CLS v. LPKP

FCMC 17127/2014

[2018] HKFC 17

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NUMBER 17127 OF 2014

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DECISION
(amendment of pleadings/summons)

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The application

1.  The petitioner of this case is the wife. The respondent is the husband. The intervener is the estate of the late father of the husband represented by the husband’s sister. The third party does not feature in today’s hearing.

2.  The background of the parties and case history so far have been set out sufficiently in my earlier judgment dated 8 January 2018 at §§1-22, and thus I shall not repeat here.

3.  Starting from 6 February 2018, this court is supposed to start a 6-day’s TL v ML trial on the determination of the beneficial ownership of 3 stock accounts held in the sole name of the husband’s late father, triggered by the wife’s summons of 22 August 2016 (“22/8/2016 Summons”) because she disputes the beneficial ownership of the said 3 stock accounts and says that the husband’s late father held these stock accounts on bare trust for the benefit of the husband. The 3 stock accounts, defined as the “Trust Accounts” in the wife’s point of claim, include (adopting her abbreviation and definition therein):

(1)   Sun Hung Kai account with no 0069xxxx (“SHK Account”);

(2)   Merrill Lynch account with no xxx-1TEDx (“ML Account”);

(3)   Investment account held with Julius Baer with customer no 980xxxx (“JB Account”).

4.  Pausing here, I think it may be helpful to say a few words on the late father’s stock accounts at Merrill Lynch and Julius Baer, as well as their co-relation.  As the litigation progresses, it is disclosed by the intervener and/or the husband that the late father had a total of 5 accounts at Merrill Lynch at the material times, 4 of which are relevant to this application, namely (collectively “All The ML Accounts”):

(1)   The ML Account which is traded in HKD;

(2)   Primary Account with no 150-xxxxx which is traded in USD;

(3)   HKD Sub-account with no xxx-iHxxx which is traded in HKD;

(4)   Primary Account with no 137-xxxxx which is traded in USD.

5.  It is also disclosed that in/about March 2011, the assets in the ML Account were transferred over to HKD sub-account no xxx-iHxxx, and the assets in Primary Account no 150-xxxxx were transferred to Primary Account no 137-xxxxx. 

6.  Further, when Merrill Lynch sold certain part of its businesses to Julius Baer in/about September 2013, the late father opened the JB Account and transferred all his assets and interest held at All The ML Accounts into the JB Account.

7.  On 12 January 2018, ie less than 1 month before this trial, the wife took out her application (“Amendment Summons”) for:

(1)   amending the 22/8/2016 Summons by adding the 3 other accounts at Merrill Lynch set out more particularly at §[4(2) –(4)]. The effect of this amendment, if allowed, would mean that the TL v ML trial will involve a determination of beneficial ownership of a total of 6 stock accounts;

(2)   amending her points of claims dated 27 January 2017 by pleading, inter alias, the 3 other accounts at Merrill Lynch set out more particularly at §[4(2) –(4)] above, and the transfer of 4 sums of funds from the husband’s bank account either directly to ML Account or to his parents’ joint account before the same were transferred to the JB Account (“4 Transfers”). The aggregated sum of the 4 Transfers is about $16.5 million.

8.  The Amendment Summons was returned before me on 22 January 2018. It is then set down for argument on the 1^st day of trial of 6 February 2018.

The relevant chronology

9.  For easy reference and understanding, I set out the relevant events leading up to today’s argument in the table below.

Date	Events
22/8/2016	Wife took out 22/8/2016 Summons for, inter alias, joinder of the late father’s estate for determination of the beneficial ownership of the Trust Accounts.
16/12/2016	Call-over hearing of the 22/8/2016 Summons, during which this court ordered that there be a trial of the preliminary issues in relation to the beneficial ownership of the Trust Accounts.
27/1/2017	Wife filed her points of claim.
24/3/2017	Husband filed his point of defence.
9/6/2017	Intervener filed their points of defence.
29/8/2017	1st Pre-trial review (PTR) of the TL v ML trial, during which this court ordered, among other things, that: (1) all interlocutory application shall be taken out on/before 9/11/2017; (2) TL v ML trial of the Trust Accounts shall be fixed for 6 days commencing from 6 February 2018.
23/10/2017	All witness statements were filed and exchanged.
9/11/2017	Deadline for taking out interlocutory application.
22/12/2017	Wife filed her supplemental witness statement.
10/1/2018	2nd PTR of the TL v ML trial. The wife attempted to seek leave to amend her points of claim without a summons but through her counsel’s written submission.
12/1/2018	Wife took out her Amendment Summons, with supporting affirmation of her solicitor.
22/1/2018	Call-over of the Amendment Summons, the argument of which is adjourned to the 1st day of the trial.
6/2/2018	1st day of the TL v ML trial.

