LI SHIU TO v. LI SHIU TSANG AND OTHERS

HCA 416/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 416 OF 2003

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REASONS FOR DECISION

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1.  This is an application by the plaintiff to amend the Re-Amended Statement of Claim. In the hearing on 19 June 2012, I allowed the plaintiff’s application and I now give my reasons.

Background

2.  These proceedings concern the administration of the estate of Li Po Chun (“the Estate”) who died intestate in 1963.  The protagonists are the 3 sons of the deceased and the only remaining beneficiaries of the Estate, all of whom are now well into their seventies.

3.  The plaintiff’s claim concerns primarily the existence of 3 registered shareholders of the 3^rd defendant (Li Po Chun Estates Limited): Li Wai To, Li Sing Chi and Li Hoi Yeung (“the 3 Shareholders”) who collectively hold 801 shares in the 3^rd defendant (“the 801 Shares”).  The plaintiff’s claim is that the 3 Shareholders are fictitious persons and the 801 Shares belong to the Estate, and the 1^st defendant, as the administrator of the Estate, has failed in his duty to collect in and distribute such assets.

4.  The 3 Shareholders were allotted the 801 Shares on 25 March 1949.  The plaintiff claims to have harboured suspicion that the 3 Shareholders were fictitious since December 1963.

5.  Pursuant to an agreement made between them (“the 1971 Agreement”), the plaintiff sold his interests in the 3^rd defendant to the 1^st and 2^nd defendants and resigned as director of the 3^rd defendant in 1971.  He also entered into an agreement with the 1^st and 2^nd defendants to distribute all the cash in the Estate in 1984.

6.  In 1987, the plaintiff wrote to the 1^st defendant and alleged that the 3 Shareholders were fictitious and the 801 Shares belonged to the Estate, but no action had been taken by the plaintiff until he commenced the present proceedings against the defendants on 30 January 2003, in which the plaintiff was claiming for, inter alia, a declaration that he was entitled to the portion of 41/114^th of the 801 Shares, ie 228 shares (“the 228 Shares”), and the loss or loss of value of the 228 Shares.

7.  It is the plaintiff’s claim that various resolutions were passed by the 3^rd defendant in 1989 (“the Purported Resolutions”) which would have a depletive effect on the value of the 3^rd defendant’s shares and he was only aware of the Purported Resolutions in May 2001.

8.  The plaintiff discontinued the action against the 2^nd defendant, Mr Li Shiu Kwan (“S K Li”), on 1 June 2005, and thereafter the action went to sleep.  It was not until 13 July 2011 that the plaintiff issued a summons for leave to set down for trial out of time.

9.  In response to the plaintiff’s application to set down, the 1^st defendant issued a summons to strike out the plaintiff’s claim for want of prosecution and abuse of process, which was dismissed by Master Ho on 19 January 2012.

10.  The plaintiff issued the present amendment summons on 3 May 2012.

11.  As I see it, there is no serious objection to the following proposed amendments in the following paragraphs of the draft:

(i)  §§6A to 6C: these facts have been mentioned in the witness statements, which only serve to complete the explanation as to why, by June 1981, only the plaintiff, the 1^st and the 2^nd defendants remained interested in the estate;

(ii)  §13(aa): which only involves an allegation of law;

(iii)  §§17A and 18A: which are facts based on the public records of the 3^rd defendant and pleaded to complete the narrative of the changes in the 3^rd defendant’s shareholding;

(iv)  §19B: which only sets out the detailed contents of the statutory declaration already pleaded in §19A;

(v)  §§19C, 21, 32AA, 32AB, 32AC and 38B: facts which have already been mentioned in previous witness statements.

12.  The main objection is related to the averments about the purported allotments of the shares of the 3^rd defendant (“the Purported Allotments”) and the purported dispositions of the 3^rd defendant’s properties (“the Purported Dispositions”) mentioned in §§32A, 40, 40A, 40B, 41, 42, 42A and the new relief claimed in the prayer for relief.

