RURIKO NAGATA AND OTHERS v. NEW JAPAN SECURITIES INTERNATIONAL (H.K.) LTD.

IN THE COURT OF APPEAL

1993, No. 136
(Civil)

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J U D G M E N T

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Litton, J.A., giving the judgment of the Court:

1. This is an interlocutory appeal. The appellants (plaintiffs) appeal against an order of Rhind J. made on 16 June 1993 whereby the judge, whilst allowing the plaintiffs to amend the statement of claim to include the averments coloured yellow, refused leave in relation to the averments coloured brown.

2. The defendant was the plaintiff's sharebroker between May 1985 and 5 October 1987 in relation to Japanese shares. It is common ground that this contractual relationship was first established when an account in the name of the first plaintiff was opened on 20 May 1985. Other accounts in the names of the 2nd and 3rd plaintiffs were subsequently opened. It is the plaintiffs' case that this gave rise to contractual and fiduciary duties falling on the defendant when transactions for the purchase and sale of Japanese shares were effected through those accounts. In broad terms the plaintiffs aver that the defendant has acted in breach of its contractual obligations and fiduciary duties. In so far as it is necessary to identify the plaintiffs' causes of action, these are simply breaches of the defendant's contractual and fiduciary duties as the plaintiffs' broker. This has been the position from the very inception of the pleadings.

3. The brown amendments with which we are concerned consist in essence of the following:

(1) An addition to Schedule IV annexed to the Statement of Claim and

(2) a new Schedule VIA.

4. As regards Schedule IV this comes into the Statement of Claim in para. 13 which alleges in essence that the defendant was in breach of its contractual obligations as a broker in various ways and Schedule IV particularized the 36 transactions impeached. Schedule IVA does nothing more than to add 10 further transactions to those impeached in para 13. The averments of breaches of contractual obligations in relation to the Schedule VIA transactions are virtually identical to those relating to the Schedule IV transactions. They added up to a total of 46 transactions, all for the purchase of Japanese shares.

5. The Statement of Claim then goes on in paras 15 and 16 to aver that by reason of the matters set out in paras 12 and 13 the defendant was in breach of its fiduciary duties and the plaintiffs had suffered loss.

"New causes of action"

6. The application to amend was made only in the course of counsels' opening speech at the trial in June 1993, but the lateness of the application was not the main ground relied upon by the judge for refusing the application. He said that in his view every transaction set out in the brown amendments was a separate contract and as most of the transactions occurred in 1986, the claims were time-barred.

7. With respect to the judge he appears to have confused two matters. The contracts between the plaintiffs and the defendant giving rise to the relationship of broker and customers were pleaded from the very beginning. The plaintiffs were not seeking to add any new causes of action. The contracts to which the judge referred were those which, if genuinely entered into by the defendant as the plaintiffs' broker, would have imposed obligations on the plaintiffs as purchasers of the Japanese shares and likewise on the unknown persons as the sellers of those shares. The plaintiffs were not relying on those contracts for their causes of action against the defendant. All they were saying in effect was this: "We have previously particularized certain instances where we say the defendant acted in breach of its contractual and fiduciary obligations. We have now found out about some other instances and we want relief from the court for those as well. We base our complaint on the original causes of action". Clearly, on the brown averments, the plaintiffs are not saying: we hereby appoint the defendant as our broker in relation to each transaction. The judge failed to grasp this essential point and fell into error as a result.

Were the plaintiffs at fault?

8. There is a subsidiary ground on which the judge based his refusal to allow the brown amendments. He said:

"And secondly this probably isn't so important, I think it is the plaintiffs' fault for not having raised interrogatories or made inquires in some other way at the stage when interrogatories were made way back in 1989/90 and so I am not allowing the amendment on that basis and I don't think that as the case is pleaded there is any thing which does suggest fraud or concealment and I think it is misconceived in a case like this to say that the plaintiff was deprived of knowledge because she knew each in every time she made a transaction and it was up to her or those representing her to take issue on each and every transaction and the concealment situation is one where a party just has no idea about what is going on and I don't regard the circumstances that have been drawn to my attention in the plaintiffs' opening as falling within that class of case."