Applicable legal principles

10.  Since the wife’s Amendment Summons is taken out in the context of a TL v ML trial, her application should be proceeded on exactly the same legal basis as if it were being determined in the Chancery Division (See: TL v ML & Other (Ancillary Relief: Claim Against Assets of Extended Family) [2006] 1 FLR 1263; Leung Wing Yi Asther v Kwok Yu Wah & others (2015) 18 HKCFAR 605).

11.  In so far as the amendment of pleadings is concerned, Order 20 rule 8 (1) of the Rules of the District Court provides that,

“(1) For the purpose of determining the real question in controversy between the parties to any proceedings, or of correcting any defect or error in any proceedings, the Court may at any stage of the proceedings and either of its own motion or on the application of any party to the proceedings order a pleading or any other document in the proceedings to be amended on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.

(1A) The Court shall not under paragraph (1) order a pleading to be amended unless it is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.” (emphasis added)

12.  As a starting point, the test to be applied for amendment of pleadings is set out by Lord Brandon in Ketteman v Hansel Properties [1987] AC 189 which is summarised below:

(1)   first, all such amendments should be made as are necessary to enable the real questions between the parties to be decided;

(2)   second, amendments should not be refused solely because they have been made by the honest fault or mistake of the party applying for leave to make them: it is not the function of the court to punish parties for mistakes which they have made in the conduct of their cases by deciding otherwise than in accordance with their rights;

(3)   third, however blameworthy (short of bad faith) may have been a party’s failure to plead the subject-matter of a proposed amendment earlier, and however late the application for leave to make such amendment may have been, the application should, in general, be allowed, provided that allowing it will not prejudice the other party; and

(4)   fourth, there is no injustice to the other party if he can be compensated by appropriate orders as to costs.”

13.  However, in post-CJR (Civil Justice Reform) era, one should not assume that, once the Ketteman principles are satisfied, the court would automatically grant an application for amendment of pleading in particular at a very late stage of the proceedings. The court is required to also consider the underlying objectives under Order 1A, including increasing cost-effectiveness of litigation, ensuring that a case is dealt with as expeditiously as is reasonably practicable, promoting a sense of reasonable proportion and procedural economy in the conduct of proceedings, facilitating the settlement of disputes and ensuring that the resources of the court are distributed fairly.  If the amendment application is made in circumstances offending these underlying objectives, the court may have to balance all the factors in the case in determining whether to grant the application (See: Li Shiu To v Li Shiu Tsang, HCA 416 of 2003, date of judgment 14/8/2012; Topwell Corporation Ltd v Kwan Kam Kee [2014] HKLRD 1; Shine Grace Investment Ltd v Citibank, N.A. & Anor, HCCL 28 of 2008, date of judgment 20/10/2017). 

Delay & exceptional circumstances

14.  It is beyond dispute that the application is made belatedly in whatever way one looks at it. This court has set the deadline for taking out any interlocutory application at 9 November 2017. The wife is thus more than 2 months late in taking out the Amendment Summons.

15.  In the supporting affirmation, the wife’s solicitor concedes that this application is a belated one but due to no fault on the part of the wife herself. The solicitor explains that,

“9. ... her Counsel did not have time to review the case files and conduct further preparations until early January 2018. Counsel does not wish for the [wife’s] case to be potentially or possibly prejudice or jeopardized by reason of a mere ‘pleading point’, and thereof on an Ex Abundanti Cautela basis Counsel has advised that it would be prudent to effect the proposed amendments to put the matter beyond argument.

