XCHRX CHINA NATIONAL ARTS AND CRAFTS IMPORT & EXPORT CORPORATION ZHEJIANG BRANCH AND ANOTHER v. SEALAND SERVICE INC. AND OTHERS

HCCL90/90

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.90 OF 1990

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J U D G M E N T

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The Application

1. This is an application by the 1st Defendant herein, by summons dated 21st June 1999, for leave to amend its Points of Defence in terms of the draft annexed to the summons.

2. Unusually, given the general attitude of the Commercial Court towards pleading amendments, the application is strenuously opposed, albeit in limited scope in that such opposition is confined to the withdrawal of an admission which, it is said, is of fundamental import in the present proceedings. At this stage, therefore, it may be useful to sketch in a little of the background to this case.

The Factual Background

3. As is evident from the title of the action, this case is of some age, the Writ herein having been issued on 10th August 1990, which in terms of the normal pace of commercial litigation almost qualifies as ancient history. Be that as it may. The Plaintiffs' claim stems from a contract of carriage between the 1st Plaintiff and the 1st Defendant, as evidenced by a Bill of Lading, No.CT319 issued at Shanghai on 30th June 1989. Pursuant thereto, the 1st Defendant agreed to carry from Shanghai via Hong Kong to Pittsburgh, U.S.A., a consignment of 584 cartons of ski gloves. The 1st Plaintiff is named as the shipper on the Bill of Lading and, as the result of the endorsement thereon, the 2nd Plaintiff allegedly became entitled to the rights of the 1st Plaintiff under the contract of carriage.

4. The goods in question were shipped at Shanghai on the vessel "Dong An" on 13th June 1989, the "Dong An" thereafter apparently arriving in Hong Kong on or about 18th July 1989. The goods were delivered into the custody of the 2nd Defendant and stuffed into two sealed containers, and on or around 22nd July 1989 were shipped to Takuma, U.S.A., and thereafter transported by rail to Pittsburgh.

5. However, when the containers were opened and unstuffed in Pittsburgh the goods were found to be damaged, with water stains on the cartons and mildew on the gloves. As a consequence, the Plaintiffs began this action for loss and damage, the claim therefor being valued at US$51,624.85, the breakdown of which sum is duly itemized in the Points of Claim dated 5th October 1990.

6. Points of Defence to this claim were served by the 2nd Defendant on 24th October 1990 and by the 1st Defendant on 10th December 1990. Discovery and Further and Better Particulars followed, which in broad terms brings the chronology of the action up until May 1994.

7. Thereafter, on 19th January 1996, the Plaintiffs filed and served Amended Points of Claim pursuant to the Order of Findlay J dated 9th January 1996 and, on 18th May 1997, an appeal by the 2nd Defendant against that Order was dismissed.

8. On 18th November 1998, Amended Points of Defence were filed and served by the 2nd Defendant, the solicitor for the 1st Defendant having earlier confirmed by letter dated 5th September 1997 that the 1st Defendant would not be amending its Defence.

9. On 10th December 1998 Findlay J ordered that Interrogatories served by the 2nd Defendant as long before as 14th March 1995 be set aside, in addition to making directions for the further conduct of the action, and on 31st March 1999, the Plaintiffs' action against the 2nd Defendant was discontinued by consent. In terms of the head action, therefore, proceedings remain 'live' solely against the 1st Defendant, the Writ, I am told, not having been served on the 3rd Defendant.

The Disputed Amendment

10. The proposed amendment to which specific objection is taken involves the withdrawal of an admission made in paragraph 1 of the original Defence whereby the 1st Defendant, Sealand Service Inc. ("Sealand"), formally admitted that it was the contracting carrier under Bill of Lading CT319, as pleaded in paragraph 1 of the Points of Claim.

11. I set out below the manner in which the proposed draft is now framed :-

"1. Save that Bill of Lading CT319 is dated 30th June 1989 Paragraph 1 of the Points of Claim is admitted. Paragraph 1 is denied. The 1st Defendant denies that the issue of bill of lading no.CT319 was authorised by the 1st Defendant and Qian Tang Company, who signed the bill of lading no.CT319, had any authority whatsoever to issue bill of lading for and on behalf of the 1st Defendant.

2. The issue of the bill of lading no.SEAU755005992 dated 27th July 1989 by the 1st Defendant, with reference to the bill of lading no.CT319, was based on shipping instructions received from the 3rd Defendant, the shipper. It is denied that the 1st Defendant had any knowledge of the content of the bill of lading no.CT319 at the time of issue of the bill of lading no.SEAU755005992."

