TOPWELL CORPORATION LTD v. 關錦泉 AND ANOTHER

CACV 88/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 88 OF 2013

(ON APPEAL FROM DCCJ NO. 3085 OF 2011)

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Hon Kwan JA (giving the Reasons for Judgment of the Court):

1.  This is an appeal of Kwan Kam Kee, the 2^nd defendant in this District Court action, from the judgment of HH Judge Chow on 6 March 2013. By that judgment, the judge dismissed his appeal from the decision of Master K K Pang on 2 January 2013, refusing leave to re-amend his defence and counterclaim in order to plead a defence of adverse possession and limitation. This appeal is brought with leave granted by this court (Kwan and Lam JJA) on 25 April 2013.

2.  At the conclusion of the hearing, we allowed the appeal, set aside the orders of the master and the judge refusing leave to amend, granted leave to the 2^nd defendant to file his re-amended pleading and the plaintiff to file a re-amended reply, vacated the trial dates of 27 and 28 May 2013, and remitted the case to the District Court for further directions on the conduct of this case.  We did not vary the costs order made by the master but varied the costs order made by the judge and awarded those costs to the 2^nd defendant.  We also awarded costs of the application for leave to appeal and of the appeal to the 2^nd defendant, with a certificate for two counsel.

3.  These are the reasons for our judgment.

4.  This appeal challenges the exercise of the discretion of the court below in refusing leave to amend the pleading.  It is well established that the function of the appeal court is initially one of review.  It may set aside the judge’s exercise of his discretion on the ground that it was based on a misunderstanding of the law or in disregard of principle, or under a misapprehension of the facts, or that he took into account irrelevant matters, or failed to take into account relevant matters, or that he was plainly wrong.  If the judge has exercised his discretion wrongly for one or other of the above reasons and his discretion must be set aside, then the appeal court becomes entitled to exercise an original discretion of its own.

5.  Ms Audrey Eu, SC, who appeared for the 2^nd defendant in this appeal with Mr Benny Lo, submitted that the judge was plainly wrong in refusing leave to amend in these respects:

          (1) The proposed defence of adverse possession raises a serious issue to be tried, which was accepted throughout by Mr Benjamin Chain, who appeared for the plaintiff below and with Mr Gerard McCoy, SC on appeal.

          (2) There was no material evidence or finding suggesting that the proposed amendments would cause real prejudice to the plaintiff.  There was no question of milestone dates being affected, since the action was not even set down for trial when the master determined against the 2^nd defendant on 2 January 2013 that leave to amend should not be granted.

          (3) There was no evidential basis to infer that the 2^nd defendant had acted in bad faith or with deliberate delay, particularly given that: (a) the factual averments in the proposed amendment to plead adverse possession are sourced from materials already pleaded or disclosed; (b) the 2^nd defendant had acted in person all along until about one month before the case management conference (“CMC”) on 2 January 2013; and (c) the 2^nd defendant had filed an affirmation in September 2011 deposing that the plaintiff had purported to effect service of the writ issued in August 2011 by leaving the same in the letter box and at the door of the hut structure in question when the only defendant named in the writ was wrongly stated, and it was this that led to the order of Master T Chan on 4 January 2012 ordering him to be joined as the 2^nd defendant in the action and the case thereafter proceeded against him alone.

The relevant background and the judgments below

6.  The plaintiff, Topwell Corporation Limited, is the registered owner of two connected old Chinese tenement buildings at Nos 3 and 5 Temple Street, Kowloon.  It purchased the buildings in 2007 with the view to redevelopment.  This action was brought against the 1^st defendant (a non-existent person according to the 2^nd defendant) and the 2^nd defendant for trespass, in respect of a hut structure built at the roof of the buildings.  The plaintiff seeks an order for possession of the floor space on the roof occupied by the hut structure and damages for trespass.

7.  According to the existing pleadings and witness statement filed by the 2^nd defendant, he purchased the hut structure on the roof in June 1988 from one Madam Chow Yuk at $30,000.  He had the hut renovated in October 1989, arranged for the installation of telephone lines, replaced dilapidated water pipes with new pipes for fresh water and for fire services, and had electricity supply connected in 1992.  He permitted his brother to reside in the hut, until his brother was forced to move out in October 2008 when the plaintiff dismantled the water pipes to the hut.  He continued to keep the ashes of his father in the hut.

