted in December 2016, would be further delayed, and the RSM Report itself spoke of the scale of response required of P let alone the need to re-draw pleadings, introduce further discovery and add to witness evidence. Mr Fong’s submissions did not address the full array of prejudice to P discussed in §123.

28.  As for the suggestion that P’s alleged non-retention of business documents after a period of 7 years was neither here nor there because P brought the present action more than 7 years after the alleged Invoices, and in any event P had time and again exhibited business records of over 7 years in opposition to D2’s applications, this court’s conclusion on prejudice to P was founded on the full analysis in §123 (including the prejudice caused by the need to make further discovery on the business model/Practice and their operations as between SKL and P going back decades), and the court merely borne in mind that “the Kupka Aff referred to P’s non-retention of business documents after a period of 7 years”.

29.  In respect of Ground 10 of the Draft Notice, Mr Fong submitted D2 did not accept the Violet Amendments should stand or fall together. But D2 did not decry the summary of the Violet Amendments in §14, and did not identify what consequential amendments should be allowed and why they would be necessary either for disposing fairly of the cause or the matter or for saving costs under Order 20 rule 8(1A) of the RHC if the new pleas in the Violet Amendments were rejected (and this court did reject such new pleas). I am not persuaded Ground 10 of the Draft Notice had any reasonable prospects of success.

30.  Mr Fong in his written submissions wished to rely on section 14AA(4)(b) of the HCO (which was not set out in the Draft Notice), ie there is some other reason in the interests of justice why the appeal should be heard, “[given] the lack of congruent authorities on the treatment of conclusive evidence clauses and in particular their exceptions”. I am not persuaded I should allow this intended ground of appeal to be run. The wealth of authorities cited by counsel (and this court in the Decision) spoke to the contrary, and D2’s intended grounds of appeal were essentially targeted on case-specific issues rather than any difficulty or lacuna in the law that would call upon the wisdom and guidance from the Court of Appeal.

 IV. CONCLUSION

31.  In the circumstances, the Leave Summons is dismissed. There is no reason why costs should not follow event. I therefore grant a costs order nisi that D2 shall pay P costs of and occasioned by the Leave Summons (including all costs reserved if any) to be summarily assessed and paid forthwith. P was contractually entitled to costs on indemnity basis (see §§5 and 125), and I take into account the matters in paragraph 12 above.

32.  I also order that the hearing of the Leave Summons scheduled to be heard by this court on 26 June 2019 at 9:30am be vacated.

33.  I give consequential directions for the summary assessment of costs as follows:

(a) D2 do within 7 days from the date hereof lodge and serve succinct summary of objections not exceeding 1 page to P’s statement of costs;

(b) the summary assessment of costs will be by paper disposal

(unless otherwise directed).