13.  Ms Sit, counsel for the defendant, opposes the application on the following grounds:

(i)  there was substantial and unexplained delay on the part of the plaintiff in the making of the amendment application;

(ii)  the court should not allow the amendments as the plaintiff had indicated to Master Ho in the striking out application that the case was by then ready for trial; and

(iii)  the plaintiff is seeking to introduce new claims in the proposed amendments causing prejudice to the defendant.

Legal principles governing grant or refusal of leave to amend pleadings

14.  The principles under which the court exercises its discretion to allow or refuse amendments to pleadings can be summarised into 4 prepositions (see: Ketteman v Hansel Properties Ltd [1987] 1 AC189, per Lord Brandon at p 212F-H):

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

(ii)  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;

(iii)  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

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

15.  Ms Wong, SC, counsel for the plaintiff, submits that the principles laid down in Ketteman remain good law after the CJR.  She refers me to two cases.  In Re Sun Hung International Ltd [2009] 2 HKLRD 418, Kwan J, as she then was, applied the Ketteman principles in an application for the amendment of a section 168A petition on the eve of the coming into force of the CJR.  In the post-CJR decision of 厦門新景地集團有限公司 v Eton Properties Limited, unreported, HCMP 13, 15, 18, 21/2012 (decision of the Court of Appeal on 3 February 2012), the Court of Appeal affirmed the decision of the lower court in allowing an application for amendment of the Statement of Claim on the ground that the same was necessary to enable the real questions and controversy between the parties to be decided, despite the fact that the application was made just a couple of months before the scheduled trial date.

16.  I agree that the Ketteman principles remain good law after the CRJ, but I must put a caveat here.  First, the new O 1A of the RHC makes it clear that the court shall give effect to the underlying objectives when it exercises its power or interprets the RHC, 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.

17.  Second, there is a heightened concern to guard against late applications after the implementation of the CJR.  For case management purposes, there are now certain milestone dates in the course of litigation, and one of which would be the trial date.  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.  Indeed, adjournment of the trial is now considered as a serious prejudice to the parties involved in litigations.  Hence, 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.

Merits of the application

18.  After considering all the circumstances of the present case, I exercised the discretion in favour of the plaintiff and allowed the amendment application.  My reasons are three-fold.

19.  First, the trial date has yet been fixed and so there is no question about the variation of a milestone date.

20.  Second, the plaintiff’s proposed amendments are, in my judgment, necessary to enable the real questions and controversy between the parties to be decided, and such proposed amendments have not substantially changed the nature of the plaintiff’s claim.

21.  In the existing pleading, the plaintiff has already pleaded that:

(i)  the 1^st defendant has been the sole surviving administrator since 14 September 1973 and has a duty to collect and distribute all the assets of the Estate and to act in the best interest of the Estate and the beneficiaries;

(ii)  the 1^st defendant has been a shareholder and a director of the 3^rd defendant since 18 July 1963 and 21 December 1963 respectively;

(iii)  the 801 Shares form part of the Estate because the names in which they have been registered are fictitious names created by the deceased to hold the shares for him;

(iv)  the 1^st defendant, as the administrator, was and is obliged to get in, and distribute to the beneficiaries, the 801 Shares;

(v)  the 1^st defendant has failed to do so despite repeated requests by the plaintiff;

(vi)  instead, the 1^st defendant, as shareholder and director and together with S K Li, caused the 3^rd defendant to pass the Purported Resolutions and make the Purported Allotments, which resulted in the issue to Gregson Limited and Dredson Limited of shares in the 3^rd defendant which are preferred over the existing ordinary shares including the 801 Shares with regard to both dividends and return of share capital;

(vii)  as a result of the Purported Resolutions and Allotments, the value of the ordinary shares of the 3^rd defendant, including the 801 Shares, had been largely depleted;

(viii)  by causing the Purported Resolutions and Allotments, the 1^st defendant had acted in a manner detrimental to the interests of the Estate and the beneficiaries including the plaintiff; and

(ix)  the plaintiff has suffered loss and damage.