12. It is these amendments that have provided the fulcrum of the present debate. As is evident, in the absence of the admission, the 1st Defendant now wishes to set up a positive case denying that the signatory and issuer of the Bill of Lading had authority to act for and on behalf of the 1st Defendant.

Applicable Legal Principle

13. The broad principles in relation to applications to amend pleadings are well known : as a general rule, amendments ought to be permitted for determining the real question in controversy between the parties to any proceedings, or of correcting defects or errors in the proceedings. So that amendments will be allowed if such can be achieved without injustice or without doing some injury which could not be compensated in costs.

14. In 99% of cases, of course, disadvantage caused by amendment is indeed so compensatable in costs. The remaining 1% inevitably focuses upon the issue of prejudice, and it is this element that goes to the heart of this case.

15. There is, I think, no substantive difference between Counsel as to the broad principles to be applied, albeit there may possibly be a difference of emphasis.

16. The leading recent English authority upon the withdrawal of admissions is that of the English Court of Appeal in Gale v. Superdrug Stores [1996] 1 WLR 1089, which Mr Smith, Counsel for the Plaintiffs, submitted was authority for the following propositions :-

(1) The discretion is a general one to be exercised after striking a balance between the prejudice to either side if the admission is withdrawn (or made to stand);

(2) The court should ordinarily allow an admission to be withdrawn if it can be done without injustice to the other party and if no question of bad faith or overreaching is involved;

(3) The party resisting the withdrawal of an admission must produce clear and cogent evidence of prejudice before the court will be persuaded to restrain a litigant from exercising his privilege to change his mind.

17. In general terms these principles are unlikely to arouse controversy, the balancing of each side's interest being the touchstone. Gale appears to have been followed, in part at least, by the Hong Kong Court of Appeal in Re Chung Wong Kit (A Bankrupt) [1999] 1 HKC 684, wherein Rogers JA observed (at 688) :-

" ... Mr Fitzpatrick relying upon the authority of Tse Yuk Tin, administrator of the estate of Tse Yat Hung, deceased v Chee Cheung Hing & Co Ltd & Anor [1984] HKLR 391 argued that the respondents should not have been allowed to rely upon this affirmation as it constituted a withdrawal of an admission which was being made without proper explanation. This however is not a rule of law in itself but just an example of the proposition that a party should not be permitted to resile from an admission unless it was just to allow it to do so having regard to the interests of both sides.

There are two answers to the objection, it seems to me. The first is that as is shown in another case to which Mr Fitzpatrick drew our attention (Gale v Superdrug Stores plc [1996] 1 WLR 1089) in determining whether it is fair to allow a party to resile from an admission, it is not sufficient for the court to presume prejudice to the opposing party, but it is necessary to balance the prejudice suffered by the admitting party if deprived of his right to resile against any prejudice which the relying party has specifically established he will suffer if the admission is withdrawn.

..." (emphasis added)

18. It follows from the foregoing, I think, that the general approach is tolerably clear, albeit Mr Smith sought to extract from Gale a further element, namely, the relative lack of importance of the excuse or reason proffered for the withdrawal of the admission sought.

19. If by this Mr Smith is verging on suggesting that it really does not matter a great deal why an admission is withdrawn, and that the Court should concentrate predominantly upon the issue of prejudice, I do not agree. It seems to me that this element in the equation is all part and parcel of the discretionary 'mix' which is to be evaluated by the tribunal hearing the application in light of the evidence before it. As Waite LJ succinctly put it in Gale (op.cit. at 1097) :

"... Excuse (or lack of it) is not entitled, in my judgment, to any particular emphasis, it is just part of the overall picture and will carry no more weight than the particular circumstances require..." (emphasis added)

20. Whilst in this jurisdiction Hunter J (as he then was) expressed the matter thus in Tse Yuk-tin, administrator of the estate of Tse Yat-hung, deceased v. Chee Cheung Hing & Co. Ltd. & Another [1984] HKLR 391 at 395 :-

"... At the other extreme Mr Fleming for the Crown suggests that if the decision is conscious it should be decisive, and that the court should not allow any withdrawal from a conscious decision so made. I believe that the true principle lies somewhere between those two extremes. I hope I am not showing disrespect to the very eminent 19th century judges whom I have just quoted, if I suggest that their remarks have to be put in their context. In most cases the context was that of an inadvertent mistake. Because for my part I find it difficult to accept that those very eminent gentlemen would have treated as irrelevant the sort of conscious choice which is manifest in the facts before me, a choice to accept as true a false premise: an acceptance of the fact of direct employment as true, which was in fact known to be false (on the view that it is now being put forward) and in the face of a clear warning by the insurer's solicitors. There is a language problem here which I have already adverted to. I am far from sure that Bramwell, L.J., for example, would regard that as a bona fide mistake, within his own term of reference. I am not quite sure how Bowen, L.J. would react and whether he would regard this as an example of overreaching or not, because I have doubts as to the precise ambit of that word.

