KWOK CHIN WING v. GFT HOLDINGS LTD

HCA2332/2004

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2332 OF 2004

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D E C I S I O N

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1. There are two plaintiff’s summonses before the court, one to further amend the Re-re-amended Statement of Claim and the second to join Chan Sheung Wai (“Chan”) as the 2^nd defendant.  In practice they amount to one application because in almost all respects the amendments sought are direct consequences of Chan being joined as a party.  In reality therefore, but for the joinder application, there would be no amendment application.

2. The claim is for the repayment of a loan in the sum of $44.5 million from the defendant company of which the plaintiff was the chairman and managing director.  The alleged loans pre-date his resignation in 2001.  The writ is dated October 2004.

3. Chan became the chairman of the defendant company in 2001.  Prior to that he had been both a non-executive director and later an executive director.  Chan had been involved in the litigation from the outset.  He has made both a witness statement and affirmations in relation to the original issue.  The issue being, to which company was the money lent?  Was it to the defendant company or to its subsidiaries?

4. In 2006 the plaintiff changed its solicitors.  This application was made relatively soon after the change.  The application is to add Chan as a defendant against whom an allegation, through the proposed amendments, of fraudulent misrepresentation is made.

Principles

5. Whether to allow such a joinder and consequential amendments is within the court’s discretion.  As the two applications are inextricably connected the principles governing both summonses must be considered together.  The joinder will be allowed if the relief sought in each case arises out of the same transaction or transactions and where there is some common question of law or fact.  The purpose is to achieve an efficient resolution of common factual issues so as to avoid inconsistent findings and save costs and time.

6. The consequential amendments should be allowed if they are for “the purpose of determining the real question or questions in controversy between the parties to the proceedings”.  If the joinder is allowed, the amendments must follow.  Normally the court would be slow to allow an amendment alleging fraud where the fraud had not been pleaded in the first instance.  In this case such a principle does not affect this application.  The allegation of fraud is not and never has been against the 1^st defendant.  It is being made only against the 2^nd defendant and immediately upon him being made a party.  Moreover, as stated at 20/8/23 Hong Kong Civil Procedure 2007 :

“…. There is, indeed, no rule of practice that allegations of fraud have to be pleaded at the outset and could not be added by amendment, and amendments alleging fraud are no different from other amendments which are allowed on the general principle that all amendments are allowed so that the real matters in controversy between the parties are before the court, and accordingly the court in its discretion may allow an amendment to add a plea of justification in a libel action, even though fraud is the gist of that plea (Atkinson v. Fitzwalter [1987] 1 W.L.R. 201; [1987] 1 All E.R. 483, CA).”

Opposition

7. In a detailed and carefully considered written and oral submission, Mr C.Y. Li, counsel for the 1^st defendant, raises four grounds of opposition.  (The 2^nd defendant, although duly served, indicated in correspondence that he would not attend the hearing.)

(a)     Delay

8. Mr Li complains about both past and future delay.

9. As for past delay Mr Li points out that the alleged loans go back about 10 years.  The allegations against Chan do not concern the 1^st defendant and have emerged for the first time in 2006.

10. However, Mr K. Ramanathan, counsel for the plaintiff, answers this complaint sufficiently.  The fact is that the factual matrix has never changed.  The writ was only issued in October 2004.  Mr Ramanathan is unable to say why the plaintiff’s previous solicitors did not plead fraud against Chan from the outset.  However, reasonably soon after the change to the present representation the joinder and allegation of fraud was applied for.  It is true that, even in new hands, two checklist hearings took place before the summonses were issued.  However, I do not regard the fact that five months passed between the change of solicitors and the issuing of these summonses as serious or substantial delay. 

11. Of more concern, however, is the effect of the joinder on the future of the proceedings.  Without the joinder and consequential amendments it is likely that the trial would be listed for hearing (as a six day trial) in early 2008.  The amendments however will spawn new discovery applications and new pleadings.  Even these may be preceded by applications to set aside the joinder and/or applications to strike out.  The trial therefore may be further year away.

12. The length of the trial will also undoubtedly be increased. Mr Ramanathan suggests it may be lengthened by two to three days.  I hope he is right but I fear he is unduly optimistic.  I think Mr Li’s prediction that the case will become considerably more complex as a result of the fraudulent misrepresentation allegation must be the more likely.

