LEUNG SIU v. BANK OF CHINA (HONG KONG) LTD

HCA 1911/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1911 OF 2012

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D E C I S I O N

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THE APPLICATION

1.  This is the plaintiff’s application for adducing expert evidence under Order 38 rules 4 & 4A of RHC (as submitted by Mr. P. Wong, Plaintiff’s counsel).  I consider that the appropriate rule should be rule 36. Rule 4 refers to limitation of expert evidence; rule 4A, evidence by single joint expert whereas rule 36 is on restrictions on adducing expert evidence.  Mr. Wong agrees this is the correct rule for the plaintiff’s application.  The defendant opposes this application.  The defendant is represented by Mr. V. Dawes, counsel.

2.  The terms of the plaintiff’s summons for the application are:

“1. Leave be granted for the Plaintiff and the Defendant to adduce expert witness to give opinion to the nature and risk levels of the finance products, namely, Note 11A and Note 35B as pleaded in paragraphs 4 and 7 of the Statement of Claim,

2. The Plaintiff and the Defendant shall exchange their expert reports within 28 days before the setting down of this trial.

3.   The costs of and incidental to this application be costs in the cause.”

THE JOINT LETTER

3.  Pursuant to Master Ho’s direction, the parties have jointly signed a letter, in which they set out their positions on this issue.  The plaintiff explained that the expert evidence was necessary to assist the Court to understand the risks involved in the product for the following reasons:

“(a) The Plaintiff’s cause of action include i) the Defendant’s breach of duty of care, in particular the failure to comply with the Code of Conduct of Persons licensed by or registered with the Securities and Futures Commission (paragraph 12b of the Statement of Claim); ii) the particulars of the Defendant’s breach in paragraphs 15(f), 15(i), 15(m) and 15(n) on various risks of the Products;

(b) The Plaintiff contends that it was the Defendant’s duty to ensure the Plaintiff understanding the nature and risk of the Products (paragraph 13(1) of the Statement of Claim).” [1]

4.  The defendant opposed the plaintiff’s application on the ground that detailed information had been set out in the relevant leaflets, program prospectus and issue prospectuses, all of which had been disclosed under items 4 to 9 of the Defendant’s list of documents.[2]  So the defendant maintains that there is no necessity for expert evidence to be adduced in this matter.

PLAINTIFF’S CAUSES OF ACTION

5.  The plaintiff, aged about 60, had suffered loss in her investment in credit-linked notes, viz Note 11A and Note 35B (“the Notes”). She claims that she was induced by a Miss Yu of the defendant to sign the agreements for the Notes.  She now claims against the defendant for damages.  Mr. Wong has set out the plaintiff’s causes of action against the defendant in paragraph 10 of his written submission:

a. Misrepresentation of D; (A/11-14)

b. Undue Influence of D; (A/14-16)

and

c. Negligence and breach of fiduciary duties and implied terms of D under the 1^st and 2^nd Agreements. (A/16 to 23)

THE DEFENDANTS’ GROUNDS OF OBJECTION

6.  Mr. Dawes submits that the expert evidence is not necessary because it is irrelevant to the real issues between the parties.[3]

THE APPLICABLE LEGAL PRINCIPLES

7.  I shall now set out the relevant legal principles applicable to the discussion below:-

a. Under Order 38 rule 36 of RHC, unless the parties agree, no expert evidence may be adduced at the trial without leave of court.  See Fung Chun Man v Hospital Authority HCPI 1113/2006 by Bharwaney J on 24 June 2011 ;

b. The court is concerned with proper directions for expert evidence in order not to cause delay and waste of expenses. Faith Bright Development Limited v Ng Kwok Kuen [2010] 5 HKLRD 425 at 430-431;

c. Where the proposed expert evidence is plainly inadmissible or irrelevant, the court will refuse admission of such evidence.  If the court cannot form a clear view on the relevance or the evidence is clearly relevant, it should grant leave for the evidence to be adduced at the trial.  The evidence is relevant if it is helpful to the court in arriving at its decision on one or more of the issues to be resolved.  Wong Hoi Fung v American International Assurance Company (Bermuda) Limited & Shrila Chan [2002] 3 HKLRD 507;

d. However, evidence meeting the test could still be excluded if the court took the view that calling it would not be helpful to the court in resolving any issue in the case justly.  Such evidence would not be helpful where the issue to be decided was one of law or was otherwise one on which the court was able to come to a fully informed decision without hearing such evidence.  Barings plc (in liquidation) and another v Coopers & Lybrand (a firm) and others Barings Futures (Singapore) Pte Lye (in liquidation) v Mattar and others [2001] All ER (D) 110 by Evans-Lombe J.

