HEALTH BASE INTERNATIONAL LTD v. HUI CHIU YUEN

DCCJ3297/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3297 OF 2006

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REASONS FOR DECISION AND RULING ON COSTS

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I.  Introduction

1.  On the first day of trial, Mr Martin Wong, counsel for the Defendant, informed me that the Defendant’s subpoenaed witness Madam Tsang Yung Tai (“Madam Tsang”) had arrived at court. Mr Wong intended to obtain a brief statement of the nature of the evidence he intended to lead from Madam Tsang. Mr Tommy Wong, counsel for the Plaintiff, did not object since such effort may help avoid an adjournment in the course of trial for him to take instructions on Madam Tsang’s evidence. So the hearing was stood down for the aforesaid purpose.

2.  When the hearing was resumed at 12:30pm, Mr Wong for the Defendant made an application to further amend the Re-Amended Defence. However, there was no summons seeking leave to re-re-amend the Defendant’s pleadings and no draft of the proposed amendments. The position was plainly unsatisfactory, but nothing could be done except to adjourn the hearing to 2:30pm to enable Mr Wong for the Defendant to draft the proposed amendments.

3.  Mr Wong for the Defendant handed up a draft of the proposed amendments when the hearing resumed after lunch. After considering such draft, Mr Wong for the Plaintiff indicated that the Plaintiff would oppose the Defendant’s application for leave to further amend his pleadings.

II.  Existing pleadings

4.  To put the proposed amendments in context, it is necessary to give a brief overview of the existing pleadings and issues.

5.  The following matters are not in dispute :

(a) On 4^th January 1997, the Defendant and Homest Development Limited (“Homest”) entered into an agreement whereby the Defendant agreed to purchase and Homest agreed to sell certain rights and/or interests of a house intended to be built on Lot no.649B, DD375, Tuen Mun, New Territories for the price of HK$3,700,000.00 (“Agreement”).

(b) Homest was the developer of the said house on the said lot.

(c) On 6^th April 1997, the Plaintiff and the Defendant through Wai Sing Property Consultant Co (an estate agent, “Wai Sing”) entered into an agreement whereby the Defendant agreed to transfer (轉讓) and the Plaintiff agreed to accept transfer of the Defendant’s rights and interests under the Agreement for the price of HK$4,300,000.00 (“Transfer Agreement”).

(d) Clause 1 of the Transfer Agreement specifies the price difference of HK$600,000.00 between the price stated in the Agreement and that stated in the Transfer Agreement.

(e) Clause 3 of the Transfer Agreement provides inter alia that “買賣雙方同意於1997年4月11日到物業發展商辦理轉名手續買方同時付HK$150,000.00給賣方”.

(f) The Plaintiff paid the deposit sum of HK$370,000.00 and a further sum of HK$150,000.00 under clauses 2 and 3 of the Transfer Agreement respectively. The Plaintiff made three further payments of HK$150,000.00 each to the Defendant. So the Plaintiff paid to the Defendant a total sum of HK$970,000.00.

6.  The Plaintiff in its pleadings claims that in breach of the Transfer Agreement, the Defendant (a) failed and/or refused to comply with the terms of clause 3 thereof and/or (b) failed or was unable to obtain the consent of Homest to effect the transfer under clause 3 thereof on or before 7^th April 1997. The Plaintiff eventually accepted the Defendant’s wrongful repudiation of the Transfer Agreement and now claims for refund of the total sum of HK$970,000.00 paid thereunder and for damages for breach of contract.

7.  The Defendant by his existing pleadings denies the Plaintiff’s claim and avers as follows :

(a) On 6^th April 1997, the Plaintiff through Wai Sing paid a sum of HK$100,000.00 to the Defendant as part payment of the deposit sum under the Transfer Agreement.

(b) On 7^th April 1997, the Defendant and a director of the Plaintiff Madam Tang Lee Ling Kei (“Madam Tang”) attended Homest’s office to handle the transfer procedures and obtained Homest’s verbal consent to transfer the Agreement to the Plaintiff. By reason thereof, the Defendant has performed his obligations under clause 3 of the Transfer Agreement.

(c) On 10^th April 1997, the Defendant through Wai Sing applied to Homest to complete the aforesaid transfer. On 20^th April 1997, the Defendant obtained Homest’s written consent.

(d) Wai Sing notified the Plaintiff to attend Homest to complete the transfer formalities, but the Plaintiff did not wish to pay the transfer fee of HK$8,000.00 or commission on any future sale. The Plaintiff therefore requested the Defendant and Homest to sign two agreements with the name of the transferee left blank (which the Defendant and Homest did) for the Plaintiff to fill in the name of the new buyer in due course without having to pay any transfer fee and/or commission for any future sale.

(e) Despite requests by the Defendant through Wai Sing, the Plaintiff failed to complete the transfer formalities or to contact Wai Sing or the Defendant.

(f) Although the Plaintiff’s cheques for the respective sums of HK$370,000.00 and HK$150,000.00 under clauses 2 and 3 of the Transfer Agreement had been paid, the Plaintiff only paid the last of the three further sums of HK$150,000.00 each on 5^th June 1997 and not on the due date of 30^th May 1997 stated on the relevant post-dated cheque.