9. This seems to us to be adopting the wrong approach. The duty to give discovery of documents in the defendant's possession relevant to the issues as pleaded was on the defendant. The law does not require the plaintiffs to "make inquiries" of the defendant, as the judge seems to suggest it does. A litigant's duty to make discovery of relevant documents is continuous: see the notes to paragraph 24/1/2 at p.433 of 1993 edition Annual Practice. On any view of the facts before the judge the defendant had plainly failed to give full discovery: that is why the judge on 31 May 1993 ordered the defendant to make specific discovery relating to four classes of documents, including computer printouts for daily trades and contract notes.

10. Mr. Tong in this court seeks to support the judge's conclusion that it was the "plaintiffs' fault for not having raised interrogatories or made inquiries". The thrust of Mr. Tong's submissions, as we understand them, is this: (1) In the first list of document filed in January 1990, order tickets were disclosed. (2) From these order tickets it should have been apparent that in every instance where the plaintiffs bought Japanese shares through the agency of the defendant, they were buying in fact from new Japan Securities Tokyo as principals; they should, he says, have realized that the shares were not purchased in each instance through the agency of the defendant from a seller at arm's length on the Tokyo Stock Exchange. (3) The computer printouts that the defendant did subsequently disclose (pursuant to the judge's order) gave no further information than that revealed in the order tickets, beyond identifying other transactions done for other customers in relation to the same shares.

11. We have difficulty with these submissions. The order tickets (there are several hundreds) are identical in form. There is a chop in the top right hand box which states "NJS Tokyo". Mr. Tong submits that it should have been apparent to those advising the plaintiffs, and the plaintiffs themselves, that this meant that each transaction was effected on the defendant's "house account".

12. For our part, we would not have necessarily so concluded, by simply examining the order tickets. But the point is more fundamental. In the defendant's Defence as it stood at the time the judge was considering the matter the defendant averred in para 34 as follows:

"The defendant is presently unable at present to identify which transaction was effected through the Tokyo Stock Exchange or the Defendant's house account. The Defendant avers and contends that in any event, such particulars are irrelevant to any issue in this case in that such transactions themselves did not cause any loss or damage to the plaintiffs or any of them nor have the plaintiffs so alleged and to seek to require the defendant to justify each and every transaction effected by it would be wholly oppressive and unjust."

13. If the defendant was unable to identify from documents within its own possession which transaction was effected through the Tokyo Stock Exchange and which was not, how could it be said that from the order tickets the plaintiffs should have known this distinction?

14. There is this additional point. The disclosure of the order tickets in the January 1990 discovery was incomplete. Thus, in relation to 10,000 Nichia Kogyo shares bought on 20 May 1985, as shown in the order ticket on p.3 of bundle F, the plaintiffs could never have known that it came from a batch of 30,000 shares bought by the defendant on 14 May 1985, 6 days before, as is now suggested by the defendant to be the case, by reference to the order ticket on p.4 of the same bundle: this order ticket only came to be disclosed after the trial opened in June 1993. The suggestion that the plaintiff was somehow at fault wears pretty thin.

15. Further, the computer printouts, contrary to Mr. Tong's submission, plainly do give more information than the order tickets. From the printouts the plaintiffs were able to compare the prices they paid or received with the prices other people paid and received for the same shares on the same day. We find it difficult to see how, given the history of this litigation and the material before the judge, the plaintiffs could have been held "at fault" in not pressing the investigations which eventually resulted in the brown amendments. On this ground as well we would overturn the judge's exercise of discretion.

Section 26 Limitation Ordinance

16. Mr. Barlow, counsel for the plaintiffs, argues that the judge ought to have concluded that the conduct of the defendant, in failing to disclose the computer records of daily transactions, constituted "concealment" for the purpose of s26 of the Limitation Ordinance; time therefore did not run until June 1993 when full disclosure was made.