10. It is accepted that the application to amend could have been made earlier, and for the delay the [wife’s] Counsel and Solicitors do humbly apologise. However, the [wife] should not be punished for this, and the merits of the respective parties’ case has not been affected nor prejudiced.”

16.  Mr Jeremy Chan, counsel for the wife, relies on Asgain Company Ltd v Cheng Ka Yan [2017] 4 HKLRD 779 and Glory Sky Finance Ltd v Chen Jian Hua & Anor, HCMP 2482 of 2014, date of judgment 29/8/2017. In both cases, the court considered a situation where lateness was due to solicitors’ oversight or lawyer’s mistake, and decided to grant the indulgence sought.

17.  However, Ms Anita Yip, senior counsel for the husband, and Mr Eugene Yim, counsel for the intervener, both submit adamantly that the wife has not provided proper explanation for the delay.  

18.  Ms Anita Yip, senior counsel for the husband, submits that oversight or inaction of legal representatives is not good reason justifying the delay. In Tsang Wai Fan v Hui Siu Kwong, HCMP 409 of 2016, date of judgment 12/4/2016, the defendant asked for time extension to file his leave to appeal which was late for 14 days. This was rejected by the Court of Appeal who commented that,

“…The reasons given for the delay are oversight of the legal representatives, change of counsel and the intervening Chinese New Year holidays. None of them constitutes good reason excusing the delay.”

19.  On the other hand, it is pointed out by Mr Eugene Yim, counsel for the intervener, that the delay in the above 2 cases cited by Mr Chan is noted to be 7 days and 6 days only. Further, the trial or the appeal in both 2 cases had not been set down yet. In our present case, the deadline set by this court for taking out all interlocutory application, which includes an application for amending one’s pleadings, is 9 November 2017. The wife’s Amendment Summons is thus taken out more than 2 months late, and the trial is already imminent.

20.  I accept that the cases of Asgain Company Ltd (supra) and Glory Sky Finance Ltd (supra) cited by Mr Chan cannot help to advance their case. Yet, in Chan Cheung Ming Jacky v Siu Sin Man [2014] HKLRD 89, which is an appeal arising from the family court, the Court of Appeal (Lam VP and Barma JA) considered if the judge below was wrong in refusing the application of the father of that case to issue a witness subpoena to a banking officer, which was made one day before the commencement of the trial. The Court of Appeal held the view that in the exercise of its case management power, the court should carry out an overall balancing exercise by considering all relevant factors and should not make the factor of “unexplained delay” as determinative on the outcome without considering other relevant factors (per Lam VP at §27 and §38 of the judgment).

21.  Since Chan Cheung Ming Jacky v Siu Sin Man (supra) is an appeal arising out of the family court on how family judges should exercise their case management power in regard to late application, I am of the view that I should follow the approach set out by Lam VP by considering all relevant factors in an overall balancing exercise.  In saying so, I have already considered the submission of Ms Yip SC for the husband that in Chan Cheung Ming Jacky (supra) that the respondent to that appeal admitted that there was no prejudice caused to her despite the late application.  In my decision, the facts of the 2 cases may somewhat differ, but it is the general principles on how the family judges should exercise their case management power when facing with late application that count and that this court will seek to follow. In the result, I refuse to dismiss the wife’s application on the basis of delay alone.

22.  During the hearing, Mr Chan and Mr Yim have an issue of whether the wife needs to show “exceptional circumstances” in this application. Mr Chan says that since no new case is pleaded, nor new issue raised by the proposed amendments, he does not have to show “exceptional circumstances”. Mr Yim, however, adamantly says that every late application must attract the consideration of “exceptional circumstances”, and the wife here has not shown any. Both Mr Yim and Ms Yip SC also refer me to Practice Direction 5.2 that absence of prejudice on the husband and/or the intervener (which is denied) does not constitute “exceptional circumstances”.