(g) In September 1998, Homest requested the Defendant to pay further sum under clause 3(2) of the Agreement. Both Wai Sing and the Defendant requested the Plaintiff to make such payment in vain, so Homest forfeited the deposit under the Agreement.

(h) Despite service of the Writ of Summons in these proceedings, the Defendant and Homest agreed to affirm the Transfer Agreement until 15^th January 1999. But the Plaintiff still failed to complete the transfer formalities and continued to be in breach of the Transfer Agreement whereupon the Defendant and Homest were entitled to forfeit all monies paid by the Plaintiff.

8.  As acknowledged by Mr Wong for the Plaintiff in his written opening submissions, the Defendant does not have any counterclaim. Although the Defendant has reserved his right to make claims against the Plaintiff in earlier versions of his Defence and Amended Defence, he has not made any formal cross-claim in his pleadings.

9.  It is also necessary to say a few words about the witness statement and supplemental witness of the Defendant. The Defendant states inter alia that the Plaintiff’s breach of contract in failing to pay further payment towards the balance of the price amounts to repudiation of the Transfer Agreement, so the Defendant is entitled to forfeit all deposit (所有訂金) and recover the commission he has paid. The Defendant asserts that the Transfer Agreement has been “terminated”.

10.  In essence, it is common ground between the parties that the Transfer Agreement has been “terminated” or “discharged” due to repudiation. The issues arising from the existing pleadings are as follows : (a) who is the repudiating party, and (b) what are the consequences that flow from such repudiation.

III.  The proposed amendments

11.  In the initial draft Re-Re-Amended Defence and Counterclaim, the entirety of the Re-Amended Defence has been retained albeit set out in English and not in Chinese. The new averments in the proposed amendments are as follows :

(a) the Plaintiff is in breach of the Transfer Agreement, so the Defendant is entitled to forfeit the deposit sum of HK$370,000.00 paid by the Plaintiff and to rely on the defence of set-off premised on the new counterclaim;

(b) by reason of the facts pleaded in existing Re-Amended Defence, the Defendant counterclaims for loss of profit arising from the Plaintiff’s breach of the Transfer Agreement in the sum of HK$600,000.00 (ie the difference between the price stated in the Agreement and that in the Transfer Agreement).

12.  On the second day of the hearing, it transpired that the Defendant in fact does not wish to counterclaim against the Plaintiff for payment of his loss of profits of HK$600,000.00. The Defendant only wishes to plead a defence of set-off. The initial draft of the Re-Re-Amended Defence and Counterclaim is based on an erroneous assumption that the proposed counterclaim must be pleaded as such in order to raise the proposed defence of set-off. This cannot be right. The position is made clear by Order 18 rule 17 of the Rules of the District Court (“RDC”) which provides inter alia as follows :

“Where a claim by a defendant to a sum of money (whether of an ascertained amount or not) is relied on as a defence to the whole or part of a claim made by the plaintiff, it may be included in the defence and set-off against the plaintiff’s claim, whether or not it is also added as a counterclaim.” (my emphasis)

13.  In the circumstances, Mr Wong for the Defendant revised the draft amendments, which have now become the draft Re-Re-Amended Defence. Such finalised draft only includes the new averments set out in paragraph 11(a) above.

14.  However, since the proposed counterclaim (which has now been abandoned) has been canvassed in counsel’s submissions and raises some legal issues, I will also briefly deal with the same although such discussion forms no part of the ratio of the decision herein.

IV.  Limitation issue

15.  There is no doubt that the proposed defence of set-off and the proposed counterclaim (which has since been abandoned) are made outside six years of the alleged breach of the Transfer Agreement.Both counsel initially submit that such proposed defence of set-off and proposed counterclaim are statute-barred and urge me to exercise my discretion in respect of such time-barred “new claims” pursuant to section 35(5) and (6) of the Limitation Ordinance Cap.347 and Order 20 rule 5(2) and (5) of the RDC.

16.  But are the proposed amendments truly time-barred?

17.  The starting point is section 35 of the Limitation Ordinance Cap.347 which provides inter alia as follows :

“(1) For the purpose of this Ordinance, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced – .….. (b) in the case of any other new claim, on the same date as the original claim.

(2) In this section a new claim means any claim by way of set-off or counterclaim ……

(3) Except as provided by section 30 or by the rules of court, the court shall not allow a new claim within subsection (1)(b), other than an original set-off or counterclaim, to be made in the course of action after the expiry of any time limit under this Ordinance which would affect a new cause of action to enforce that claim.

(4) For the purposes of subsection (3), a claim is an original set-off or an original counterclaim if it is a claim made by way of set off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action.

(5) Rules of court may provide for allowing a new claim to which subsection (3) applies to be made as there mentioned, but only if the conditions specified in subsection (6) are satisfied, and subject to further restrictions the rules may impose.

(6) The conditions referred to in subsection (5) are –

(a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party for leave to make the amendment; ……” (my emphasis)

18.  I will first consider whether the proposed defence of set-off falls within the meaning of “new claim” in section 35 of the Limitation Ordinance Cap.347.

19.  In my view, it is plain from the existing pleadings and the proposed defence of set-off set out in paragraph 11(a) above that the set-off as asserted is an equitable set-off that arises out of the same transaction as the Plaintiff’s claim which it seeks to offset.