e. When there is a dispute over whether expert evidence should be adduced at trial, the court has to examine the pleadings to determine whether the proposed expert evidence is required in the pleaded case.  Yeung Ga Wai v Lau Ming Shum HCA798/2004 delivered on 19 July 2012; the burden of establishing relevance is on the applicant, at §7 of Majorette Hong Kong Ltd v Fullmore Corporation Ltd HCA1583/2008 (unreported, 23 June 2010);

f. Expert evidence must be confined to the live issues of dispute between the parties, which must be sought from the pleadings China Gold Finance Limited v CIL Holdings Limited & Ors HCA2900/2001 (unreported, 25 September 2012, at para. 17-18.)

g. It will be helpful to bear in mind the factors of real issues of dispute between the parties; the burden of proof; fair trial and proportionality for the determination of the scope of expert evidence.  See paragraph 10 of Pak Ko Batteries Factory Ltd & Others v New Leader Battery Industry Ltd HCA1139/2007 (unreported, 14 January 2014).

DISCUSSION

Misrepresentation

8.  On the issue of misrepresentation, the allegations are set out in paragraphs 4 to 7 of the Statement of Claim.  They relate to the Notes.  I do not propose to set out the terms in detail.  Suffice it to say, they relate to the facts, the nature of redemption and risk-free of the Notes, all of which are facts.  The defendant has in paragraphs 6-9 of the Defence denied those factual allegations.

9.  It will be helpful to note that the defendant does not dispute that the Notes are credit-linked Notes; that they are not principal protected; that they are high risk products and finally the defendant says that its representative had explained to the plaintiff those matters as pleaded in paragraph 6 of the Defence, to which the plaintiff disagreed as pleaded in paragraph 3 of the Reply.

10.  It is quite apparent that on the issue of misrepresentation, the proposed expert evidence is not relevant because the dispute on factual issues should only be solved by the factual witnesses’ evidence.  Expert evidence simply has no role to play at the trial.

Undue influence

11.  On the issue of undue influence, the plaintiff pleaded in the Statement of Claim that she was induced to sign the 1^st and the 2^nd Agreements of the Notes under the undue influence of the defendant and pursuant to the faith, trust and confidence reposed in the defendant without any separate or independent advice and without due consideration of the reasons for or the effect of what she was doing.  The plaintiff then set out the defendant’s position in the banking business as compared to her position of not understanding English and being a long-time relationship between the defendant and the plaintiff, the plaintiff reposed trust and confidence in the defendant. See paragraphs 11 and 12 of the Statement of Claim.  The defendant denied that any of its authorized representatives including Ms Yu had induced the plaintiff.  See paragraphs 13 and 14 of the Defence.

12.  Again, the issue of undue influence is really a mixed issue of law and factual dispute between the plaintiff and the defendant.  For the same reason as misrepresentation, the factual dispute can only be solved by factual evidence.  As to the issue of law, the expert evidence simply does not assist.  Therefore, the expert evidence will not assist the trial judge on this issue.

Negligence & breach of fiduciary duties etc.

13.  On the issue of “Negligence and breach of fiduciary duties and implied terms of D under the 1^st and 2^nd Agreements”, the plaintiff has set out the code of conduct for persons licensed or regulated by the Securities and Futures Commission from (a) to (n) and she has also set out the particulars of the breach of duties/implied terms as from (a) to (v).  On a broad-brush approach over these items, I do not consider that the plaintiff relies on all of them in support of the application.  It will therefore be useful to make reference to Mr. Wong’s submissions as to the relevant items on which expert evidence is required.

14.  In paragraph 3, supra, I have set out the plaintiff’s concern over the parts of the Statement of Claim, which her counsel submits that expert evidence should be given.  I am very much assisted by the discussion with respective counsel today.

