GREATER BEIJING REGION EXPRESSWAYS LTD v. COSCO (HONG KONG) GROUP LTD AND OTHERS

HCA474/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 474 OF 2005

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DECISION

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1. This is an application by the plaintiff to amend its writ HCA474/2005 dated 17 March 2005.  The amendment sought is straightforward and short but it gives rise to a number of issues.  In effect the only amendment is to the name of the plaintiff.  The original writ named the “Greater Beijing Region Expressways Ltd” (“GBRE”) as the plaintiff.  The amendment seeks to add the words “on behalf of itself and as assignee of Greater Beijing First Expressways Limited (in liquidation)” (“GBFE”).  There are 11 defendants, D1-D3 are corporate defendants, the remainder are individuals said to have been employees of D1-D3 at some stage.

2. Four of the defendants, D1, D2, D5 and D10, represented by Mr Russell Coleman, SC, appeared to oppose the application.

3. For the purpose of this application only the following background facts are necessary.  GBFE is a wholly owned subsidiary of GBRE.  The plaintiff alleges that the defendants’ wrongful acts during the latter part of the 1990’s resulted in the winding-up of GBFE in 2000.  The plaintiff’s case is that the defendants wrongfully interfered with its road toll business so that GBFE’s joint venture partners in the PRC withheld dividends and profits due, ultimately, to GBFE.  Debts of around US$288 million accumulated.  GBFE was wound up and liquidators were appointed in October 2000.  Three further preliminary facts are relevant :

(a) In December 2002 the liquidators sold GBFE’s toll business to “Smart Watch”, a wholly owned subsidiary of D1.  The sale included an assignment to Smart Watch in the following specific terms :

“The Assignor hereby assigns to the Assignee such right, title and interest as the Assignor has and/or may have, and is and/or may be able to assign, in the Claims and Receivables.

‘Chinese Parties’ Hebei Expressway Development Company Limited (河北省高速公路开发有限公司) and Tianjin Highway Company Limited (天津市公路建设发展公司);

‘Claims and Receivables’ all such claims and receivables (if any) as at 16 December 2002 which the Assignor has and/or may have against, or which is and/or may be due to it from, the Co-operative Joint Ventures and the Chinese Parties (and in the case of the Chinese Parties, except as otherwise agreed in writing between the Assignor and the Assignee).”

(b) From 2000 onwards the plaintiff and others have consistently endeavoured to persuade the liquidator to pursue its claims against the defendants.  The defendants have always been aware of this.  In particular, the plaintiff and others argue that the sale to Smart Watch was at a considerable undervalue.

(c) In December 2005, the plaintiff applied for a court order, which was granted in April 2006, assigning GBFE’s causes of action against the defendants, to itself.  The assignment states :

“Pursuant to the Orders, the Liquidators, for and on behalf of GBFE, hereby sell and assign to GBRE all rights, claims or entitlements which GBFE has or may have, fully, unconditionally and without lien, reservation or condition, against the parties identified in Schedule 1 hereto (the ‘Causes of Action’), with effect from the date of this Agreement, upon the terms of this Agreement, save to the extent such Causes of Action are limited by the express terms of Schedule 1 hereto.”

4. Schedule 1states :

“CAUSES OF ACTION

A. All rights, claims or entitlements which GBFE may have against the parties identified in Hong Kong High Court Proceedings No. 474/2005, for the same or related causes of action.

B. All rights, claims or entitlements which GBFE may have against the following parties for the same conspiracy or related causes of action as those set out in HCA No. 474/2005 :

…”

Seven legal entities are then listed.

5. Immediately following this court order the plaintiff applied to amend the title of its writ as aforementioned.

The law

6. There has been little in dispute between Mr Coleman and Miss Winnie Tsui, counsel for the plaintiff, about the relevant rules and legal principles applicable in this Summons.

7. The first rules and principles to be applied are these :

(1) RHC Order 20 rule 5(1) :

“…, the Court may at any stage of the proceedings allow the plaintiff to amend his writ, or any party to amend his pleading, on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.”