Conversely it seems to me equally wrong to say that the court never allows a party second thoughts: never allows a fundamental change of direction even after a conscious decision. My understanding of the practice is and always has been, that the court allows a party to withdraw an admission deliberately made or to resile from a conscious choice for good reason, and if good reason is shown. In particular it expects the party to put before it a convincing credible explanation of the circumstances in which the admission was in fact made, which is sought to be said to have been made under a mistake. A typical sort of case is where a party is able to say 'yes, when I said this, or when I admitted this, I believed that to be the case, I have now got some totally fresh evidence in my possession which if true suggests that it was not the case, and I want to advance that proposition'.

In those circumstances the court, I think, can readily give leave to withdraw the admission and does so. Conversely if no credible or convincing explanation is given, that is a powerful factor in favour of the exercise of discretion against the application. I am bound to say here I am not happy with the explanation which has been put before me." (emphasis added)

21. With these principles in mind, I turn now to consider the argument on this application.

The Argument

(i) Need for the present application

22. Mr Smith put the matter shortly. He said simply that the 1st Defendant's explanation for the need to make the amendment at this stage has been dealt with in Mr Binnersley's 3rd Affidavit (at paragraphs 6-9). This, inter alia, attempts to link a connecting carrier agreement between Zhejiang Fuchuen Co. Ltd. and the 1st Defendant which 'may have been applicable' to Bill of Lading No.CT319 (as originally drawn the affidavit asserted 'was applicable') and accordingly, as Mr Binnersley expressed the point :

"The carrier of the Goods from Shanghai to Hong Kong was Zhejiang Fuchuen Co. Ltd., the publishing carrier, instead of the 1st Defendant. This further information was given to me by Mr Law ... following the Plaintiffs' belated decision to apply for summary judgment after the action against the 1st Defendant had been dormant for some years..."

23. Mr Smith made no bones about the position. The Plaintiffs' summons for summary judgment of 10th May 1999 ('some 81/2 years later') had prompted the 1st Defendant to consider whether its pleadings required amending.

24. For his part Mr Coleman took this aspect of the case robustly. He says that the claim is and always has been based upon an alleged contract of carriage with the 1st Defendant contained in or evidenced by Bill of Lading No. CT319. Until this response to the application for summary judgment, the 1st Defendant's consistent case had been to admit the existence of that contract, indeed to assert it, and to rely upon specific terms of that contract. There could be no suggestion, continued Mr Coleman, that the admission was in any way inadvertent in this case. Indeed, what is clear is that the case of the 1st Defendant was pleaded after time had been taken for investigation and for consideration of the results of that investigation, and after taking advice from both solicitors and counsel. The 1st Defendant had at all times been represented and gave instructions via its Claims Manager, Mr Law, who had been in post since before the events giving rise to the claim, and remained so to date. Mr Law apparently had 'now' changed his instructions as to what, it is said, was "not unusual" in the PRC in 1989, so that an agreement which postdated the Bill of Lading is now said to be an agreement which 'was applicable'. Even ignoring the factual non-sequitur, submitted Mr Coleman, the only explanation for the change in instructions could have been that the Plaintiffs in this case now had actually asked for judgment.

25. On this aspect I agree with the tenor and content of Mr Coleman's submissions. Indeed, I am bound to say that, on the evidence before this Court, it is not easy immediately to accept Mr Law's apparently belated recognition of the significance of the connecting carrier agreement. Notwithstanding the information said to be received from Mr Law in late 1990 to the effect that "the 1st Defendant had no knowledge of the existence and the content of the Bill of Lading No.CT319 until the receipt of the said writ of summons", nonetheless, after consulting with Counsel, it was then decided that "the 1st Defendant had no alternative but to make the admission" in paragraph 1 of the 1st Defendant's Points of Defence of 10th December 1990, and it was only consequent upon the Plaintiffs' application for summary judgment that this further recent advice from Mr Law was forthcoming.