22.  Arising from such pleaded facts, in addition to the declarations that the plaintiff is entitled to have the 228 Shares transferred to him and the nullification of the Purported Resolutions, the following relief has been claimed in the existing prayer for relief:

(i)  a full account of all dealings involving the 1^st and the 3^rd defendants since 1971;

(ii)  the 1^st defendant be removed as the administrator of the Estate;

(iii)  an order for the purchase of the plaintiff’s 228 Shares in accordance with Clause 5(i) of the 1971 Agreement, which requires the 1^st defendant and S K Li to purchase any further shares in the 3^rd defendant that the plaintiff may become entitled to at a price to be agreed, failing which to be fixed by arbitration;

(iv)  damages; and

(v)  such further or other consequential relief to give effect to the declarations and orders sought.

23.  According to the existing pleading, it is clear that the plaintiff is asking for an order that he is entitled to the 228 Shares and claiming for all the loss and damages caused by the 1^st defendant in depleting the value of the 228 Shares, including the making of the Purported Resolutions and Allotments.  As I see it, the new amendments only add one more allegation about the 1^st defendant’s conduct in depleting the value of the 801 Shares, that was the causing of the Purported Dispositions of the 5 properties to Arracourt Limited and Aucilla Limited, and that the plaintiff is claiming for loss and damages resulting from such alleged wrongful conduct.

24.  I agree that, if the court is to allow the amendments, the 1^st defendant has to deal with one more allegation at the trial.  However, since it has all along been the plaintiff’s case that the 1^st defendant had depleted the value of the 801 Shares by the Purported Resolutions and Allotments, the new allegation is closely connected with the substance of the existing claim.  Further, the remedies already claimed in the existing pleading, if granted after trial, would necessarily require the 1^st defendant to go into his ownership and management of the 3^rd defendant over the past 40 years since 1971.  In particular, the court has to inquire the adverse effects that the Purported Resolutions and Allotments have had on the value of the 801 Shares.  If the 3^rd defendant had wrongfully caused the Purported Dispositions in 1989, it would be quite unrealistic for the court to ignore such important fact in assessing the fair value of the plaintiff’s 228 Shares.  Hence, in order to ensure that the real questions and controversy between the parties are to be decided at the trial, the court should allow the amendments.

25.  Third, I do not find that there is significant prejudice caused to the 1^st and the 3^rd defendants by the proposed amendments.  As I have mentioned above, the existing remedies claimed by the plaintiff, if granted by the court, would necessarily require an investigation about the 1^st defendant’s ownership and management of the 3^rd defendant over the past 40 years, and so the 1^st defendant should have expected to deal with the allegation about the Purported Dispositions of the 5 properties in any event.

26.  Furthermore, the new allegation should not prolong the preparation work for the trial.  As conceded by the plaintiff himself, he has no personal knowledge (other than what he can glean from the relevant documents) of, as he did not participate in, the Purported Resolutions, Allotments and Dispositions.  His case on these transactions is essentially a documentary one to be proved by the production of the material documents all of which have already been disclosed.  Hence, it is not expected that the plaintiff will adduce much new evidence in support of his claim.

27.  As for the contribution by the Purported Dispositions to the depletion in value of the 801 Shares, the plaintiff is prepared to accept the considerations stated in the agreements for sale and purchase by which the Purported Dispositions were made as proper values of the relevant properties as at the date of those transactions.  This is a formal concession by the plaintiff which would obviate the need for valuation evidence.

28.  Having made the aforesaid observations, I am not suggesting that the inclusion of the new allegations in the proposed amendments would require no additional preparation work on the part of the 1^st and the 3^rd defendants.  However, given the fact that they would have to deal with the plaintiff’s existing allegations about the Purported Resolutions and Allotments, any additional preparation work should not be too excessive.  In particular, it has all along been the 1^st defendant’s case that the plaintiff has no right to question the Purported Resolutions and Allotments since he had ceased to be a shareholder of the 3^rd defendant.  Given that this is the defence to the existing claim, I wonder what additional preparation work is required to meet the new allegation.  In any event, even if the parties apply to set down the case now, the trial date will still be some time away.  In such circumstances, the additional preparation work should not delay the trial date, and so the complaint about the further anxiety caused by the delay in the resolution of the dispute may have been exaggerated.