20.  An equitable or transactional set-off is a substantive defence and not a cross-claim. It is contrasted with legal/independent set-off which is a right to set off mutual debts which may arise from different transactions but which are liquidated and due(see Alco International Limited v Akai Electronic Co Ltd [2000] 3 HKC 724, 728). Legal set-off isessentially an accounting process.

21.  Further, the proposed defence of set-off is based on the Defendant’s loss of profits of HK$600,000.00 allegedly arising from the Plaintiff’s breach of contract. Although such sum is quantified by the Defendant, it is not a liquidated claim but must be assessed by the court, so the Defendant is not entitled to legal set-off but only to an equitable set-off (see Alco International Limited’s case (supra at p.730)).

22.  It is trite that an equitable set-off is not caught by section 35 of the Limitation Ordinance Cap.347. English authorities show that the term “set-off” in section 35 is limited to legal set-off and does not extend to equitable set-off (see Westdeutsche Landesbank Gironzentrale v Islington London Borough Council, Kleinwort Benson Ltd v Sandwell Borough Council [1994] 4 All ER 890, 943-946 and Philip Collins Ltd v Davis & anor [2000] 3 All ER 808, 830-832). Both Hobhouse J and Jonathan Parker J adopted the statement of law by Lord Denning MR in respect of section 28 of the Limitation Act 1939 (ie the predecessor of section 35 of the Limitation Act 1980, which in turn is equivalent to section 35 of the Limitation Ordinance Cap.347) in Henriksens Rederi A/S v PHZ Rolimpex [1973] 3 All ER 589, 593 :

“The word ‘set-off’ is not defined in s 28; but I think it is used to denote legal set-off and not an equitable set-off. That is, a legal set-off as permitted by the statutes of set-off. These apply only ‘where the claims on both sides are liquidated debts or money demands which can be ascertained with certainty at the time of pleading’ … These cross-claims must arise out of separate transactions … If there is no separate transaction, but only opposing demands arising out of the same transaction, then no question of set-off, properly so called, arises ……”

23.  The rationale can also be found in the following observations by Lord Denning MR at p.593 :

“In point of principle, when applying the law of limitation, a distinction must be drawn between a matter which is in the nature of a defence and one which is in the nature of a cross-claim. When a defendant is sued, he can raise any matter which is properly in the nature of a defence, without fear of being met by a period of limitation. No defence, properly so called, is subject to a time-bar. But the defendant cannot raise a matter which is properly the subject of a cross-claim, except within the period of limitation allowed for such a claim. A cross-claim may be made in a separate action, or it may be made by way of set-off or counterclaim. But on principle it is always subject to a time-bar. ……”

24.  An equitable set-off is truly a matter of equitable defence since such defence makes it necessary to consider whether a plaintiff is bound in conscience and in equity to take such matter into account before enforcing his own claim. Being a true defence and not a “new claim” within the meaning of section 35 of the Limitation Ordinance Cap.347, it is never subject to any time-bar.

25.  In my view, the proposed defence of set-off does not trigger any limitation point. Having brought the above matters to counsel’s attention on the second day of the hearing, both counsel concede that there is no limitation consequence arising from the proposed amendments.

26.  As indicated above, I will say a few words on the proposed counterclaim even though it is now abandoned. There is no doubt the proposed counterclaim is a “new claim” within the meaning of section 35(2) of the Limitation Ordinance Cap.347 even though the material facts in support of the proposed counterclaim can be found in the existing Re-Amended Defence. McGee, Limitation Period, 5^th ed, para.23.004 at p.483 said that where the original pleading pleads certain facts but does not make a claim under it, an amendment to claim under it involves a new cause of action.

27.  But section 35(3) of the Limitation Ordinance Cap.347 only prohibits the bringing of new claims made after the expiry of any time limit other than an original set-off or counterclaim. Is the proposed counterclaim an “original …… counterclaim” within the meaning of section 35(3) of the Limitation Ordinance so that it escapes the prohibition?

28.  Section 35(4) of the Limitation Ordinance Cap.347 defines an “original …… counterclaim” as a claim made by way of counterclaim by a party who has not previously made any claim in the action. Essentially, section 35 allows a defendant to make one counterclaim against the plaintiff even if the limitation period for making the claim has expired. This does not require leave (see McGee (supra at para.23.003 at pp.482-483) and Ernst & Young (a firm) v Butte Mining plc (No.2) [1997] 2 All ER 471). This is because the party raising such counterclaim can take advantage of section 35(1)(b) of the Limitation Ordinance Cap.347 which provides inter alia that such counterclaim is to be treated as “have been commenced …… on the same date as the original action”.

29.  Here there is no dispute that the proposed counterclaim is the first one raised by the Defendant. In my view, the proposed counterclaim is an “original counterclaim” within the meaning of section 35(3) of the Limitation Ordinance Cap.347. As such, the Defendant can pray in aid section 35(1)(b) of the Limitation Ordinance Cap.347 and the proposed counterclaim does not fall foul of the prohibition in section 35(3) of the Limitation Ordinance Cap.347 against making any new claim outside the limitation period.

30.  In the circumstances, had the Defendant not abandoned the proposed counterclaim, it is still unnecessary for me to consider the requirements in Order 20 rule 5(2) and (5) of the RDC. However, I would have to go on and exercise my discretion under Order 15 rules 2(1) and 5(2) of the RDC. I will deal with these matters briefly for completeness.