Breach of The Code

15.  Paragraph 3(a) refers to paragraph 12b of the Statement of Claim.  This paragraph pleaded that the defendant should comply with the Code.  The Code was pleaded in paragraph 13 of the Statement of Claim.  Mr. Wong does not dispute that the Code is not the statutory code.  In DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd & Anor (Deputy Judge Pow SC) [2013] 4 HKC at paragraph 217, the Court explained that the Code was not the subsidiary legislation.  The breach of the Code did not render the person in breach liable to any judicial proceedings; that it was only provided for regulating the conducts of the registered members and was only admissible in determining that question.

16.  The plaintiff then refers to paragraph 15(f) – failing to declare the accurate risk relating to the Notes to the plaintiff; 15(i) – failing to explain and advise the plaintiff the nature and potential risk of the Notes; 15(m) – omitting to advise the plaintiff the risk of credit default swap embedment; and 15(n)- omitting to advise the plaintiff if she were qualified for the credit risk for the Notes.  The plaintiff emphasizes on the defendant’s duty to ensure that the plaintiff understands the nature and risk of the products.

17.  Mr. Dawes argues that the above items concern whether proper and correct explanation had been given, which is not the case or the alternative claim made by the plaintiff.[4]  Mr. Dawes also highlights the importance of specifying the exact complaints of the plaintiff in relation to the matters that the plaintiff alleges that the defendant had failed or omitted to explain to her in the pleadings so that the defendant may make corresponding pleadings to those allegations.

18.  Mr. Wong argues that the plaintiff has pleaded her case in the Statement of Claim as specified in paragraph 15 as mentioned above.  He further argues that by pleading that the defendant had failed to explain the questionnaire or the risks to the plaintiff, the plaintiff means that even if the defendant had explained, the word “fail” should also mean “not sufficiently explained”.  Hence the pleadings are clear enough for the present application.  With respect to Mr. Wong, I consider that, given the defendant’s Defence that she had given explanation to the plaintiff, the fact that for items where no explanation had been given and those items that explanation was insufficient must be pleaded clearly together or in the alternative.  Otherwise the Court will be confused.  This is illustrated in the cases of the Court of Final Appeal.

19.  The importance of proper pleadings is well-illustrated by the Court of Final Appeal in Sinoearn International Ltd v Hyundai-Ccecc Joint Venture (a firm) FACV22/2012 (Ribeiro PJ 30 September 2013) where Ribeiro PJ said at §27:

“27. We have been faced with the extraordinary situation of a plaintiff being allowed at trial to run two alternative unpleaded cases without being required even to formulate a proposed amendment setting out what exactly those alternatives are. We face the even more extraordinary situation of the plaintiff proceeding on appeal on the basis of the alternatives still not pleaded by way of amendment – and succeeding on one of those alternatives. The position remained the same with nothing formulated in writing even when the case came on for hearing in this, the Court of Final Appeal. This has given rise to confusion and a real likelihood of procedural unfairness.

At §30

A party must raise all the issues he wishes to raise to be dealt with at the trial.  Parties are not entitled to have issues recently thought up dealt with separately and piecemeal.  The other party is entitled to know from a clear pleading what is the entire case he has to meet so that he can decide whether particulars should be sought; how he should plead in response; what discovery he is entitled to; what evidence he should adduce to meet it; and what points of law should be taken.”

20.  On the same day, another case before the Court of Final Appeal on the importance of pleadings where the CJ highlighted at § 21 and §23 in Kwok Chin Wing v 21 Holdings Ltd (formerly known as GFT Holdings Ltd, Capital Prosper Ltd and Rockapetta Holdings Ltd & Another FACV 9/2012 (CJ Ma, 30 September 2013):

“21. It should by now really be quite unnecessary to issue yet another reminder on the rationale behind pleadings. The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues:- Wing Hang Bank Limited v Crystal Jet International Limited. It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced.

23.   The purpose of pleadings, in clearly and unambiguously setting out the true extent and nature of a dispute not just for the benefit of the parties but also for the Court in managing and trying cases, remains important under our system of civil justice.  The retention of the old rules as to pleading as well as the introduction of new provisions over four years ago under the Civil Justice Reform, reinforce this.”

