YANG LONG SHAN v. CHAN HAU KONG AND OTHERS

HCA 1265/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1265 of 2011

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D E C I S I O N

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1.  There are two matters before the court. First, an appeal by the plaintiff against an order of Mr Registrar Lung dated 5 June 2015 in which he acceded to two applications by the 1^st and 2^nd defendants (“D1 & D2”) firstly, to strike out the plaintiff’s statement of claim (“SOC”) and secondly, to dismiss the plaintiff’s application to amend the statement of claim. The plaintiff’s statement of claim was dated 26 July 2011. The summons to amend it (the “first amendment”) was dated 21 May 2015.

2.  The second matter before this court is another application to amend the statement of claim (the “second amendment”).  It is dated 4 November 2015.

3.  In the briefest of terms the statement of claim was struck out on the basis that it fell foul of section 24 of the Money Lenders’ Ordinance (“MLO”), Cap 163. The proposed amendment was disallowed on the basis that it amounted to an attempt to circumvent the provision of the MLO.  The underlying allegations remained the same and were unlawful.  If the agreement was illegal and unenforceable late applications to dress it up as a different cause of action would not be permitted.

4.  As for the two matters to be resolved by this court, it was helpfully agreed that the application for a second amendment should be heard first.  It was also helpfully agreed that, in the circumstances of this case, the court’s decision on that matter would determine both matters.  In short, submissions were made on the basis that if the amendments were not allowed the appeal would be dismissed.  Mr Raymond Fong, counsel for the plaintiff acknowledged that the only basis upon which he could pursue his claim was on the basis of the second amendment.  Thus, if the second amendment is granted the appeal will be allowed, on that basis.

Background

5.  There are factual complexities in the history of this matter.  Many matters are disputed.  The resume which follows therefore is no more than a précis of the plaintiff’s claim as set out in the SOC.

6.  The SOC refers to three agreements: “the initial loan agreement”, “the revised loan agreement” and “the 2^nd agreement”.  Viewed as a whole the plaintiff claims that D1 & D2 borrowed $37,400,000 from the plaintiff in May 2009 plus $12,600,000 interest.

7.  Taken step by step the “initial loan agreement” was that the plaintiff would lend D1 & D2 $25 million.  This was to be repaid within one month plus, within three months, shares in Asia Resources to the value of $25 million were to be given to the plaintiff.  Additionally, 400 million shares in Asia Pacific were to be registered in the plaintiff’s name as security for the loan.

8.  Two days later the “loan agreement” was “revised”.  The sum to be borrowed was increased to $37.4 million.  The other terms remained the same save that the number of shares in Asia Pacific to be given to the plaintiff within three months also increased to $37.4 millions worth.

9.  When the principal was not repaid within one month (and no security provided) the 2^nd agreement, dated 3 July 2009, was made.  D1 & D2 agreed to pay $12.6 million interest making the total sum due $50 million.  Half was to be repaid by 10 July 2009, the other half by 10 September 2009.  In addition the plaintiff was to receive $37.4 millions worth of shares in a Hong Kong listed company.

10.  The money was to be used for the purchase of 400 million shares in Asia Resources from a Mr Chim.  Apart from the fact of him being named, Mr Chim has played no part in this litigation.  He has never been a party, nor as far as I am aware has he been a party in any parallel proceedings, nor has he ever made a witness statement or been asked to do so.  In short, D1 & D2 deny that the plaintiff’s money was ever received by them, rather it went to Mr Chim.  Regardless of this however, it is agreed that up to 7 April 2010 D1 & D2 made partial repayments to the plaintiff in the total sum of $22,038,744.  Thus a shortfall on the principal ($37.4 million) of $15,361,256 remains outstanding.

11.  This is the sum claimed by the plaintiff.  Mr Fong informed the court that this represents the totality of the claim.  However, the proposed amendment also seeks “damages for conspiracy”.

12.  In outline the defence case is threefold.  First, a denial that D1 & D2 were parties to the three “loan” agreements with the plaintiff.  Secondly, any purported repayments to the plaintiff were as a result of duress.  Thirdly, the three agreements (and subsequent agreements) contravened section 24 of the MLO and were therefore illegal, of no effect and unenforceable.