29.  In opposing the amendment application, Ms Sit submits that the court should take into account: (i) the history of this case including the delay on the part of the plaintiff in prosecuting the claim; (ii) the absence of explanation as to why the amendment application was taken out at such a late stage of the proceedings; and (iii) the representation made by the plaintiff to Master Ho in the striking out application that the case was by then ready for trial.

30.  There is some force in such criticism.  Whilst the court should not condone such delay on the part of the plaintiff, there are some materials in the affirmations of the plaintiff which can provide some explanation about the delay.  According to the plaintiff, he suffered from a lack of means to further proceed with the action after mid 2005 until he secured legal aid on 14 September 2009.  The present solicitors for the plaintiff were not assigned until 6 July 2010, and senior counsel was first instructed in September 2010.  In December 2010, the plaintiff invited the 1^st and the 3^rd defendants to mediate, but the said defendants declined.  In August 2011, the said defendants applied to strike out the claim for want of prosecution which was finally heard by Master Ho in January 2012.  During such time, the plaintiff and those representing him focused their efforts upon resisting the striking out application.

31.  I agree with Ms Sit that the explanation may not be perfectly satisfactory, in particular no explanation has been given as to why the amendment application had not been taken out shortly after the instruction of senior counsel.  Despite that, this should only be one of many factors that the court should take into account in considering whether to grant the amendment application.

32.  In the Eton Properties case, the Court of Appeal, whilst acknowledging that there was delay in the making of the amendment application and lack of explanation for such delay, nevertheless allowed the application on the ground that the “primary aim” in exercising the case management (or other) powers of the court is to secure the “just resolution of disputes in accordance with the substantive rights of the parties”: O 1A, r 2(2) of the RHC.  I echo the same observation here.

33.  Mr Sit also complains that there may be delay to the proceedings as the 1^st defendant may have to join S K Li as a third party to the proceedings.  Again I see no merit in such argument.  First, the plaintiff is prepared to drop the allegations in the proposed draft about the joint acts of the 1^st defendant and S K Li in respect of the Purported Resolutions, Allotments and Dispositions.  Second, it is not clear why the 1^st defendant did not see the need to join S K Li earlier. The involvement of S K Li in the Purported Resolution, Allotments and Dispositions is obvious even from the existing pleadings.  Third, it is also unclear on what factual or legal basis the 1^st defendant can rely on in seeking an indemnity or contribution against S K Li towards his liability to the plaintiff.  Unlike the 1^st defendant who is the administrator, S K Li did not owe the Estate or the beneficiaries any duty not to prefer or act in his self-interest.  In any event, the joinder of S K Li may not take much time given that he has already filed a Defence, a list of documents and witness statements before the plaintiff discontinued the claim against him in 2005.

34.  It is true that the plaintiff had earlier abandoned the claim for “usual account” (as opposed to account on the ground of wilful default) against the 1^st defendant.  However, it has all along been the plaintiff’s case that he is pursuing an account on the footing of wilful default in requiring the 1^st defendant to account for, not only what he has actually received, but also what he has not but should have received. In this regard, the new allegations add nothing new to the existing claims.

35.  Based on the aforesaid reasons, I exercised the discretion in favour of the plaintiff and allowed the amendment application. However, taking into account the history of this case and the advance age of the parties involved, the court should impose a strict timetable for the conduct of the case to avoid further delay, and the plaintiff cannot expect the court to be generous in granting further indulgence to him in complying with the timetable.

36.  Since the plaintiff is seeking the indulgence of the court in granting leave to amend the pleading at a late stage of the proceedings, I make an order nisi that the costs of and occasioned by the amendments and the costs of the plaintiff’s amendment summons dated 3 May 2012 be paid by the plaintiff to the 1^st and the 3^rd defendants and the plaintiff’s own costs to be taxed in accordance with Legal Aid Regulations, which shall be made absolute 14 days after the date of the handing down of the Reasons for Decision.