21.  If the plaintiff has pleaded that the defendant had explained the nature and the risk of the product to the plaintiff at the material times, but the explanation was unclear, not comprehensible or not in full, then the factual matrix of the case may be different.  The legal issue may also be different as the question whether the defendant’s representative had the duty to give a full explanation of the product will be required under the law, bearing in mind the complexities of the product and it would take more than an expert in the banking business to fully understand the terms of the product.  The plaintiff may have to plead the case clearly such requirements under the law.  The defendant will make corresponding pleadings in the Defence.

22.  Mr. Wong relies upon the Decision in the case of Citibank NA v Noble Treasure Ltd HCA2639/2008 Deputy Judge Au Yeung (as she then was) 23 December 2010 and says that in that case, leave was granted to the applicant to adduce expert evidence. In that case, the plaintiff claimed against the defendants for shortfall in their investment accounts.  The defendants pleaded that the plaintiff was in breach of trust by recommending the high risk products to the defendants, who had suffered substantial loss.  The defendants sought leave to adduce expert evidence on the nature, risk and suitability of the financial products for the defendants.  The plaintiff did not put up strong objection to the expert evidence relating to the issue of nature and risk of the product.  See paragraphs 9 and 11, the last sentence. The Deputy Judge, (as she then was), found that the expert evidence might be helpful for the trial.  But I tend to agree with Mr. Dawes that the factual allegations of the defendant are not clear.  In those circumstances, I have to assess the proposed expert evidence within the context of the plaintiff’s pleaded case.  As to the code of conduct, the Court found that it was within the court’s ability to understand the terms of the code.  Expert evidence should not be allowed on this issue.  See paragraph10.  However, as I have said, I should focus my attention to the facts of this case.  Also, the plaintiff argued that the proposed expert was not qualified to give such expert evidence.  The Court held that the issue should be determined by the trial judge. [26 & 27]  The Decision in this case is not very helpful to support the plaintiff’s application.

23.  In any event, as observed by Deputy Judge Au-Yeung in Citibank NA v Noble Treasure Ltd HCA2639/2008 referred to by Mr. Wong, the terms of the Code do not require an expert to explain to the trial judge.  The defendant has admitted that the Notes are high risk product.  It is one thing for the representative to explain the risks of the Notes to the plaintiff, but it is another thing to require the representative to explain the ins and outs of the risks embedded in the complicated prospectuses of the Notes.  As I have observed, the prospectuses are so complicated that even an experienced banking officer may not be able to fully understand the mechanics of the financial products, let alone a registered financial advisor.  Furthermore, even if an expert who understands the mechanics of the financial products, to require him to make the investor with the education background such as the plaintiff’s understand the mechanics is almost verging upon impossibility.  It seems that there is no requirement that the investor can only make the investment if he fully understands the mechanics of the investment risks.  It was not pleaded that this is the position in the Statement of Claim.

Proportionality

24.  Mr. Wong has not addressed me on the estimated costs for expert evidence as proposed.  He now tells me that the cost will be around $50,000.  Mr. Dawes takes a different view, given the wide scope of the proposed expert evidence.

CONCLUSION

25.  In the analysis, I agree with Mr. Dawes that the terms of the summons for expert evidence are too wide.  If an expert were to give opinions on those terms, the opinion may not serve the purpose and may even muddle the issues and escalate the costs and time for the trial.

26.  As I share the view of Deputy Judge Au-Yeung (as she then was) in the Citibank case, I do not intend to reframe the issues for expert evidence.  I shall simply dismiss the summons.

27.  As to the costs of this application, the costs should follow the event, (with a certificate for counsel) and to be assessed under Order 62 rule 9A of RHC.  I have had the benefit of having both parties’ schedules of costs.  The costs for the defendant are now assessed at $100,000 to be paid by the plaintiff to the defendant within 14 days from the date hereof.

28.  As to the Case Management Conference for today, it has to be adjourned to be heard after the disposal of the defendant’s summons dated 29 January 2014, which has been rescheduled to the heard at 10:00 am on 29 May 2014 before myself and the hearing date on 28 May 2014 be vacated.