13. It is an important issue because all reasonable steps should be taken not to delay justice.  It is a question of balance.  Not without difficulty I have concluded that the disadvantage of the trial being postponed and lengthened is outweighed by the advantage of one judge hearing all the relevant issues against all the relevant parties at one trial.

14. Consequential advantages are that it is likely to save costs and judicial time, avoid inconsistent findings and lessen the risk of a multiplicity of proceedings.

15. The plaintiff, in addition to these summonses, has also issued four protective writs : against his previous financial advisor, against his previous solicitors, against Chan (not alleging fraud) and against an associates of Chan’s, a Mr Ma Yun Kai.  Mr Li expresses concern that there is no guarantee that these writs will not proceed to trial in any event, thus creating a multiplicity of proceedings.  Neither, he submits, can it be guaranteed that one or more will not be consolidated with the present action thus making it the more cumbersome and slow moving.

16. I think these concerns are also answered.  The risk of a multiplicity of proceedings is greater if the joinder is not allowed.  A major reason behind the issuing of the writs is in case this application fails.  The writ against Chan and Ma will inevitably be unnecessary if joinder is allowed.  The writs against Wan (the financial advisor) and the former solicitors concern discrete issues and will have a life of their own in either event.

17. As for Mr Li’s concern about possible consolidation I think it is overstated.  The plaintiff has gone on affirmation to say that there will be no consolidation applications.  The idea that the other defendants themselves will apply to consolidate is fanciful.  Also, there would be no good reason for the court to order any consolidations in light of all the present circumstances.

18. In short, I think that delay and the possible consequences of further delay do not provide reasons for refusing the applications.

(b)     The proposed claim against Chan is a separate issue

19. Mr Li complains that virtually all the proposed amendments have nothing to do with the 1^st defendant and it would be unfair for the 1^st defendant to become embroiled in a fraud trial between the plaintiff and the 2^nd defendant.

20. It is true that the substance of the fraud allegation is against Chan individually.  Also, no amendments are made to the relief claimed against the 1^st defendant and the new relief is against Chan only.

21. Mr Ramanathan points to the realities.  Chan was the person dealing with the plaintiff at the material time.  He was chairman of the 1^st defendant at the material time.  There will be a substantial overlap of issues, the factual matrix is the same, the witnesses are the same.  It is just and proper and necessary and convenient to join Chan so that “all matters in dispute may be effectively and completely determined and adjudicated upon”.

22. Taking an overview of the whole saga, I am satisfied that, on balance, it is logical, desirable and in the interest of case management to include Chan as a 2^nd defendant.  It would be illogical and undesirable for the plaintiff to have to sue Chan separately.

(c)     Abuse of process

23. This complaint arises out of the fact that, at present, the plaintiff is pursuing concurrent actions against Chan, firstly by this application to join and, secondly by the filing of the protective writ naming him as a defendant.  Given the fact that it is obvious that the protective writ will not proceed if this application succeeds and given also the fact that the plaintiff has affirmed that there will be no application to consolidate, I am satisfied that there neither is nor will be any abuse of process.

(d)     Prejudice

24. Mr Li complains that the 1^st defendant will be prejudiced if the litigation is enlarged, lengthened and delayed.  It will place extra pressure on the company’s operations and share price.  This is a general concern which is unsupported by any specific evidence.

OTHER AMENDMENTS

25. There are two amendments which are unrelated to the joinder issue.  Mr Li opposes those amendments also.

26. In paragraph 8, the words “acting both on behalf of the 1^st defendant and on his own behalf”, and in paragraph 8A, the words “for and on behalf of the 1^st defendant” are added.  Mr Li submits that this represents a material change in the plaintiff’s case which undermines his bona fides.

27. I disagree.  The differences between the former and the proposed new pleadings are, in the context of the case, not substantial and do not represent a change of case.  It seems to me to be no more than a wider restatement of the same case.

28. I therefore allow both summonses.

COSTS

29. Both counsel have had the opportunity to address the question of costs.  I therefore make this final order.

30. The costs of summonses (namely the costs of and occasioned by the amendments and the joinder) shall be to the 1^st defendant in any event.  The costs of the hearing shall be in the cause.