13.  Before turning to the applicable legal principles to be followed in an application to amend pleadings a further factual matter should be noted.

14.  In his written submissions Mr Kenny Lin, counsel for D1 & D2 set out the arithmetic demonstrating the significant breaches of section 24 of MLO based on the alleged facts of the plaintiff’s pleaded case.  There has been no serious challenge to either the method or the figures of the arithmetic. Consequently, and neither was this seriously challenged, the original claim presented the plaintiff with an insurmountable uphill task.  The success of this “second amendment” application was therefore essential to the continuation of his claim.

Applicable principles

15.  20/8/28 of the Rules of the HighCourt (“RHC”) states:

“Since the introduction of the precondition under r.8(1A) by the Civil Justice Reform, the court will only allow an amendment to a pleading to introduce a new case under exceptional circumstances, when it is satisfied that such proposed amendment is necessary either to dispose fairly of the cause or matter or for saving costs.”

16.  It cannot be denied that, in the present application, the plaintiff seeks to introduce a “new case”.  The new case is a case of fraudulent misrepresentation, not pleaded as a cause of action hitherto.  The underlying facts and the underlying areas of dispute however remain substantially unchanged.

17.  As to the question of delay RHC 20/8/21 states:

“Although pure undue delay is not enough to bar an application to amend a pleading, if, taking into account the delay which is likely to be caused by the amendment, the court is not satisfied that the proposed amendment is necessary either to dispose fairly of the cause or matter or for saving costs (r.8(1A)), an order for the proposed amendment will not be granted.”

18.  There has plainly been delay in this matter.  The application before the court has only been made after an earlier application was refused by Mr Registrar Lung which itself was unduly late.  All that can really be said in the plaintiff’s favour on the question of delay is that the matter has not yet been set down for trial.  Delay, nonetheless, is clearly a matter to be taken into account.

19.  The application of the principles was considered in some detail by DHCJ Marlene Ng in DBS Bank (HK) Ltd v Sit Pan Jit, HCA 382/2009 when, by reference to an earlier case, observed as follows:

“… the principles under which the court exercises [its] discretion to allow or refuse amendments of pleadings in Ketteman v Hansel Properties Ltd “remain good law after the CJR”. The principles in Ketteman have been summarised by DHCJ Lok as follows:

‘(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.’

However, the learned judge said he ‘must put a caveat here’:

‘16. …… 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.’ ”

20.  In support of the second application to amend the plaintiff relies on his 3^rd affirmation dated 2 November 2015.  Mr Lin, on behalf of D1 & D2, opposes its admission.  I have considered its contents de bene esse.

21.  Order 58(1)(5) provides that:

“No further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal under this rule except on special grounds.”

22.  The commentary explains that “special grounds” requires the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 which are that:

(1) the evidence could not have been obtained with reasonable diligence for use at the hearing below;

(2) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(3) the evidence must be such as is presumably to be believed.

23.  In response Mr Fong makes two submissions.  First, that Order 58 only applies to appeals from a Master. He submits that this is not an appeal from a Master, it is a fresh application to amend pleadings.  The reality of course is that it is an appeal from a Master by way of an application to amend.  The parties have agreed that if the amendment is allowed the appeal succeeds; if it is not allowed the appeal fails.

24.  Secondly, Mr Fong submits that the affirmation is not an attempt to adduce “new” evidence.  He describes it as an explanation why the new cause of action, “fraudulent misrepresentation”, had not been pleaded earlier.  His written submission states:

“… There should be no surprise that, because of P’s misconception, his misunderstanding would show through his previous witness statement, affirmation and pleadings. The reason why P had the misconception has been clearly explained in P’s 3^rd Affirmation.”

Discussion

25.  With all the above in mind and for the particular reasons listed below I have come to the conclusion, not without some difficulty, that this second application to amend shall be refused.