26. In this regard, it seems to me that Mr Smith has made a virtue out of necessity. This change of stance, some 8 1/2 years on, is specifically aimed at the imminent Order 14 application. In my view this is redolent of a purely tactical manoeuvre, which, as Mr Coleman observed, might as easily have come on the first day of trial absent any application for summary judgment. So that when regarded in this light, I find it difficult to credit the supposedly new advice rendered from client to instructing solicitor, and this quite apart from the lack of internal logic in the particular paragraph employed in the affidavit purporting to explain this new advice. Indeed, given that Mr Law has been the relevant person within the 1st Defendant's organisation throughout the entire 10 year period, it is notable that no substantial explanation has been given with regard to his change of instructions other than the imminence of the application for summary judgment.

27. Accordingly, in what is perhaps an echo of Hunter J in Tse Yuk-tin, I also am "not happy" with the explanation offered, and I take a dim view of this element of this case. This however is not conclusive, and must be considered together with the important issue of prejudice.

(ii) Prejudice

28. On this particular aspect it behoves Mr Coleman to make the running, and to provide evidence that if the amendments were in fact to be granted that the Plaintiffs would suffer prejudice not compensatable in costs. Mr Coleman submitted that he is well able to discharge this burden. In short, he said that the evidence of Mr Kerry in his 4th Affidavit clearly established that, in the circumstances of the original admission as to the basis of this claim, no enquiries were made by the Plaintiffs in relation to any issue of validity or of proper authorisation of the issue of the Bill of Lading. Indeed, although in October 1990, the 1st Defendant had indicated in correspondence that it would argue that the bill was unauthorised and ultra vires, the point ultimately was not pleaded, nor was any subsequent indication given. Mr Kerry made it clear in his evidence that after the intention to alter the Defence was recently notified, the Plaintiffs' solicitors immediately made enquiries in order to determine if proper investigation was still possible. However, for various reasons, including the obvious passage of the years, the nature of any relationship between the 1st Defendant and the party which issued the bill could not be ascertained. So that the result is that the Plaintiffs are now, in substance, precluded from adducing any evidence, documentary or otherwise, as to the circumstances surrounding the issue of the relevant bill. That, said Mr Coleman, is a statement that is simply not controverted on the evidence before the Court.

29. Accordingly, Mr Coleman submitted, if the Plaintiffs are now to be put in the position of being unable to adduce evidence contrary to the proposed amended case of the 1st Defendant, that is plainly prejudice which cannot be compensated for in costs or otherwise, and, he added, the mere assertion by the 1st Defendant's Solicitor that he does not believe that prejudice would result from the application to amend is not only contrary to the evidence, but is an affront to common sense.

30. In the course of his submission, Mr Coleman also noted that a copy of Bill of Lading CT 319 was in fact the first document disclosed in the 1st Defendant's List of Documents dated 12th June 1991, albeit curiously it is now said that an investigation of the circumstances surrounding the issue of the Bill of Lading had not revealed how the 1st Defendant obtained or procured a copy of that bill. Moreover, said Mr Coleman, the relevance of the connecting carrier agreement itself was far from clear since the latter dealt with shipments to Canada whereas the instant case clearly involved shipment of goods to America.

31. From his vantage point, Mr Smith attacked the Plaintiffs' evidence on this part of the case. In essence, he submitted that what the Plaintiff has produced amounted to no more than bare assertions of prejudice. On the Plaintiffs' own evidence, he said, enquiries by the Plaintiffs in recent months have allegedly ascertained that Qian Tang would not have issued the Bill of Lading unless authorised to do so. Indeed, Mr Qian of Qian Tang apparently has been able to provide some information about an alleged agency agreement, albeit it seems that he has been instructed not to make an affirmation. Moreover, continued Mr Smith, the specific point on which Mr Qian has allegedly been instructed not to depose is the relationship between Qian Tang and Sealand. Yet it is clear from the document headed 'Brief Introduction' that Qian Tang was established as the Shanghai office of an entity which has been known by various names, including Zhejiang Economic and Trade Transportation Corporation, and that this was entirely consistent with the 1st Defendant's contention that Qian Tang was acting for Zhejiang Fuchuen when it issued Bill of Lading CT319. The general assertion, said Mr Smith, that non-specific documents which may never have existed cannot now be found does not amount to clear and cogent evidence of prejudice. And as to the allegation of an agency agreement with Sealand made in 1987 (if such indeed was made or evidenced in writing), then the 1st Defendant would come under an obligation to give discovery in relation to it if and only if the amendment is allowed. In any event, whether or not it was made in writing, no prejudice exists since Mr Qian would plainly be able to give evidence about it, unless, of course, he continued to be subject to his present instructions not to do so.