8.  As mentioned earlier, the 2^nd defendant filed an affirmation in the action when the writ came to his knowledge.  As he did not serve this affirmation on the plaintiff (it ought to be borne in mind he was acting in person and there is nothing to suggest he knew of the requirement to serve any document filed in court on the opposite party), it only came to the plaintiff’s knowledge in January 2012.  Master T Chan then ordered the 2^nd defendant to be joined as a defendant in the action.

9.  The 2^nd defendant filed a homemade defence and counterclaim in Chinese on 17 January 2012.  The plaintiff filed an amended statement of claim on 26 April and the 2^nd defendant filed his amended defence and counterclaim on 19 May 2012.

10.  The 2^nd defendant’s application for legal aid was refused in May 2012.

11.  On 22 August 2012, Master Pang gave various directions on the plaintiff’s case management summons.  This was the first CMC.  Directions were made for discovery, the exchange of witness statements and the service of a list of issues in dispute.  The 2^nd defendant complied with all these steps within time.  The master also ordered both parties to ensure that all interlocutory applications should be taken out on or before 7 November 2012.

12.  At the time when the action in the District Court was going on, the 2^nd defendant also acting in person appealed to the Buildings Appeal Tribunal against an order for the demolition of the hut structure as an unauthorised building work carried out in contravention of the Buildings Ordinance, Cap 123.  There were hearings before the Tribunal on 14 February 2012 and 10 September 2012.  The Tribunal gave a ruling on 26 September 2012 dismissing his appeal, holding among other things that the dispute between the 2^nd defendant and the registered owner on the right to occupy the space taken up by the hut was a private dispute and not relevant to the issue if the hut was required to be demolished under the Buildings Ordinance.

13.  On 28 November 2012, the 2^nd defendant’s solicitors filed a notice to act for him in the District Court action.  By then, the time within which to file interlocutory applications ordered by the master in August 2012 had expired.

14.  On 27 December 2012, the 2^nd defendant’s solicitors filed the listing questionnaire for the 2^nd CMC, to take place before Master Pang on 2 January 2013, in which they stated that the 2^nd defendant would seek leave to file a re-amended defence and counterclaim and leave to adduce expert evidence from a surveyor to confirm the boundary of the roof of the subject property under adverse possession by the 2^nd defendant.

15.  On the same day, the plaintiff’s solicitors wrote to the 2^nd defendant’s solicitors referring to the latter’s listing questionnaire and stating that a draft re-amended defence and counterclaim should be sent to them for consideration, “although [they] may have an idea what the major amendment is about”.  The letter went on to state that if the proposed amendment was to raise “an entirely new defence of limitation/adverse possession”, the plaintiff’s solicitors took the view that the 2^nd defendant “should only be allowed to amend on condition that he should pay all costs thrown away”.  Other than the question of costs, there was no suggestion that any prejudice would be occasioned to the plaintiff by the amendment.

16.  On 31 December 2012, the 2^nd defendant’s solicitors served on the plaintiff’s solicitors a draft summons seeking leave to re-amend the defence and counterclaim with a draft re-amended pleading annexed as settled by Mr Lo.  In the draft amendment, it was pleaded that the plaintiff’s title in the floor space on the roof occupied by the hut has been extinguished and that the 2^nd defendant has, through adverse possession, acquired a possessory title of that floor space.  The 2^nd defendant’s solicitors were not able to file the summons before the CMC on 2^nd January 2013 and the draft summons with the proposed amended pleading was placed before the master without objection from the plaintiff.

17.  At the 2^nd CMC, the plaintiff’s counsel, Mr Chain, opposed the 2^nd defendant’s application for amendment.  He made the point that the 2^nd defendant was all along aware of the issue of adverse possession, it was raised in the hearings before the Buildings Appeal Tribunal, and the 2^nd defendant has “on the face of it made a deliberate decision not to rely on the limitation defence”.  Further, the 2^nd defendant had not complied with the order of the master in the 1^st CMC to take out all necessary interlocutory applications by 7 November 2012.

18.  Master Pang accepted Mr Chain’s submissions.  He refused leave to amend the pleading.  When the master came to consider the fixing of trial dates, Mr Lo informed the court that he had taken instructions and would appeal against the order refusing leave to amend the pleading.  Taking into account there would be an appeal before a district judge, the trial dates of 27 and 28 May 2013 were then fixed.