V.  Order 20 rule 5 of the RDC

31.  Order 20 rule 5(2) and (5) of the RDC provides inter alia as follows :

“(2)   Where an application to the Court for leave to make the amendment mentioned in paragraph …… (5) is made after the relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks just to do so.

……

(5)   An amendment may be allowed under paragraph (2) notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment.”

32.  For the purpose of the present discussion, I shall assume (which I disagree) that the proposed defence of set-off and counterclaim add a new cause of action that is statute-barred.

33.  Normally, a limitation point is a matter of right so that the court has no residual discretion to exercise to permit a statute-barred claim to be raised. So unless the new cause of action which is statute-barred arises out of the same or substantially the same facts as provided in section 35(6)(a) of the Limitation Ordinance Cap.347 and Order 20 rule 5(5) which are formulated in the same terms, leave must be refused (Paragon Finance plc v DB Thakear & Co (a firm) [1999] 1 All ER 400, 404C and Li Tin Sang v Poon Bun Chak CACV119/2003 (unreported, 12^th November 2003)).

34.  Mr Wong for the Plaintiff disagrees with the above proposition. In his written submissions, he argues that the test whether an amendment should be allowed outside the limitation period is as laid down in Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409 and adopted by Burrell J in Greater Beijing Region Expressways Limited v Cosco (Hong Kong) Group Limited HCA474/2005 (unreported, 11^th August 2006) at para.8 : “Leave to amend by adding a new claim should not be given unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation which will be prejudiced by the new claim …”

35.  On this basis, Mr Wong for the Plaintiff submits that the court should not grant leave to the Defendant to further amend the Re-Amended Defence “unless the Defendant can show that the Plaintiff does not have a reasonably arguable case on limitation. The Defendant has not shown that to the Court yet.”

36.  In my view, such argument is disingenuous since the aforesaid extract from Welsh Development Agency’s case (supra at p.1425H)only sets out part and not the entirety of the test. Indeed, Burrell J in Greater Beijing Region Expressways Limited’s case said at para.9 that the test concluded by saying “or can bring himself within RSC Order 20 rule 5”.  Thus, where a party seeks leave to amend by adding a new claim that is time-barred, the court has power to grant leave if such party can bring the new claim within Order 20 rule 5(2) and (5) of the RDC.

37.  To ascertain whether the new cause of action arose out of the same or substantially the same facts, guidance can be found in the judgment of Mr Recorder Paul Shieh SC in Arta Properties Limited v Li Fu Yat Tso & ors HCA2741/1998 (unreported, 5^th January 2007) at paras.26-32. However, there is no need to consider the guiding principles discussed by the learned Recorder for the present situation. It is plain and obvious that the material facts relied on by the Defendant for the proposed defence of set-off and proposed counterclaim are to all intents and purposes the same as the existing pleas and averments in the Re-Amended Defence. The Plaintiff has not been able to identify any material differences. Indeed, Mr Wong for the Plaintiff in his written submissions fairly concedes that the proposed amendments arise from the same facts. In my view, the proposed amendments fall squarely within section 35(6)(a) of the Limitation Ordinance Cap.347 and Order 20 rule 5(5) of the RDC.

38.  But Order 2 rule 5 of the RDC only creates a discretion (see Greater Beijing Region Expressways Limited’s case(supra at para.7)). If the proposed amendments cause the Plaintiff to suffer prejudice that cannot be compensated by costs they should not be allowed. If on the other hand they do no more than properly frame the issues to be determined, without prejudice to the Plaintiff, they will normally be allowed. The burden of showing prejudice is on the Plaintiff.

39.  So the relevant question is whether the Plaintiff will suffer any prejudice by and whether justice lies in favour of the proposed amendments. Under the aforesaid assumption, if the proposed amendments are allowed, the Plaintiff will be deprived of a limitation defence, but it is only one factor to be taken into account.  I bear in mind that there are no new material facts in relation to the proposed amendments. Other than the disappointment of having to face the proposed defence of set-off and proposed counterclaim at the eleventh hour, the Plaintiff is unable to say it will face any materially different issue that will arise from the proposed amendments. The Plaintiff is also unable to show any prejudice that cannot be compensated by costs and an adjournment if necessary.

40.  For the reasons discussed in Part VIII below, I consider that justice of the case lies in favour of the proposed amendments. In such circumstances, even if the proposed defence of set-off and proposed counterclaim raise new claimsthat are time-barred (which I disagree), subject to the discussion on Order 15 rules 2(1) and 5(2) of the RDC below, I would have allowed the proposed amendments.

VI.  Regularity of the proposed counterclaim

41.  The following discussion is again premised on the assumption that the proposed counterclaim is maintained (which is not the case). Even if the limitation point is not triggered, the court still has to consider the regularity of the proposed counterclaim under Order 15 rules 2(1) and 5(2) of the RDC.

42.  Order 15 rule 2(1) of the RDC provides inter alia as follows :

“Subject to rule 5(2), a defendant in any action who alleges that he has any claim or is entitled to any relief or remedy against a plaintiff in the action in respect of any matter (whenever and however arising) may, instead of bringing a separate action, make a counterclaim in respect of that matter; and where he does so he must add the counterclaim to his defence.”