He further submits that the expression "fraud" in s26 is wide enough to encompass equitable fraud and the fact that the computer records had to be squeezed out of the defendant by the peremptory order of the judge shows "deliberate concealment".

17. Given the view that we have formed of this case, namely that the amendments added no new causes of action, it is unnecessary to further deal with this point. On the facts before the judge it would certainly have been a live issue if the judge had chosen to deal with it under s26 of the Limitation Ordinance.

Order 20 rule 5(5) of the Rules of the Supreme Court

18. Mr. Barlow further submits that the judge failed to recognize and therefore to exercise his discretion under Ord 20 r5(5) and treated his conclusion that the brown transactions were time-barred as determinative of the application before him. Mr. Barlow submits that at the very least the brown amendments constituted matters "arising out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed by the plaintiffs". The judge, he says, erred in failing to consider this point.

19. This submission as it appears to us also has considerable merits but coming as we have done to the view that the amendments do not add any new causes of action we find it unnecessary to say anything further.

Discretion

20. The judge having erred in the exercise of his discretion, it now falls upon us to consider whether we should exercise our discretion under Ord 59 r10(3) of the Rules of the Supreme Court to allow the brown amendments, in the light of the circumstances now before us.

21. The trial has been refixed for 21 February 1994 for six weeks. If there is a real possibility that any order we make might jeopardize those trial dates that would be a most relevant consideration for not making the order.

22. Mr. Tong says this: The defendant would need time to analyze the 46 transactions and see what category of dealings they fall into. By "categories" he means those referred to in Mr. Miyauchi's affirmation of 25 October 1993 in Bundle B p.113 as follows: a mirror transaction, a margin reduction transaction, a thin-market transaction, a gift transaction, a normal transaction, a public offer or convertible bond transaction.

23. We note this point. Some at least of the 46 additional transactions impeached by the brown amendments would come within the transactions the defendant has already analyzed, in order to correct the answers they previously gave to interrogatories. It is worth observing in passing that it seems extraordinary that answers previously given to interrogatories on oath needed correction in this way. Moreover, from the inception of this claim in 1988, the plaintiffs have alleged breaches of fiduciary duties. It would be an extraordinary thing if the defendant, as a responsible sharebroker, with the serious allegations of impropriety made against it, would not have caused the transactions on the plaintiffs' accounts to have been analyzed some long time ago. They must have been advised that if held liable to account in equity the defendant might well have to account to the plaintiffs for every transaction. We do not therefore accept Mr. Tong's argument that the defendant would need to undertake "further massive preparation work" if we allowed the brown amendments to be made: a forensic argument advanced in the course of the hearing but not substantiated by any affidavit from the defendant.

24. Further, if it be said that the plaintiffs have piled on the agony for the defendant by the brown amendments, the defendant has not been shy on this score. After the judge had adjourned the case part-heard in June 1993 the defendant applied to substantially amend its Defence, thereby obviously adding further burdens on the plaintiffs by way of preparation for trial.

25. The Courts attempt to achieve practical justice, within the constraints of time and circumstance as they exist. The Courts do not aim for perfect justice. Given the circumstances of the case as we see them at present it would be a surprising thing if the defendant's legal advisers should seek a postponement of the trial dates simply because of the brown amendments. It would be even more surprising if the court should grant it, seeing that this action was first started in 1988. The court looks to counsel and solicitors to act in a robust way and to roll up their sleeves if necessary. If this is what the brown amendments entail, so be it.

26. We take this as the guiding principle when it comes to amending pleadings. Amendments should be allowed for the purpose of determining the real question in controversy; errors if made should be corrected unless really serious prejudice would be caused to the other side. We can see no serious prejudice to the defendant flowing from the brown amendments. We would therefore exercise our discretion and give leave for the amendments to be made.