19.  The appeal against the master’s order was heard by HH Judge Chow on 14 February 2013 and judgment was given on 6 March 2013 dismissing the 2^nd defendant’s appeal.

20.  The judge affirmed the master’s decision refusing leave to amend for these reasons:

          (1) He referred to the ruling of the Buildings Appeal Tribunal and noted this showed that as early as the hearing before the Tribunal on 14 February 2012, the 2^nd defendant already had the evidence in support of an allegation of adverse possession, and so could have raised this as a defence in the District Court action.  He pointed out that the 2^nd defendant had made no explanation: (a) why he did not raise adverse possession when he amended his defence and counterclaim in May 2012; (b) why he did not seek to re-amend his defence to raise adverse possession after the Tribunal gave its ruling on 26 September 2012; and (c) why he only indicated he would seek leave to amend the pleading when he filed the listing questionnaire on 27 December 2012.  The judge came to the view there was “deliberate delay” on his part in seeking the amendment.

          (2) The draft re-amended pleading is to delete in entirety the 2^nd defendant’s homemade amended defence and counterclaim.  This would include deletion of an averment that the pipes for fresh water and for fire services on the 5^th floor were installed with the consent of “owner”.  In the re-amended pleading, it is pleaded that the 2^nd defendant arranged for the complete replacement of the dilapidated fresh water pipes to the hut structure, but without any mention if this was done with the consent of any owner.  The judge took the view that the averment of the consent of “owner” was deleted after mature deliberation in order to support a defence of adverse possession and was not a bona fide amendment.

          (3) In the draft re-amended pleading, it is averred that the 2^nd defendant purchased the hut structure on the roof in 1988.  The judge took the view this averment reflected that the 2^nd defendant did not have the intention to possess another’s property unlawfully and could not have established adverse possession of the hut.

This appeal

21.  Four grounds were raised in the notice of appeal.  The first ground relates to the judge’s general approach in refusing an application to amend pleadings.  The other three grounds are in relation to the specific reasons given by the judge in refusing leave as summarised above.

22.  Mr McCoy did not seek to defend the judge’s reasons summarised in (2) (the amendment was not bona fide) and (3) above (the requisite intention for adverse possession could not be established).  The judge was clearly wrong on those two matters.  We will just deal with them succinctly.

23.  The judge wrongly relied on the deletion of the consent of the “owner” to the replacement of water pipes to rule effectively on the substantive merits of the defence of adverse possession when it is not plain and obvious that the defence of adverse possession should be disallowed as useless and was bound to fail (Chan Sing Chuk v Innovisions Ltd [1991] 2 HKC 305 at 309C, 309I to 310A and 314I to 315A).  To the contrary, the plaintiff’s counsel had accepted in his skeleton argument before the judge that there is “a serious issue to be tried”. Besides, it is unclear from the 2^nd defendant’s homemade pleading who was the “owner” referred to and whether that was the true legal owner at the time.  There was no evidence before the judge as to the circumstances in which such consent was allegedly given to the 2^nd defendant, whether initially or subsequently, whatever representation might have been made by the 2^nd defendant regarding this in the appeal to the Buildings Appeal Tribunal.  This averment was also contrary to the assertion in a witness statement served by the plaintiff that the water pipes were connected unlawfully.  It was simply wrong for the judge to conclude on this material that the proposed amendment was not bona fide.

24.  The judge was wrong in law to hold that the 2^nd defendant did not have the requisite intention for adverse possession since it is his case that he had purchased the hut from another.  An intention to possess is necessary, but not an intention to dispossess.  A squatter may still validly establish a claim of adverse possession even though he had acted in the honest but mistaken belief that the subject property was in fact his, see Adverse Possession by Jourdan and Radley-Gardner, 2^nd ed, paras 9-39 to 9-43 and the cases there cited.

25.  That leaves the first reason of the judge, namely, that there was no explanation from the 2^nd defendant to explain what appeared to be “deliberate delay” on his part in seeking the amendment.

26.  Mr McCoy maintained Mr Chain’s argument before the judge it could be inferred that the 2^nd defendant made a “deliberate and strategic choice” not to apply for the amendments earlier.  He submitted that in the post CJR regime, after a CMC has been held and when non-milestone dates are set, when there is intention to set down the action for hearing in the next CMC, a party seeking leave to amend his pleading must file evidence to explain the reason for the amendment, so as to satisfy Order 25 rule 1B(5) and (6) of the Rules of the High Court (the equivalent provision in the Rules of the District Court is Order 25 rule 3(5) and (6)) he has “sufficient grounds” to alter the non-milestone dates ordered in the earlier CMC.  He contended this should make no difference in the situation where a litigant is acting in person.