43.  Order 15 rule 5(2) of the RDC provides inter alia  as follows :

“If it appears on the application of any party against whom a counterclaim is made that the subject-matter of the counterclaim ought for any reason to be disposed of by a separate action, the Court may order the counterclaim to be struck out or may order it to be tried separately or make such other order as may be expedient.”

44.  Although 15 rule 2(1) of the RDC opens the door to a counterclaim against a plaintiff in any action for any relief, there is a safeguard. Lightman J in Ernst & Young’s case (supra at p.479) said as follows :

“The safeguard against any misuse of this procedure is afforded by the overriding discretionary jurisdiction by Ord 15 r 5(2), to which Ord 15 rr 2(1) and 3(1) are expressly made subject. This rule affords the court the ultimate say in what should or should not proceed by way of counterclaim. If the court thinks for any reason that the subject matter of the counterclaim ought to be disposed of by a separate action, the court may make such order as may be expedient. Any excess may be curbed in this way.”

45.  Lightman J adopted a two-stage test : (a) whether the subject matter ought to be disposed of in a separate action, and (b) if so, what order ought to be made (supra at p.481). In respect of the appropriate guideline to be adopted in the exercise of the court’s discretion, Lightman J agreed with the dictum of Neill J in Boocock v Hilton International Co [1993] 4 All ER 19, 29 that “…… the surest guideline for the exercise of any general discretion is to consider what the justice of the case demands”. The learned judge went on to say at p.481 that in deciding what the justice of the case demanded, it was necessary to have in the forefront of the mind the statutory object of the creation of the counterclaim, namely, procedural convenience.

46.  In balancing the considerations of procedural convenience for and against such proposition, the close connection and mutuality between the Plaintiff’s claim and the proposed counterclaim as well as the commonality of witnesses suggest that had proposed counterclaim been maintained it should have been dealt with in the present proceedings. It is true that if the adding of the proposed counterclaim is refused, the Defendant will have to issue the proposed counterclaim as a fresh claim and meet a limitation defence. But how far should the court take into account such limitation consequence? Although the court retains a discretion notwithstanding the Defendant’s entitlement under section 35(1) of the Limitation Ordinance Cap.347 and Order 15 rule 2(1) of the RDC to put forward the counterclaim, it must be remembered that the raison d’être for Order 15 rule 5(2) of the RDC is procedural convenience. For reasons explained in Part VIII below, I am of the view that procedural convenience must favour disposing of the proposed counterclaim in the present proceedings and not as a separate action.

VII.  Lateness of the application

47.  I now return to the proposed amendments currently in issue.

48.  Where amendments do not involve any limitation point, the court has a wide discretion in allowing amendments under Order 20 rule 5(1) of the RDC (Welsh Development Agency’s case (supra at pp.1415-1416)).

49.  Here, there can be no dispute that the proposed amendments are late for the application to amend was made on the first day of trial. Given the lateness of the application, it should be anticipated that the Plaintiff may complain that such delay prolongs and disrupts the trial. It behoves a litigant seeking amendment at the eleventh hour to provide the court and the other side with full information as to the reasons why the application to amend was made so late in the day. The need for an affidavit to account for the lateness when similar late applications were made was accepted in Hong Lok School Limited & anor v Chow Sai Yiu & anor HCA17139&19001/1999, Deputy High Court Judge Lam (as he then was) (unreported, 7^th July 2003) and Guangzhou Green-Enhan Bio-Engineering Co Ltd & anor v Green Power Health Products International Co Limited & ors HCA4651/2002, HCA2802/2003 and HCMP74/2004, Lam J (unreported, 21/8/04).

50.  Mr Wong for the Defendant explains that the Defendant’s pleadings are not in order because the Defendant has been acting in person ever since the commencement of the present proceedings in the High Court in November 1998 and he has failed to appreciate the need to include the proposed amendments in his pleadings. Mr Wong submits that the Defendant’s solicitors, who only filed Notice to Act on 15^th May 2007 (ie about week before the trial), have had little time to look into the matter.

51.  Given that this is the sole reason put forward for the lateness of the application, I see no reason to incur further time to require the Defendant to file an affidavit to account for the lateness.

52.  Whilst the court is sympathetic towards any litigant in person who has to deal with litigation on his own, I am not persuaded that the Defendant’s explanation is satisfactory. Let me say as a general observation that the court is generally unhappy with last minute applications at the commencement of trial for further amendment of pleadings. In my view, the Defendant could have raised the proposed defence of set-off at an earlier stage. Even though he has been acting in person, he is aware of his right to claim against the Plaintiff, which is evident from his reservation of such right in his previous Defence and Amended Defence.

53.  Further, even though the Defendant’s solicitors have become involved in the case in the week before trial, there has been nothing more than a mere intimation to the Plaintiff’s solicitors of an intention to amend the Defendant’s pleadings without giving any justification or providing any substantive draft. In fact, the proposed amendments have to be hastily prepared during an adjournment on the first day of trial. 

