TAO, SOH NGUN v. HSBC INTERNATIONAL TRUSTEE LTD

HCA 3246/2016

[2018] HKCFI 380

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3246 OF 2016

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REASONS FOR DECISION

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A. INTRODUCTION

1.  On 22 December 2017, the plaintiff issued a summons applying for: -

(1)   leave to further amend the Re-Amended Statement of Claim (“RASOC”) in the form of the draft Re-Re-Amended Statement of Claim (“Draft RRASOC”) attached to the summons (“Amendment Application”); and

(2)   a direction that there be a split trial in this action (“Split Trial Application”).

2.  In summary: -

(1)   The defendant opposes the Amendment Application on the basis that the plaintiff’s proposed amendments introduce post-writ materials which have the effect of introducing new causes of action that did not exist at the time when the writ was issued, and that is impermissible.

(2)   As to the Split Trial Application, the defendant considers that whether a split trial is appropriate in this action depends to a large extent on the outcome of the Amendment Application, which if allowed is likely to lead to a significant expansion in the scope of the expert evidence required.  Therefore, the Split Trial Application has to be considered in light of the Court’s decision on the Amendment Application.

3.  At the conclusion of the hearing, I dismissed the Amendment Application and allowed the Split Trial Application.  The reasons are set out below.

B.  THE RELEVANT FACTUAL BACKGROUND

4.  An overview of the parties’ respective cases has been succinctly set out in paragraphs 2 to 20 of Chow J’s Decision in this action dated 12 January 2018 ([2018] HKCFI 33), to which I refer.

5.  For the purpose of the Amendment Application, it is pertinent to note the events leading up to the present action, which has been summarised by the defendant in its Skeleton Submissions as follows: -

(1)   On 4 January 2016, the defendant received a letter from a law firm enclosing a letter of wishes signed by the plaintiff (“Jan 2016 Letter”). The Jan 2016 Letter was materially different from the 1988 Letter of Wishes. It purported to direct the defendant to forthwith divide the trust fund into 1,000 “voting shares” to be held according to the share allocation stipulated in the attached distribution table, and to accede to the wishes and instructions supported by 51% of the 900 voting shares allocated to the Children. This is in contrast to the provisions of the 1988 Letter of Wishes, which requested (in expressly non-binding terms) the defendant to divide the trust fund into 1,000 shares only after the death of both Mr Lo and the plaintiff, and to accede to the wishes and instructions of those beneficiaries whose shares aggregate not less than 600 out of the 900 shares allocated to the Children.

(2)   On 24 February 2016, whilst the defendant was still seeking to communicate with the plaintiff to clarify the requests in the Jan 2016 Letter, the defendant received another letter of wishes issued by the plaintiff purporting to revoke the Jan 2016 Letter and requesting the defendant to distribute the entire trust fund to her or such entity as she may direct (“Feb 2016 Letter”). 

(3)   On 8 April 2016, the plaintiff issued another letter to the defendant requesting the defendant to utilise the available funds in the Lo Family Trust (“Trust”) to purchase 20,000 shares in Great Eagle Holdings Limited (“Great Eagle”)per day from the market at a price not higher than HK$29 per share (“Apr 2016 Letter”).

(4)   On 12 May 2016, the plaintiff during a meeting with the defendant presented a letter to the defendant which stated, inter alia, that the plaintiff requested the defendant to accede to her request stated in the Feb 2016 Letter for the defendant to distribute the entire trust fund to her or such entity as she may direct (“May 2016 Letter”).

(5)   On 21 September 2016, the plaintiff issued a letter to the defendant, which was subsequently forwarded to the defendant by the plaintiff’s former solicitors on 3 October 2016, requesting the defendant to include Mr Lo Ka Shui (“KS”) and Mr Lo Ying Sui (“Archie”) as members of the “Excluded Class” of the Trust (“Sep 2016 Letter”).

(6)   Having communicated and met with the plaintiff and considered other relevant matters, the defendant decided that it was not appropriate for it to give effect to the plaintiff’s requests as stated in the above letters.  the defendant also reached the view that it could not continue to exercise its powers and discretions to administer the Trust in accordance with the existing terms of the Trust Deed and that some changes to the Trust would be beneficial to the beneficiaries as a whole.  As such, the defendant formulated and proposed certain options for the restructuring of the Trust and embarked on a consultative process with the beneficiaries in that regard.

(7)   However, before that process could be completed, this action was commenced by the plaintiff on 9 December 2016. 