23.  It is pertinent for me to say that Mr Chan has not offered any submission on the wife’s case on “exceptional circumstances”. He merely says that it is not necessary for her to provide the same given no new case is pleaded by virtue of the proposed amendments. I do not accept that the wife does not need to provide “exceptional circumstances” in her late application, which if allowed, is likely to affect the milestone date. Yet, the failure to provide the same does not automatically lead to the end result that her application must be dismissed.

24.  In Li Shiu To v Li Shiu Tsang (supra) which is cited by Ms Yip SC, Lok J (then Deputy Judge Lok) merely said that the court would be “very reluctant” in allowing late application to amend pleading unless there are exceptional circumstances. His Lordship surely did not say that lack of “exceptional circumstances”, the late application must be dismissed. Here is what His Lordship said,

“If a party makes a late application to amend the pleading with the effect that the trial date may have to be adjourned, the court would be very reluctant in allowing the application unless there are exceptional circumstances.” (emphasis added)

25.  What this court wish to illustrate is that the exercise of its case management power involve balancing of all relevant factors, but should not make any single factor as the sole determinative factor.

The balancing exercise

26.  As a starting point, it is repeated that the wife is now seeking not only to amend her points of claim, but also to amend the 22/8/2016 Summons which leads to this TL v ML trial. 

27.  On behalf of the wife, Mr Chan submits that that the amendments are introduced “on an Ex Abundanti Cautela basis”, ie out of abundant caution. He explains that no new facts are pleaded and no new issue is brought about by the suggested amendment, and thus no one is caught by surprise, because:

(1)   the amendments are mainly to clarify the relevant stock account numbers, and to plead the 4 Transfers and their consequences, all of which are facts of common ground and/or facts extracted from the husband’s own witness statement (dated 23 October 2017);

(2)   in the agreed list of issues dated 8 January 2018 (which is proposed and signed off by the solicitors acting respectively for the husband and the intervener and settled by their respective counsel), they have already identified the 4 Transfers as one of the issues to be tried like this:

“5. Whether the following sums (“the Sums”) were gifts from H to the Father?

(the 4 Transfers are listed out)”

28.  Both Ms Yip SC for the husband and Mr Yim for the intervener are of the view that the amendments to the 22/8/2016 Summons and to the points of claim are introducing a new case and widening the scope of the TL v ML trial. In the original 22/8/2016 Summons, the court is only required to make a determination on beneficial ownership of the 3 Trust Accounts, but the amendments, if allowed, would widen the scope of the trial to cover All The ML Accounts. In the original point of claims, the wife advances that only the assets in the ML Account was diverted to the JB Account, but the amendments, if allowed, would change her case to the effect that the balances of All The ML Accounts were transferred to the JB Account. Both senior counsel or counsel submit that the court should not allow the wife to widen/change her claim/case at last minute.

29.  Further, Ms Yip SC argues that if the amendments are required merely “on an Ex Abundanti Cautela basis”, it would mean that they are not necessary. And in fact, Ms Yip SC does think that the amendments are not necessary, because the wife has already pleaded at §[19] of her points of claim that “the funds in the Trust Accounts originated, whether directly or indirectly, from the Husband, and not from the Father’s or the Mother’s own savings” and at §[21] of her points of claim that “withdrawals or transfers out from the Trust Accounts substantially benefited the Husband rather than the Father and/or the Mother.”.  Senior counsel is of the view that these are material facts that have well covered the matters under the new addition of all the sub-paragraphs under §[18A] [ie the 4 Transfers]. These sub-paragraphs are simply evidence but not material facts. Leave to amend should not be granted to an improper pleading.”

30.  Additionally, Ms Yip SC submits that since the wife does not dispute that All The ML accounts (as defined in her proposed amendments at §[9(3)(b)]) have become the JB Account now, it is not necessary to ask this court to rule on the beneficial ownership of All The ML Accounts. A determination of the beneficial ownership of the JB Account would be sufficient.