(2) Rule 5 creates a discretion.  If an amendment would cause a defendant to suffer prejudice which cannot be compensated in costs it should not be allowed.  If on the other hand it does no more than properly frame the issues to be determined, without prejudice to the defendant, it will normally be allowed.  The burden of showing prejudice is on the defendant.

(3) The Limitation Ordinance, Cap. 347, s. 35(3) provides that a “new claim” in an action will not be permitted if it is time barred.  Thus, the court has to decide if the proposed amendment is a “new claim” and if so, whether the new claim is time barred.

8. The parties agree that in relation to the time bar issue the test to be applied is as held in Welsh Development Agency Ltd v. Redpath Dorman Long Ltd [1994] 1 WLR :

“Leave to amend by adding a new claim should not be given unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation which will be prejudiced by the new claim. …”

9. In this case there is no need to answer these questions because even if it is a new claim (which it probably is) and even if the plaintiff has failed the Redpath test (above) (which it probably has) the test concludes by saying “or can bring himself within RSC Order 20 rule 5”.  Our RHC Order 20 rule 5(5) effectively repeats the exception provided by the Limitation Ordinance s. 35(6) and states :

“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.”

10. I am satisfied that the plaintiff has comfortably brought itself within this rule.  The facts relied on under the original writ and the facts to be relied on under the amended writ will be, to all intents and purposes, the same.  The defendants have not and cannot point out any material differences.

11. The position thus arrived at is that the court in its discretion can allow the amendment.  The issues now to be addressed are :

(i) would the defendants suffer prejudice by the amendment, and

(ii) does the justice of the case lie in favour of the amendment.

Prejudice?

12. In exercising my discretion in the plaintiff’s favour I take into account the following.  Firstly, the loss of a possible limitation defence is no more than one factor to be taken into account.  Moreover the claims are tortuous claims arising on the proof of damage.  The issue of when damages arose will be a lively issue at trial.  On the one hand it is fair to say that some damages flowed from the alleged wrongdoings prior to 2000 which would be time barred, however, it is also alleged that GBFE was sold in 2002 by the liquidators at a substantial undervalue.  These events are not time barred.  Secondly, although it is probably a “new claim” there is nothing new about it factually.  The defendants have always been aware of the plaintiff’s desire to sue.  It cannot be said that they are taken by surprise or that there is any material difference in the issues they will have to face resulting from the plaintiff’s change of capacity in which they sue.  Thirdly, the onus of showing prejudice is on the defendants.

Validity of the claim

13. The defendants submit that it would not be just to allow the amendments if the court concludes that either the existing or the amended writ is a bad claim and bound to fail.  I accept that if it is plain that a claim is doomed to fail it would be a compelling factor against exercising a discretion in the plaintiff’s favour.  However the court should not undertake a deep and detailed analysis of the validity of the claims at this stage.  If on a superficial consideration it is a hopeless case, so be it.  The remarks of Staughton LJ in Hancock Shipping Co. Ltd v. Kawasaki Heavy Industries Ltd [1992] 1 WLR at p. 1031 are apposite :

“For my part I do not think it right, on such application, to make an appreciation of the plaintiffs’ chances of success with or without the amendment, subject to four points. (1) If the plaintiffs’ existing claim to bound to fail, that may possibly be relevant to what justice requires.  (2) If it is bound to succeed, that could conceivably be relevant in deciding whether to allow a different cause of action leading to the same remedy but requiring much further investigation to be pleaded.  However, it is difficult to imagine a defendant putting this forward as a reason why leave should be refused.  (3) If the new claim is bound to fail, leave should be refused on ordinary principles.  (4) If the new claim is bound to succeed, that may affect the justice of the case.  It must be rare that any of these situations will arise.  In other cases, provided that the new claim is fairly arguable, it does not seem to me that any investigation of the need to amend is appropriate.”

14. I do not agree with the defendants’ submission that, on a number of grounds, the court should conclude, at this stage, that the plaintiff’s claim, amended or not, is bound to fail.

15. As a detailed analysis of the merits is not appropriate (indeed, in this case, it would be impossible because the claim has yet to be pleaded) at this stage I simply record the plaintiff’s response, which I consider in each case to be a valid response, to the defendants’ submissions.

