ASIA-PAC INFRASTRUCTURE DEVELOPMENT LTD AND OTHERS v. SHEARMAN & STERLING (a firm) AND OTHERS

CACV 288/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 288 OF 2011

(ON APPEAL FROM HCA 806/2006)

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REASONS FOR JUDGMENT

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Hon Cheung CJHC:

Introduction

1. On 16 May 2012, we allowed the 1^st plaintiff’s appeal from Deputy High Court Judge Mayo’s dismissal of its application for leave to re-amend the amended statement of claim.  We now give our reasons.

2. This appeal raised a discreet point of procedural law.  The facts can be very briefly stated.  The plaintiffs sued the defendants for professional negligence in respect of events that happened in 1999 and 2000.  The writ was issued in April 2006, before the expiry of the relevant limitation period.  On 3 August 2009, the plaintiffs executed deeds of assignment whereby the 2^nd to 4^th plaintiffs assigned to the 1^st plaintiff their causes of action against the defendants in this action.  The 1^st plaintiff therefore sought leave to re-amend the amended statement of claim to plead and rely upon the assignments as the assignee of the 2^nd to 4^th plaintiffs’ causes of action against the defendants.  

3. On 6 December 2011, the deputy judge refused leave to re-amend.  He took the view that what the 1^st plaintiff was seeking to do was to introduce new causes of action which were not in existence at the time when the writ was issued.  He recognised that the 2^nd to 4^th plaintiffs’ causes of action were already represented in the action from the beginning, but he thought that the assignments were a constituent part of the cause of action being pleaded and accordingly they gave rise to new causes of action of the 1^st plaintiff.

4. This being the deputy judge’s conclusion, he found himself bound by the Court of Appeal’s decisions in Lark International Finance Ltd v Lam Kim Marisa [2000] 4 HKC 688 and in Wing Siu Co Ltd v Goldquest International Ltd [2003] 2 HKC 64, both of which were to the effect that a statement of claim, whether endorsed on the writ or not, cannot be amended, without the defendants’ consent, whether with the leave of the court or not, where the effect of the amendment is to add a cause of action which accrued since the issue of the writ.  These decisions were ultimately based on the English decision of Eshelby v Federated European Bank Ltd [1932] 1 KB 254.  The deputy judge felt constrained to refuse the application to re-amend and he ordered accordingly.

Arguments

5. In this appeal, the 1^st plaintiff took two points. First, the amendments did not introduce a new cause of action.  There was therefore no question of adding a new cause of action which accrued since the issue of the writ even though the assignments were made post-writ.  Secondly, in case it was wrong on the first point, the 1^st plaintiff asked the court to depart from the above Court of Appeal authorities barring the addition of a cause of action which accrued post-writ on the ground that those decisions were “plainly wrong”. 

6. As I will explain, the 1^st plaintiff’s first point was decisive of the present appeal, and it is unnecessary to deal with the second point. 

Assignments did not create new causes of action

7. In my view, the 1^st plaintiff was correct on its first point.  The assignments did not give the 1^st plaintiff a new cause of action against the defendants.  What the 1^st plaintiff sought to plead, in addition to its causes of action already represented in the pleadings, were not new causes of action.  Rather, they were pre-existing causes of action newly acquired from the 2^nd to 4^th plaintiffs.  The fact that they were newly acquired did not mean that they were new causes of action.  They were the same causes of action which the 2^nd to 4^th plaintiffs sued on when the writ was issued.  What has happened is that they have been assigned to the 1^st plaintiff. 