32. In the course of argument Mr Smith made much of the fax letter dated 10th August 1999 received from the Plaintiffs' correspondent solicitors, but at bottom I do not think that it greatly assists. The letter makes it eminently plain that Mr Qian has again been re-interviewed, and he has said that he, i.e. Mr Qian, believes that Qian Tang or Sinotrans entered into an agency agreement with Sealand during 1987 requiring Qian Tang to issue bills of lading on Sealand's behalf. However, and in my view this is the important aspect, the letter also states :

"...As a result of staff changes and restructuring of [Qian Tang's] operation, Mr Qian has been unable to obtain any further details of this agreement and has been unable to locate a copy of it. Mr Qian believes that the agreement has probably been destroyed because it ceased to have any relevance to [Qian Tang's] business many years ago. Mr Qian insists that [Qian Tang] would not have issued a Sealand bill of lading without Sealand's authority and can see no reason why it would wish to do so...."

Decision

33. After reviewing the available evidence, I am in no doubt but that the proposed withdrawal of this admission by the 1st Defendant - an admission disavowing the contract of carriage constituting the very basis of this claim - would enure severely to the prejudice of the Plaintiffs. It is clear that the Plaintiffs must produce good evidence of prejudice, but this element naturally varies in terms of the factual substratum within each particular case. "Cogent evidence of prejudice" is not to be used as some sort of forensic mantra when, in circumstances such as the present, due to the considerable passage of time the Plaintiffs obviously are unable precisely to place themselves in the position of some nine years previously, whether this be in terms of access to such documents and witnesses as may then have existed, or now to be in a position to accord such matters due consideration as if the admission in question initially had not been made.

34. Notwithstanding Mr Smith's vigorous criticism of the evidential position, in my view it is sufficient to have done exactly what Mr Kerry did when notified of the proposed amendment and to demonstrate, in my judgment 'cogently', both by a review of his firm's file (now doubtless voluminous) and by immediate enquiries via agents in Shanghai, that the position is now virtually hopeless in terms of any realistic response to those newly-pleaded matters. I attach relatively little weight to the 'Mr Qian factor' if I may so term it (in which context I note that Mr Smith says that he has 'no instructions' as to whether his client had in its possession an agreement of the type but vaguely recalled by Mr Qian, given that this is a matter not yet in issue), and when Mr Kerry states in terms as understandable as they are plain that "the Plaintiffs are not now in a position to adduce any documentary or other evidence as to the circumstances surrounding the issue of Bill of Lading No.CT319", in the circumstances I am perfectly prepared to accept that sentence at face value. In fact, given the passage of time, I should have been surprised had the situation turned out to have been otherwise.

35. In my judgment, the 1st Defendant is not now to be permitted to move the goalposts by the withdrawal of the admission made in its original Points of Defence of 10th December 1990.

36. As is clear from this judgment, I have found considerable difficulty with the adequacy and internal logic of the explanation as to the original course whereby the bill of lading contract was admitted, or in grasping why Mr Law "now" has given the advice that apparently he has, although in so saying I wish to make it clear that I am making no criticism of the deponent, Mr Binnersley.

37. I further hold that the Plaintiffs would be severely prejudiced by the inability to produce documentary or other evidence relevant to the proposed amendment, and that such loss of opportunity cannot be remedied in costs.

38. Accordingly, after reviewing the arguments of Counsel and the totality of the evidence, I have no hesitation, in the exercise of my discretion and after balancing the interests of the Plaintiffs in resisting this amendment against the interests of the Defendant in securing it, in declining to permit the amendments sought in so far as such amendments involve pleas relating to the withdrawal of the admission as to the existence of the contract of carriage evidenced by Bill of Lading CT319.

Order

39. My Order therefore is that the application of the 1st Defendant in its present form, i.e. by summons dated 21st June 1999, must be dismissed. Should the 1st Defendant wish to reformulate its proposed amendments in light of this judgment, no doubt such amendments otherwise can be made by consent.

40. Subject to anything the parties may wish to put forward, I further order that the costs of and occasioned by the application be to the Plaintiffs in any event, to be taxed if not agreed.

41. I thank Counsel for their assistance.