(1) The defendants submit that after the assignment to Smart Watch in 2002 there was nothing left to assign to GBRE in 2006.  A brief reading of the two assignments leaves open the argument that what was assigned and to whom is different in the two documents.  There may be overlaps but the former does not extinguish the latter.

(2) The defendants submit that the original claim offends the principle against recovery of reflective loss.  It is alleged that GBRE’s loss would be reflective of the losses suffered by GBFE.  The principle itself is not in issue.  The rule prevents a shareholder from seeking the recovery of a loss which is merely reflective of the company’s loss of which he is a shareholder.  It is a protection against double recovery by the shareholder and the company.

16. I agree that, at this stage, the defendant’s argument that all GBRE’s losses can only be reflective of GBFE’s losses must be speculative.  The plaintiff will argue for losses that are solely GBRE’s.  It will argue that the defendant’s wrongful acts were not solely directed at GBFE.  This court should not dismiss those arguments summarily.

(3) The defendants also submit that losses claimed by GBFE, in the amended writ, would also be reflective losses on the ground that they would be reflective of their subsidiaries losses and thus irrecoverable on the same reasoning.

17. Again, the burden of persuading the court is on the defendants and again the plaintiff makes a plainly arguable response.  Their first response is the same as before (concerning GBRE’s losses) namely it is arguable that some of GBFE’s losses are separate and distinct from those of its subsidiaries.  Secondly, the plaintiff submits that it was the defendants very acts which caused GBFE to be wound up thus disabling it from pursuing its claim.  This being the case, the plaintiff would argue that it can rely on the exception to the no reflective loss principle in Giles v. Rhind [2003] 2 WLR 237 :

“… the situation in which the wrongdoer by the breach of duty owed to the shareholder has actually disabled the company from pursuing such cause of action as the company had.  It seems hardly right that the wrongdoer who is in breach of contract to a shareholder can answer the shareholder by saying ‘the company had a cause of action which it is true I prevented it from bringing, but that fact alone means that I the wrongdoer do not have to pay anybody’.”

18. Moreover, and thirdly, apparently nearly all the subsidiaries, of which there were many, have been wound up and struck off.  I say “nearly” because the plaintiff has been unable to trace three of them.  Thus there is no real risk of any double recovery and the reflective loss principle ceases to have any relevance. 

19. Fourthly, the plaintiff submits that it is arguable that the subsidiaries could not sue the defendants in any event.  

20. For all these reasons I am satisfied that the defendants have clearly failed to discharge the burden on them that the application of the no reflective loss principle closes the door on the plaintiff claim, whether amended or not, before it is even pleaded.

21. The final throw of the dice is that the defendants submit that it is open to the plaintiff to commence a new action — and they have done so.  It is true that a new writ no. HCA1013/2006 has been filed.  In it GBRE sues solely as assignee of GBFE, not also in its own capacity.  Plainly this is the plaintiff’s safety net.  It was prudent of them to commence alternative proceedings in case they become necessary.  It was the same prudence which prompted them to file the present writ HCA474/2005, inter alia to preserve their position as to time running, even though it came before the assignment which they were seeking and which, when granted, prompted this application.

22. I grant the application and award the costs of the amendment to the defendants in any event but the costs of the hearing to the plaintiff in any event.

23. I also grant the following consequential orders :

(i) Leave to plaintiff to incorporate the amendment to the concurrent writ and endorsement of claim issued on 16 March 2006.

(ii) Leave to plaintiff to serve the amended concurrent writ on D3 and D9 out of the jurisdiction at the addresses referred to in the summons.

(iii) Leave to plaintiff to vary the interlocutory judgment entered against D4 and D6 so that the damages to be addressed are pursuant to the amended writ.

(iv) Leave to D1, D2, D5 and D10 to file 2^nd affirmation of Lam Min Yin Amy dated 27 July 2006.

(v) Leave to plaintiff to file Affidavit of Juana France dated 3 August 2006.

The costs in respect of the orders in paragraph 23(i), (ii), (iv) and (v) above shall be in the cause and on a nisi basis.