8. That this is the correct analysis is supported by a whole line of English authorities.  In Industrie Chimiche Italia Centrale v Alexander G Tsavliris & Sons Maritime Co (“The Choko Star”) [1996] 1 WLR 774, Mance J (as he then was) allowed an application to substitute a new plaintiff under Order 15, rule 7 of the then Rules of the Supreme Court (which is equivalent to Order 15, rule 7 of the Rules of the High Court, Cap 4A) and the consequential amendments of pleadings under Order 20, rule 5, following the merger of the original plaintiff by incorporation into a larger Italian company which by law automatically succeeded to the rights and obligations of the dissolved company.  The judge allowed the larger company to be substituted as the new plaintiff and rejected the argument that as the merger took place after the expiry of the limitation period, the substitution should be disallowed.  After a detailed analysis of the relevant provisions in the Rules of the Supreme Court as well as section 35 of the Limitation Act 1980 (on which section 35 of the Limitation Ordinance, Cap 347 is based), the learned judge concluded that the merger and automatic succession by the new company gave rise to no new cause of action and thus the limitation point was wholly irrelevant.  At page 785F/G to H, the judge said:

“ Returning to the scheme of the rules of court, I conclude that the type of situation covered by Ord. 15, r. 7 is one for which the rules would naturally be expected to cater, and that in this context it should be irrelevant whether or not the limitation period had expired prior to the assignment, transmission or devolution in question. All that should matter is that the original litigation was commenced in time. In my view the wording of Ord. 15, r. 7 is in these respects expressed in precisely the way that one would expect. It is apt to cover any change necessary as a result of any such assignment, transmission or devolution at any stage in proceedings. Not only is there no restriction in this language, read literally. Any restriction by reference to the limitation makes absolutely no sense and would lead to major absurdities, as in the present and many other cases which can be envisaged. …”

9. Mance J’s analysis was adopted by the Court of Appeal in Yorkshire Regional Health Authority v Fairclough Building Ltd [1996] 1 WLR 210, which involved the statutory replacement of a regional health authority by a new one and the vesting of the cause of action of the replaced authority in a trust.  The Court of Appeal allowed an application to join the trust as plaintiff and for the proceedings to be carried on as if the trust had been substituted for the original plaintiff.  At page 215C to E, Millett LJ (as he then was) said:

“ Ord. 15, r. 7 does not contain, and none of its predecessors ever has contained, any reference to limitation. This is as it should be, since the circumstances in which the rule may be invoked do not give rise to any question of limitation. Even though the rule permits a new party to be substituted for an original party, this does not involve a new cause of action; the new party is substituted because he has succeeded to a claim or liability already represented in the action and sues or is sued in respect of the existing cause of action. The substitution of the successor does not deprive the defendant of an accrued limitation defence. There is no good reason why the substitution should not be made at any stage of the proceedings and whether a relevant period of limitation has expired or not; the expiry of the limitation period is completely irrelevant.”

10. Evans LJ was of the same view.  He explained (at page 221B/C to E):

“ When a litigant dies, or becomes bankrupt, the litigation does not cease, unless the cause of action is personal to him. It may be carried on by his personal representatives, or his trustee in bankruptcy, in their own names. There is, not surprisingly, provision in the Rules of the Supreme Court for the change in the identity of the party to be duly made: R.S.C., Ord. 15, r. 7. A corporate plaintiff does not die, but it may cease to exist. A particular example is when the corporation, which is a creature of statute, is terminated by statute and its rights and liabilities are transferred to some other person. When that occurs, the new person may become a party to pending proceedings in place of the old.

Although the identity of the party changes, the nature of the claim does not.  It is, in legal terms, the same cause of action as it was before.  There is no question of a new claim or cause of action being asserted, even though in the particular circumstances the claim is being made by a different person.  Because it is the same cause of action, there is no scope for a limitation defence.  The defendant cannot say that the time for bringing proceedings has expired when the new claimant replaces the old, because the essential point is that no new claim is being put forward.”

11. In Roberts v Gill & Co [2011] 1 AC 240, which involved a beneficiary of an estate bringing proceedings in his personal capacity and subsequently seeking to amend after the expiry of the limitation period to continue the proceedings additionally as a derivative action on behalf of the estate, Lord Walker referred to both The Choko Star and Yorkshire Regional Health Authority with approval.  In paragraph 104, Lord Walker pointed out that :

“ In the ordinary case of a simple assignment or transmission of a cause of action after proceedings have been commenced, no question of limitation arises.”