26.  Put at its simplest the criticism of the amended SOC is that, on the one hand it is a completely new cause of action, namely fraudulent misrepresentation, which carefully excises all references to “loans” so as to avoid the insurmountable difficulty presented by section 24 of MLO.  On the other hand the events which form the basis of the claim remain substantially the same.  What was described as a “loan” is now described as an “investment scheme” into which the plaintiff was induced by fraud.  It should not be forgotten that this is the third attempt to formulate a claim out of the same or similar set of facts.  In the first amendment application, rejected by Mr Registrar Lung, the breach of a loan contract was redrafted into a restitution claim for money had and received together with an inadequately pleaded conspiracy claim.  The factual basis was still the “revised loan agreement”.

27.  The plaintiff’s 1^st affirmation and SOC were verified, as required by the Civil Justice Reform, by Statements of Truth.  He verified his claim that the loan of $37,400,000 was to be repaid in full together with shares in Asia Resources of an equivalent value, all by certain dates.  Now it is described, also verified as true, as an investment scheme in which he funded certain share acquisitions which, if unsuccessful, would mean merely that he would get his money back but no more.  His revised revision of event, in particular that he would simply get his money back if the share acquisition was unsuccessful, must have been a version which was always known to him.  And yet it first appears six years after the event.  In fact there is nothing in the second revised version which would not have been known before the original SOC was served.

28.  Clearly a loan and an investment scheme are very different.  There is an element of risk in the latter but not the former.  It is somewhat disingenuous to pursue the matter on the latter basis only after the former basis has been struck out.

29.  Further criticism of the latest version include the following two matters: First, the plaintiff’s reliance on evidence of tape recorded conversations is inconsistent.  In his 1^st affirmation, dated 27 May 2014, he recites several parts of the conversation and concludes by affirming that:

“The whole conversation recorded on 3^rd July 2009 also clearly showed that the sum of HK$37,400,000 was lent to the 1^st and 2^nd Defendants and it had nothing to do with any business co‑operation …”

30.  This would appear to be inconsistent with his present claim.  However, Mr Fong, in his submission to the court, places reliance on the taped recordings as evidence that:

“… it can be seen that the conversation between them indicated that P’s participation in Ds’ share purchasing in Hong Kong was intended to be a long‑term association.”

and

“… it can be seen that the money transaction was a kind of investment because the return of P’s provision of the share acquisition funding was dependent on whether the share acquisition was successful and/or the performance of the shares purchased.”

31.  Secondly, Mr Fong submits that whilst the defendants have attacked the plaintiff’s new reliance on an investment scheme rather than a loan, they have not answered the plaintiff’s new ground of fraudulent misrepresentation.  Mr Lin’s response, with which I agree, is twofold.  First, the more serious the new ground the sooner it should have been made.  As alluded to earlier in this decision, as a ground of claim, it may properly be described as particularly serious and particularly late.  DHCJ Muttrie said in Dias Sandra Mary Elizabeth v Cathay Pacific Airways HCA 2372/2002 at p 12:

“… there may be difficulty if there is ground for believing that the application is not made in good faith. Thus, if either party seeks to amend by introducing for the first time allegations of fraud, misrepresentation or other such serious allegation, the court will ask why this was not pleaded originally, and may require to be satisfied as to the truth and substantiality of the proposed amendment.”

32.  Secondly, it seems that, by virtue of para 14A of the proposed amendment to the SOC, the plaintiff relies, in support of the fraud claim, on a telephone conversation with Mr Chim in July 2009.  There is no evidence from Mr Chim and the conversation pre‑dates the pleading by six years.

33.  In conclusion, as a general proposition the holdings in Tong Kun Hung v Autron Maritimes Cong [2010] 1 HKLRD 77 are applicable to the present case.  Rogers V‑P held, inter alia, that:

(1) A statement of truth might not be an affidavit or an affirmation but the Rules themselves treated it with similar seriousness.

(2) Where it had been demonstrated that a pleading should never have been verified by a statement of truth, the court should be very slow to permit any amendment to that pleading.

(3) The pleading was so defective that it was not a matter of simple amendment, but of reconstituting any claim.  Accordingly, having broken faith with the court by failing to observe what was now a fundamental rule designed to achieve the objectives of the court process, the plaintiff was in no position to seek the indulgence of being allowed to reconstitute the present action rather than having to start anew.

Decision

34.  The plaintiff’s application to amend the SOC is refused and, accordingly, the appeal is dismissed with costs, to be taxed if not agreed.