54.  The Defendant’s legal advisers cannot be unaware of the need to plead issues and claims clearly, and it must have been a fundamental matter to review the Defendant’s pleadings to ascertain whether they are fit for trial. The primary responsibility of ensuring that any issue or claim is properly before the court lies on the party seeking to advance that issue or claim, and legal advisers must be astute to clarify their client’s case and to ensure that the pleadings fairly inform the other side of their client’s stance and fairly identify the true dispute between the parties. 

55.  I am of the view that at the very least the Defendant should have provided a draft of the proposed amendments to the Plaintiff’s solicitors prior to trial, and if this has been done, some of the adjournments on the first day of trial for drafting and considering the proposed amendments may have been avoided.

VIII.  Exercise of discretion

56.  Lack of a good reason for the lateness of the application to amend is only one factor to be considered. Likewise, lack of specific prejudice to the Plaintiff is also not necessarily determinative or conclusive. The discretion in determining whether leave to amend should be granted is a general one in which all the circumstances have to be taken into account. Ultimately, it is a balancing exercise and the court must exercise the discretion in a fair manner, having regard to all the circumstances and the explanation given.

57.  Whilst the adherence to goal posts is of importance in modern civil litigation, there is a need to strike a balance between the timely progress of cases and their proper adjudication. The principles are well summarised by Sir Thomas Bingham MR in Costellow v Somerset County Council [1993] 1 WLR 256, 263-264 as follows :

“As so often happens, this problem arises at the intersection of two principles each in itself salutary.  The first principle is that the rules of court and associated rules of practice, devised in the public interest to promote the expeditious despatch of litigation, must be observed.  The prescribed time limits are not targets to be aimed at or expressions of pious hope but requirements to be met.....

The second principle is that the plaintiff should not in an ordinary way be denied an adjudication of his claim on its merits because of procedural default, unless the default causes prejudice to his opponent for which an award of costs cannot compensate.....

Neither of these principles is absolute.  If the first principle were rigidly enforced, procedural default would lead to dismissal of actions without any consideration of whether the plaintiff’s default has caused prejudice to the defendant.  But the court’s practice has been to treat the existence of such prejudice as a crucial, and often a decisive, matter.  If the second principle were followed without exception, a well-to-do plaintiff willing and able to meet orders for costs made against him could flout the rules with impunity, confident that he would suffer no penalty unless or until the defendant could demonstrate prejudice....  The resolution of problems such as the present cannot in my view be governed by a single universally applicable rule of thumb.  A rigid, mechanistic approach is inappropriate.”

58.  The above echoes the principles governing the amendment of pleadings as re-stated by the Court of Appeal in Tang Kam Wah & Ors v Tam Ming Yat & Anor [2003] 1 HKC 532. Whilst the circumstances of each case are different, I can do no better than to refer to the citation by Stock JA of what Ching JA (as he then was) said in Chau Mei Lee Fragrance v Ng Yee Tim [1996] 4 HKC 46, 52 :

“… Amendments should not be refused however late the application is made provided that they are not designed to over-reach and provided that no prejudice is caused to the other side which cannot be cured by costs and an adjournment if necessary.”

59.  Turning to the present circumstances, there is no suggestion that the proposed amendments are founded on dishonourable motives or on any intention to overreach.

60.  The proposed defence of set-off do not raise any new facts. The Defendant has pleaded all the material facts he intends to rely. Since his existing defence and the new defence of set-off have an identical basis, it can hardly be said that the Plaintiff has been taken by surprise.

61.  There is substantial connection and mutuality between the subject matter of the Plaintiff’s claim and that of the proposed amendments in that they arise from the same transaction. The same witnesses, ie Madam Tang, the Defendant and Madam Tsang, remain relevant witnesses even if the proposed amendments are allowed. The Defendant does not intend to call any new witness and has no further documents to discover and disclose. I am not persuaded that the Plaintiff has to deal with any new dimension by reason of the proposed amendments.

62.  In other words, the Plaintiff has not been able to (a) point to any specific matter that renders it more difficult to prosecute its claim against the Defendant, or (b) identify any prejudice caused by the proposed defence of set-off that cannot be compensated by costs and an adjournment. In this respect, Mr Wong for the Defendant has indicated that the Defendant is prepared to bear costs of and occasioned by the application for amendment and should the court grant an adjournment of the trial the Defendant will also bear the costs thrown away.

63.  Even though the Plaintiff has reserved its right to amend its pleadings and adduce evidence to rebut the defence of set-off if the proposed amendments are allowed, Mr Wong for the Plaintiff has not identified any particular prejudice that may affect the Plaintiff’s response.

64.  The crux of the dispute, ie who is the repudiating party, turns on pleas and averments in the existing pleadings rather than on the proposed amendments. The proposed defence of set-off based on a claim of loss of profits only set out the consequences of the Defendant pleaded case of breach of contract by the Plaintiff. If the Defendant is the repudiating party, then his defence (including the proposed defence of set-off) may fail. If the Plaintiff is the repudiating party, then its claim against the Defendant may fail and there is a reasonable prospect that the proposed defence of set-off may succeed.