12. No question of limitation arises because no new cause of action is created in an assignment, transmission or devolution.  If it had been otherwise and a new cause of action were created, then as was pointed out during argument, a new period of limitation would arise every time an assignment was made, which cannot be right.

13. In the present case, since the assignee, that is, the 1^st plaintiff, was already a party to the action, no “new party” as such was sought to be introduced to the action by the amendments.  But this does not detract from the fact that one was, in substance, concerned with a substitution of parties, that is, the substitution of the 1^st plaintiff for the 2^nd to 4^th plaintiffs in relation to the latters’ causes of action against the defendants already pleaded in the amended statement of claim.

14. Therefore, the English cases cannot be distinguished on the footing that they dealt with the situation of a substitution of parties under Order 15, rule 7, whereas the present amendments were sought only under Order 20, rule 5 governing amendment of pleadings.

15. Neither can the English authorities be distinguished on the basis that they were concerned with limitation periods and the interpretation of section 35 of the Limitation Act, whereas the defendants, in opposing the amendments, did not place any reliance on section 35 or the expiry of limitation period as such – what they relied on was simply the rule in Eshelby.  In both cases, the question of whether a new cause of action which had only accrued post-writ was sought to be introduced into the proceedings was of crucial importance.  

16. Nor can any valid distinction be drawn between a voluntary and an involuntary assignment or transmission by operation of law. It is plain from the analysis above that nothing turns on whether the succession in title is a voluntary one or is one imposed by law following death, bankruptcy, merger, dissolution and so forth.

Two local decisions

17. The defendants relied on Telecommunications & Technology Asia (BVI) Ltd v Outblaze Ltd, HCA 2541/2009, 13 May 2011.  In that case, the court was faced with a purported derivative action by a shareholder of the 2^nd defendant company, against the alleged wrongdoer, the 1^st defendant. The plaintiff, as the court pointed out, actually had no locus at all to bring the derivative action (para 9).  After the commencement of proceedings, it obtained from the company an assignment of the company’s own cause of action against the alleged wrongdoer.  It therefore sought leave to amend the pleadings to rely on the company’s cause of action against the 1^st defendant as the company’s assignee.  The application was refused.  The court decided the case on the basis that the statement of claim, which was defective for want of locus, could not be cured by the addition of a plea of a necessary factual averment by way of amendment that could not be pleaded as at the date of the writ (because the assignment only took place post-writ): paras 18 and 19.  

18. The court went on, however, to comment on whether the assignment gave rise to a new cause of action:

“22.  I accept that the 2^nd Defendant’s cause of action against the 1^st Defendant was complete prior to the issue of the Writ. However, by the proposed amendments to the Statement of Claim, the Plaintiff is no longer seeking to assert a cause of action belonging to the 2^nd Defendant, but is seeking to advance a cause of action vested in itself by the Deed of Assignment which was not available to it as at the date of the issue of the Writ.

23.  In Letang v Cooper [1965] 1 QB 232, referred to by Ma J in Wing Siu Co Ltd at paragraph 21 of his judgment, it was said that a cause of action  meant ‘simply a factual situation the existence of which entitles one person to obtain from the Court a remedy against another person’.  The Deed of Assignment is a fact or matter which is essential to the cause of action which the Plaintiff now seeks to assert by way of amendment, but not to the cause of action previously vested in the 2^nd Defendant which the Plaintiff sought to assert in the original Writ and Statement of Claim.  The original cause of action belonging to the 2^nd Defendant is not something which the Plaintiff had locus to assert at the time of the issue of the Writ, and the current cause of action vested in the Plaintiff is something which had not yet accrued as at the date of the Writ.”