27.  We do not agree with his submissions, essentially for the reasons as submitted by Ms Eu.

28.  The 2^nd defendant was not legally represented until late November 2012.  In his homemade defence and the further and better particulars he supplied, he made factual averments that he purchased the hut structure in 1988, renovated the structure, applied for utility services to the hut and permitted his brother to live there until the latter was forced to move out in 2008 when the water supply was cut off.  The material facts in support of a plea for adverse possession were pleaded in the homemade defence and disclosed in the documents he was ordered to file, being his witness statement and the list of issues, as shown in a table annexed to the notice of appeal.  All that was missing is the pleading of the point of law of adverse possession and limitation.

29.  The judge assumed that the 2^nd defendant, as a litigant in person, would or should have the knowledge and skill to plead this point of law, pointing to the determination of the Buildings Appeal Tribunal.  We disagree.  As pointed out by Ms Eu, this is contradicted by the fact that in the proceedings before the Tribunal, the 2^nd defendant mistakenly thought he could claim adverse possession “against the government”.

30.  Looking at the matter in the round with common sense, that the factual basis in support of a claim of adverse possession had been pleaded and disclosed, and that the 2^nd defendant was all along acting in person, we would have thought that should constitute “sufficient grounds” under the rules for variation of non-milestone dates and the judge should be prepared to show some leniency to this litigant in person and give him an opportunity to get his pleading right so that the substantive disputes between the parties may be properly determined.

31.  The judge however placed great weight on the absence of explanation from the 2^nd defendant why he had only applied for leave to amend in December 2012.

32.  Even in the absence of explanation from the 2^nd defendant, and looking at the relevant circumstances with common sense, we think the judge was plainly in error to draw the inference that there was “deliberate delay” on the part of the 2^nd defendant in seeking an amendment.  The conclusion he reached that the 2^nd defendant had acted with “deliberate delay” carries with it an implicit finding of bad faith.  A finding of this kind is not to be lightly made (Honey Bee Electronic International Ltd v Golden Lucky Co Ltd [2007] 3 HKLRD 524 at para 18; HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336 at 362F to G).

33.  Mr McCoy sought to rely on Tang Shun Hay v Jetline Co Ltd [2000] 1 HKC 417.  We do not think the situation in that case was analogous to ours.  As Cheung JA pointed out in Honey Bee Electronic International Ltd at para 16, the facts in Tang Shun Hay are unusual in that the limitation issue had been argued in an earlier hearing when the plaintiff successfully joined the defendant as a party after the limitation period and the defendant chose not to raise the limitation issue in the defence filed and did not explain why it did not when he later sought leave to amend to plead limitation.  It was in those circumstances that the judge refused leave and his decision was upheld by the appeal court.  In the present case, there is simply insufficient material for the inference to be drawn that the failure to raise adverse possession and limitation in the defence was not just negligence on the 2^nd defendant’s part but was a deliberate decision to delay matters.

34.  Further as Cheung JA had noted, Godfrey JA held in Tang Shun Hay (at 423I to 424B) that delay on its own is not sufficient to justify a refusal of grant of leave to amend, there must also be prejudice to the opposing party.  The court in Tang Shun Hay found on the facts that prejudice would be caused to the plaintiff if leave were granted (at 421D to F, 424B).  Cheung JA rightly remarked that this case cannot be treated to be of general application to other situations.  There, it was not merely a matter of disruption to the proceedings and putting off the trial.  The court took into account that the accident happened more than six years and for one reason or other the proceedings in personal injuries had been extended, that there were many defendants involved and the allegations in negligence against each were very different in nature.

35.  Out of abundance of caution, Ms Eu sought leave to file an affirmation of the 2^nd defendant in this appeal giving an explanation why he had not applied for leave to amend earlier.  This affirmation merely spelt out in detail what would have been obvious, namely, that he was acting in person all along and had no legal understanding of pleadings and the concept of adverse possession, and that he had no legal representation until November 2012.  As we have already mentioned, we do not think this affirmation is necessary.  Nor do we think Mr McCoy’s criticism of the 2^nd defendant’s solicitors in their conduct of the defence in the one-month period after they took over is justified.