65.  I agree with Mr Wong for the Plaintiff that the court will always look at the materiality of proposed amendments to pleadings and its is always a compelling factor against the exercise of discretion in favour of amendments if they are unarguably bad or doomed to fail (see Greater Beijing Region Expressways Limited’s case (supra at para.13)). But the question at this stage is not whether the proposed defence of set-off will succeed or fail at the end of the day. The proper question is whether there are arguable merits to the proposed amendments so that the new averment should be left for trial or whether the proposed amendments are so immaterial or useless or unarguable that they should not be allowed. Indeed, it was held by the Court of Appeal in Extramoney Limited & anor v Chan, Lai, Pang & Co (a firm) [1992] 1 HKLR 244, a case cited by Mr Wong for the Plaintiff, that an amendment to a pleading should be allowed unless it can be shown to be useless or is such as will cause prejudice to the other side which cannot be compensated in costs.

66.  Here, I cannot say on the pleadings that the proposed defence of set-off is unarguably bad or is bound to fail. In fact, given the contested issues between the parties as analysed above, I am of the view that it has a reasonable prospect of success.

67.  Further, as admitted by Mr Wong for the Defendant, such defence is material to the Defendant’s defence, without which the Defendant may be in difficulty over the sum of HK$600,000.00 out of the total sum of HK$970,000.00 claimed by the Plaintiff.

68.  Clause 3 of the Transfer Agreement specifies the deposit sum to be HK$370,000.00. There is a respectable argument (and I put it no higher since this case is yet to proceed to trial) that even if (a) the Plaintiff is the repudiating party and (b) the Defendant has the right to forfeiture, the Defendant can only forfeit the deposit sum and not the further sums paid by the Plaintiff in the total amount of HK$600,000.00 (see Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234). If such further sums are merely advance payments towards what is payable under the Transfer Agreement, upon acceptance of repudiation they may arguably be recoverable as such subject to the Defendant’s entitlement if any to deduct damages for any actual loss suffered as a result of the Plaintiff’s repudiation (see Polyset Ltd’s case (supra at p.270)).

69.  In the circumstances, I have no hesitation in allowing the proposed amendments for the defence of set-off to be raised so that the true controversy between the parties is brought to trial.

70.  No doubt the Plaintiff is disappointed with the loading of a further defence against its claim at the eleventh hour. But I agree with the observations of Lord Millet in Gale v Superdrug Stores Plc [1996] 1 WLR 1089, 1110 which deals with a withdrawal of an admission of liability at the commencement of proceedings :

“…… In my judgment leave should normally be granted if the application is made in good faith, raises a triable issue with a reasonable prospect of success, and will not prejudice the plaintiff in a manner which cannot be adequately compensated. ……

Of course, the unexpected nature of the defence must have been a disappointment to the plaintiff; but I cannot think that this should count for anything. The sounder the defence sought to be raised by the amendment, the greater the disappointment to the plaintiff if it is allowed and the greater the injustice to the defendant if it is not. What the court must strive is to avoid injustice, not disappointment.”

71.  In coming to the above conclusion, I have borne in mind the submission by Mr Wong for the Plaintiff that it will be unjust to further delay this matter getting to trial. I note that the present proceedings commenced in 1998. But to consider this argument in the proper context, it will be necessary to look into the history of the present proceedings.

72.  This case started life in November 1998 as a High Court action. At that time both parties acted in person. The Defendant promptly filed his Defence in January 1999. The Reply (erroneously described as Reply and Defence to Counterclaim) was filed in March 1999. The summons for directions was filed in June 1999 and discovery was done over the summer of 1999.

73.  The Plaintiff’s former solicitors filed Notice to Act in September 1999. Apart from extending time for filing and exchanging witness statements, nothing happened until early 2000 when both parties’ pleadings were amended. Thereafter the present proceedings became dormant until the Plaintiff’s present solicitors filed Notice of Change of Solicitors in August 2003. Notice of Intention to Proceed was filed twice in August 2003 and August 2005. But nothing was done until May 2006 when the Plaintiff pressed for filing and exchange of witness statements.

74.  In June 2006 the present proceedings were transferred to the District Court. Witness statements were filed in August 2006 and thereafter the parties readied themselves for the pre-trial review. After  disposal of some interlocutory skirmishes over the filing of the response to the Plaintiff’s pre-trial review notice and after the Defendant filed list of documents, the pre-trial review was heard in January 2007. The Defendant then filed further witness statement and in February 2007 the case was set down for trial.

75.  In March 2007 the Defendant consolidated and tidied up his pleadings which became the Re-Amended Defence, and the Plaintiff filed the Amended Reply thereto in April 2007. The Defendant has acted in person all along until his solicitors filed Notice to Act on 15^th May 2007.

76.  From the above history of the proceedings, it is evident that the blame for the delay in getting this case to trial cannot be laid entirely at the Defendant’s door. It appears that the Plaintiff has not done much to progress the claim for six years from early 2000 to May 2006 even though the Plaintiff has been legally represented since August 2003 and has carriage of the claim (there being no counterclaim). In my view, the delay has been largely in the Plaintiff’s court.

77.  Nevertheless, I agree this is a case that cries out for speedy trial. I also bear in mind the convenience of the court in progressing trial hearings quickly. Efficient dispatch of court proceedings servethe interest of justice not only for the parties before the court but also for other litigants who have demands on court services.

78.  Looking at the matter in the round and having regard to all the circumstances of the present case, I am of the view that it is just to allow the Defendant’s application to further amend the Re-Amended Defence as per the finalised draft submitted to the court. I have therefore on the second day of the hearing granted leave to the Defendant to further amend the Re-Amended Defence as proposed.