19. Telecommunications & Technology Asia (BVI) Ltd should be regarded as having been decided on the basis that the original cause of action was defective and the amendments sought pleaded essential facts to cure the defect which were, however, non-existent at the time of the issuance of the writ.  This is wholly distinguishable from the situations dealt with in the English authorities as well as the situation faced by the court in the present case.  That is, the cause of action as originally pleaded in the statement of claim, which was subsequently succeeded to whether by way of assignment or transmission, was perfectly in order when proceedings were commenced.  One is not concerned with any attempt to cure a defective cause of action by pleading events that happened post-writ. 

20. However, in so far as the analysis by the court in the passage quoted above went beyond what has been explained in the English authorities, it should not be followed. 

21. Another case relied on by the defendants, namely, Chan Yuen Yee v Chan Chuck Kwong [2005] 2 HKLRD 416, should be mentioned.  In that case, the plaintiff, on the strength of a charging order, sought an order for the sale of a property jointly owned by two defendants.  After commencement of proceedings, the 1^st defendant assigned his interest in the property to the plaintiff, and the plaintiff applied to amend the pleadings to seek a sale under section 6 of the Partition Ordinance, Cap 352. Relying on the rule in Eshelby adopted in the Court of Appeal decisions mentioned above, the court disallowed the amendment on the premise that the relevant cause of action did not exist when the proceedings began (para 5).  In other words, the court proceeded on the basis that the plaintiff was seeking to introduce a new cause of action. 

22. That premise was, with respect, false.  As co-owner, the 1^st defendant’s right under section 6 to apply for an order of sale pre-existed the commencement of proceedings.  Its assignment to the plaintiff post-writ did not give rise to a new right or new cause of action. The rule in Eshelby was simply not engaged.  This case should no longer be followed. 

Conclusion

23. Indeed I am glad to see that the above analysis represents the correct legal position.  If it were otherwise, then where, as here, the limitation period has already expired, a post-writ succession may lead to most absurd and unfair results.  In other words, even though the original cause of action was brought within time, as a result of the post-writ succession, the successor cannot be substituted for the original plaintiff in the existing action, nor can he start a new action of his own due to the limitation period.  On the other hand, the original plaintiff, of course, no longer has the title to sue after the succession.  As Mance J pointed out in The Choko Star at page 783D/E to E/F:

“ If the expiry of the limitation period were relevant under Ord. 15, r. 7, then the misfortune of the death or bankruptcy of a plaintiff just after the expiry of the limitation period would deprive his successors of any benefit from the action. That is quite apart from the apparent suggestion in the present defendants’ summonses that the costs of the litigation would then fall on his solicitors.”

24. For these reasons, I was with the 1^st plaintiff on its first point.  In other words, there was no automatic bar to the application to amend.  Whether to allow the amendments therefore became a discretionary matter and it fell to this court to exercise the discretion.  Having considered the relevant circumstances, I took the view that the amendments sought should be allowed as a matter of discretion.  The defendants did not suggest otherwise.

25. For these reasons, it became unnecessary to deal with the fallback position of the 1^st plaintiff, which involved inviting this court to depart from its previous decisions.  In any event, given the court’s firm view on the first point, whatever we might say in relation to the previous decisions would be bound to be obiter in nature.  That would not be a desirable premise for a discussion on whether previous decisions of the Court of Appeal should be departed from.  In those circumstances, I express no view on the second point. 

Outcome

26. The appeal was therefore allowed and the order below set aside. We gave leave to amend.  As for costs, they should follow the event notwithstanding the inter-solicitors correspondence shown to us towards the end of the hearing.  The defendants got what they had asked for in the correspondence as conditions for consenting to the application to amend at the hearing below, but they did not withdraw their opposition to the amendments. Accordingly, we gave the costs of the appeal (together with a certificate for two counsel) as well as the costs of the hearing before the deputy judge to the 1^st plaintiff; but subject to that, the costs of and occasioned by the application to amend and the costs of the consequential amendments shall be paid by the 1^st plaintiff to the defendants.

Hon Yuen JA:

27. I agree.

Hon Bharwaney J:

28. I agree with the judgment of the Chief Judge.