36.  We reject Mr McCoy’s submission that material prejudice was occasioned to the plaintiff by the amendment.  We have referred to the only stated concern as to costs in the letter of the plaintiff’s solicitors in December 2012 and the fact that the trial dates had not been fixed when the application for amendment was made, very different from the cases cited by him when the application was made shortly before the trial was due to start.  The amendment of pleading the legal issue of adverse possession has not made any material change to the factual basis of the 2^nd defendant’s case, and should not have required any significant change to the plaintiff’s preparation on the factual side of the case that it would have to meet.  Mr McCoy submitted that the trial dates which are two weeks away would have to be put off.  Even if that were so, it would only be a delay of a few months for new trial dates to be given.

37.  Mr McCoy made the point that at the 2^nd CMC on 2 January 2013, Master Pang was correct to set the case down for trial pursuant to Order 25 rule 2(2)(b) of the RDC, thereby setting a milestone date.  But the case management power must be exercised with regard to the prevailing circumstances, and should not be applied rigidly as if the timetable laid down in an earlier CMC were set in stone.  Had the Master granted leave to amend the pleading, it is unlikely that he would have set down the case for trial there and then.  Insofar as “sufficient grounds” are required for the variation of non-milestone dates under Order 25 rule 3(5) and (6), we do not agree with Mr McCoy there is an inflexible requirement there must be an affidavit from the applicant providing an explanation.  It all depends on the circumstances.  In the present case, we think the position should be sufficiently clear to the court without an affidavit from the 2^nd defendant that there are “sufficient grounds” for the amendment of the pleading and the consequential variation of the non-milestone dates.

38.  The judge had exercised his discretion on a misunderstanding of the law and a misapprehension of the facts and was in disregard of principle.  His exercise of discretion was plainly wrong and must be set aside.  This court is entitled to exercise its discretion afresh on the application for leave to amend.

39.  The principles in Ketteman v Hansel Properties Ltd [1987] 1 AC 189 at 212F to H on the exercise of discretion to allow or refuse an amendment of pleadings remain good law after the CJR, see Li Shiu To v Li Shiu Tsang, HCA 416/2003, 14 August 2012, Deputy Judge Lok, paras 14 to 16.  Having said that, in the exercise of discretion, the court must of course have regard to the underlying objectives in Order 1A of the RHC or of the RDC, so it cannot be assumed that once the principles in Ketteman are satisfied, the amendment would be allowed.  The court would need to balance all relevant factors to decide how its discretion should be exercised, if the application is made in circumstances offending one or more of the underlying objectives.  In this particular case, a pertinent consideration in giving effect to the underlying objectives is that the court “shall always recognise that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties” (Order 1A rule 2(2) of the RDC).

40.  Balancing all relevant factors in this case, that the factual basis for raising the plea of adverse possession had been raised in the homemade defence and disclosed in the documents filed in court, that the 2^nd defendant was acting in person until a month before the application was made, that the application was made before the trial date was fixed, and there was no evidence of deliberate delay or bad faith, the discretion should clearly be exercised in favour of allowing the amendment to raise the legal point of adverse possession, to secure the just resolution of the disputes between the parties.

41.  Mr McCoy submitted that if the 2^nd defendant is allowed to amend his pleading, this should be granted on the terms that he should pay not just the costs of and occasioned by the amendments, but all the costs up to date, citing Beoco v Alfa Laval Co Ltd [1995] QB 137 and Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 388.  We agree with Ms Eu that Mr McCoy’s reliance on these cases is misplaced, as they are very different from the present fact situation.  We see no reason to depart from the usual order made in this kind of situation, which is that the 2^nd defendant should pay the costs of and occasioned by the amendments, including the costs thrown away, to be taxed if not agreed (Lessy SARL v Pacific Star Development Ltd [1996] 2 HKLR 1 at 2C).  The costs of the contested application before the master and the judge should be considered separately from the costs of the amendments.

42.  We declined to vary the costs order of the hearing before the master, which were awarded to the plaintiff, as the draft summons with the proposed amendments were served on the plaintiff very late.  We varied the judge’s costs order of the appeal before him and awarded costs to the 2^nd defendant.

43.  The appeal is therefore allowed for the reasons given, with costs of the application for leave to appeal and of the appeal awarded to the 2^nd defendant.