31.  I shall start by pointing out that although the amendment application of the wife is taken out in the context of the TL v ML trial (and thus be proceeded as if it was being determined in the Chancery Division), it remains true that the mode of hearing retains the quasi-inquisitorial character of the ancillary relief proceedings generally (See: Prest v Petrodel Resources Ltd [2013] 2 AC 415 at §45; TSC v KWH & Ors (Preliminary Issue on 3^rd Party’s Interest in Landed Properties) [2016] HKFLR 215 at §128). One has to always bear in mind the fundamental purpose of conducting a trial of preliminary issue involving 3^rd party’s interest within the matrimonial proceedings before the process of financial dispute resolution (FDR), which is to “ascertain the size of the pot” so that the parties can proceed to have a meaningful FDR resulting in an earlier resolution of their dispute in line with the underlying objectives of Order 1A. To do so would involve the court looking at all the issues relating to the preliminary issue trial in one go. This, in my view, must be the backdrop of the balancing exercise to conduct. And against this backdrop, I have the following to say.

32.  First, Mr Chan attempts to argue that since no new facts are pleaded and no new issue is brought about by the suggested amendment, no prejudice is caused to the husband and the intervener if the amendments are to be allowed. I think the case law development in the post-CJR period has shown it clearly that “delay of a trial is prejudiced to a party, who has every right to expect that a trial fixed months ahead with due notice to the parties can proceed without disruption and time and costs being wasted.” (See: Hongkong Changyi Real Estate Development Ltd v Neo-China (Group) Infrastructure Investment Ltd & Anor, HCA 1576 of 2011, date of judgment 25/2/2014). Therefore, I tend to say that there is some degree of prejudice to the husband and the intervener, if the trial is interrupted.  This is one of the factors for consideration in the balancing exercise.

33.  Second, I refer to submission of Ms Yip SC and Mr Yim set out more particularly at §§[28] – [30] of this decision. If senior counsel/counsel fully embraces the co-relation between All The ML Accounts and JB Account, then I have difficulty in appreciating the rationale of saying that the proposed amendment in §[9(3)(b)] of the points of claim is expanding the scope of the 22/8/2016 Summons.  The issue of the beneficial ownership of All The ML Accounts (from where the funds were subsequently diverted into the JB Account) must have been implied to be one of the questions that this court needs to make a determination on, in order to ascertain the size of the matrimonial pot.

34.  Third, flowing from the above point and taking into account the agreed list of issues proposed by the husband and the intervener, it is obvious to me that they must have in their mind all along that the nature of the 4 Transfers is a live issue in the preliminary issue trial.  In such circumstances, if the pleading is not yet reflective to show this true and real issue, I am of the view that amendments to it should be allowed for the purpose of just resolution of the real question in controversy. This is particularly more so when it is not the case that Ms Yip SC and Mr Yim are not taking the pleading point, to which they are perfectly entitled.

35.  In the course of the hearing, Ms Yip SC and Mr Yim both refute vehemently that the agreed list of issues proposed by the husband and the intervener relating to the 4 Transfers was prepared without their prior knowledge that the wife has the intention to amend the 22/8/2016 Summons and her pleading. With respect, I cannot accept this line of argument. It is clear to me that they have, by their proposed agreed list of issues, clearly and correctly identified the issue relating to the 4 Transfers, which should not now be retreated by them when faced with the wife’s proposed amendments.

36.  Fourth, for the purpose of the trial and just resolution of the case, this court, as well as the husband and the intervener who are supposed to answer to the case of the wife, should have the material particulars of the “bare trust” that the wife is alleging.  When that done, the parties would be in a better position to work out a finalised and agreed list of issues, which as at now, is still outstanding despite the trial is imminent.

37.  Fifth, having said the above, I agree with Ms Yip SC that the new §[18A] of the wife’s draft amended points of claim in so far as the paragraph under sub-point (6) is concerned is anything but pleading, or more of a nature of submission. As such, this will be not allowed.

Conclusion

38.  Due to the matters set out above and after weighing all the relevant factors, I am of the view that for the just resolution of the real dispute among the parties within the ancillary relief proceedings generally, I shall allow the wife’s application to the extent of the matters set out above by me, despite that the husband and the intervener may have to face the strain of the trial being interrupted. At the end of the day, whether amendment is granted is a matter of discretion of the trial judge and he should be guided in the exercise of the discretion by his assessment of where the justice lies. 

39.  On parties’ request, I shall reserve the question of costs for argument.