IX.  Orders

79.  I have therefore made the following orders on the second day of the hearing :

(a) leave to the Defendant to further amend the Re-Amended Defence as per the finalised draft submitted to the court on the second day of the hearing;

(b) the Defendant do file and serve Re-Re-Amended Defence within 7 days;

(c) leave to the Plaintiff to file and serve Re-Amended Reply within 14 days thereafter;

(d) leave to the Plaintiff to file and serve supplemental List of Documents within 49 days if so desired;

(e) leave to the Plaintiff to file and serve supplemental or further witness statements as to fact in respect of the facts and matters arising out of the Defendant’s further amendment of the Re-Amended Defence within 49 days if so desired;

(f) leave to the Defendant to file and serve the Chinese handwritten statement of nature of evidence of Madam Tsang and a typed transcript thereof within 7 days;

(g) the trial of the present case be re-fixed and heard before a District Court Judge in court at Court no.6 at 9:30 am on 3^rd August 2007 with 6^th and 7^th August 2007 reserved (estimated length of trial is 3 days);

(h) the Defendant do pay the Plaintiff costs of and occasioned by the application to further amend the Re-Amended Defence and costs thrown away by the adjournment of the trial with certificate for counsel.

80.  I have expressed concern to both counsel over the delay in bringing this case to trial. I have also explained in the above paragraphs the history of this case and why it cries out for a speedy trial. In the circumstances, I informed counsel that unless there are exceptionally good reasons to justify extension of the pre-trial timetable set out above, the parties should regard the above pre-trial timetable as setting down immutable milestones. This case call for tight case management and the court will not hesitate to act a robust manner.

X.  Gross sum assessment of costs

81.  I have reserved my ruling on the remaining matter of gross sum assessment of the costs awarded to the Plaintiff pursuant to Order 62 rule 9 of the RDC to be handed down, which I now do.

82.  Both counsel agree that the fixing of costs by the court on a gross sum basis should be carried out on broad principles and should not be an exercise similar to taxation.

83.  On the first day of the hearing, given the open concession by Mr Wong for the Defendant that the Defendant should bear the costs consequences of the application to amend, I invited the Plaintiff to prepare a one-page statement of costs for the purpose of gross sum assessment. As it turned out, the Plaintiff’s solicitors prepared a four-page schedule (“Costs Schedule”) containing itemised breakdown rather than broad costs estimates. Such Costs Schedule is inappropriate and not required for the purpose of gross sum assessment.

84.  Legal practitioners are reminded of the helpful sample statement of costs for gross sum assessment attached to the Registrar’s Note on Assessment on Costs issued in January 2006 (see Hong Kong Civil Procedure 2007 Vol.1 at paras. 6/9/10B-D at p.950-951) in which the time and costs for each type of professional work are to be set out in terms of total number of hours and one lump sum. The Registrar’s Note also reminds that detailed breakdowns of each item are not encouraged or required. Further, the costs for gathering and supplying such information are usually not allowed. Such sensible guidance is plainly useful and applicable to gross sum assessment of costs generally.

85.  I should say at the outset I disallow entirely the costs of preparing the Costs Schedule which Mr Wong for the Plaintiff has asked for. On broad principles and without conducting any mini-taxation, I take into account the following matters and come to a gross sum assessment of HK$35,000.00 for the costs provided in paragraph 79(h) above :

(a) Since the Defendant’s application to further amend the Re-Amended Defence was only made at 12:30pm on the first day of the hearing and the morning was spent by the parties for the purpose of the main action, counsel’s fees should be 1½ and not 2 refreshers.

(b) It appears that between 17^th and 21^st May 2007 the Defendant’s solicitors issued some letters to the Plaintiff’s solicitors proposing an adjournment of the trial for the purpose of amending the Defendant’s pleadings and the Plaintiff’s solicitors issued some replies refusing such proposal. I agree that these are relevant to the present application. However, I see no reason why Ms Hui, a solicitor qualified in 2004, cannot comfortably deal with such matters on her own. There is no justification on party and party basis of costs for Mr Huen who was admitted as solicitor in 1988 to handle such matters.

(c) The same comment applies to estimated future professional work occasioned by the Defendant’s further amendment of his pleadings. Indeed, Mr Wong for the Plaintiff has conceded that Ms Hui can handle such work.

(d) The present case is a straightforward one with little documentation. There is little reason for duplication of professional efforts by counsel and solicitors.

(e) I reject entirely the item for solicitors’ profit costs for perusing counsel’s opening submissions and explaining the same to the client. It relates to the main action which is still pending trial and is not occasioned by the Defendant’s application to further amend pleadings.

(f) There is no need to award costs for dealing with supplemental witness statement from the Defendant for there is not going to be any such statement.

(g) I also do not see any reason why the task of inserting copies of further documents generated as a consequence of the Defendant’s further amendment of his pleadings requires the attention of a solicitor and for 45 minutes. Such simple task can be comfortably handled by a trainee solicitor or litigation clerk.

(h) In all, I find the provisions in the Costs Schedule overly generous on a party and party basis.

86.  Since the costs in favour of the Plaintiff have been assessed, they are recoverable. But for the avoidance of any doubt, the assessed costs should be paid forthwith.