6.  In the RASOC, the plaintiff alleges that the defendant had committed the following breaches of duty in administering the Trust:

(1)   The defendant failed to properly consider, respond promptly to or implement the plaintiff’s requests as stated in the “2016 Letters”, ie the Jan 2016 Letter, the Feb 2016 Letter, the Apr 2016 Letter, the May 2016 Letter, and the Sep 2016 Letter.

(2)   The defendant placed itself in a position where its personal interest or interest in another fiduciary capacity conflicted with its duties as trustee of the Trust by acting as trustee of a discretionary trust of which KS was the founder, and such conflict had arisen by the time the plaintiff issued the 2016 Letters.

(3)   The defendant acted for improper purposes, capriciously and/or failed to act impartially in the administration of the Trust by favouring KS’s interests over that of the plaintiff and other beneficiaries of the Trust by:

(a)   failing to purchase shares in Great Eagle in accordance with the Apr 2016 Letter;

(b)   putting forward and insisting on pursuing the defendant’s proposals in 2016 to restructure the Trust;

(c)   failing to exercise voting powers at the Annual General Meeting of Great Eagle on 10 May 2017; and

(d)   failing to act in accordance with the plaintiff’s wishes as set out in the 2016 Letters.

7.  By the Amendment Application, the plaintiff seeks to introduce the following additional matters to her pleading:

(1)   The plaintiff issued a letter to the defendant on 19 December 2016 (“Dec 2016 Letter”) requesting the defendant to, during the 3-month period from the date of the Dec 2016 Letter, utilise the available funds of the Trust to purchase 200,000 shares in Great Eagle per day from the market at a price not higher than HK$38 per share.

(2)   The plaintiff issued a letter to the defendant on 27 July 2017 (“July 2017 Letter”) requesting the defendant to, during the 6-month period from the date of the July 2017 Letter, utilise the available funds of the Trust to purchase 300,000 shares in Great Eagle per day from the market at a price not higher than HK$50 per share.

(3)   The plaintiff issued a letter to the defendant on 4 September 2017 (“4 Sep 2017 Letter”) stating that it had come to her knowledge that someone had sent the defendant a letter allegedly signed by her in an attempt to invalidate her wish to include KS and Archie as members of the Excluded Class of the Trust, and stating that she would confirm her instructions as stated in the Sep 2016 Letter and request the defendant to comply with them.

(4)   The plaintiff issued a second letter to the defendant on 4 September 2017, stating that the defendant should comply with her instructions in dealing with the assets of the Trust, including using such assets for any charitable purposes.

(5)   The plaintiff issued a letter to the defendant on 27 September 2017 (“27 Sep 2017 Letter”) instructing the defendant to include Ms Nina Law Wai Duen (“Nina”), Mr Lo Hong Sui (“Vincent”), KS and Archie as members of the Excluded Class of the Trust, and reiterating her request for the defendant to distribute the entire trust fund to her.

(6)   The plaintiff issued a letter to the defendant on 7 December 2017 (“Dec 2017 Letter”) requesting the defendant to utilise the available funds of the Trust to purchase shares in Great Eagle until the Trust’s shareholding in Great Eagle exceeds 40% in order to ensure that the Trust’s position as the single largest shareholder of Great Eagle and its controlling stake in Great Eagle can be maintained.

(7)   The defendant failed to properly consider, respond promptly to or implement the plaintiff’s requests as stated in the “2016/2017 Letters”, including the Dec 2016 Letter, the July 2017 Letter, the 4 Sep 2017 Letter, the 27 Sep 2017 Letter and the Dec 2017 Letter.

(8)   The defendant’s conflict of interest had arisen by the time the plaintiff issued the 2016/2017 Letters (as an alternative case to the original pleading that the defendant’s conflict of interest had arisen by the time the plaintiff issued the 2016 Letters).

(9)   The defendant acted for improper purposes, capriciously and/or failed to act impartially in the administration of the Trust by favouring KS’s interests over that of the plaintiff and other beneficiaries of the Trust by:

(a)   failing to purchase shares in Great Eagle in accordance with the Dec 2016 Letter, the July 2017 Letter and the Dec 2017 Letter;

(b)   failing to act in accordance with the plaintiff’s wishes as set out in the 2016/2017 Letters.

(10)   The plaintiff claims (a) loss of profits and (b) loss of value of the Trust’s aggregate shareholding in Great Eagle as a result of the defendant’s failure to purchase shares in Great Eagle in accordance with the plaintiff’s requests in the Dec 2016 Letter, the July 2017 Letter and the Dec 2017 Letter.  Further, in the Prayer for Relief, the plaintiff seeks injunctive or other relief as may be necessary to procure the defendant to take proper and serious account of the “2016/2017 Letters”.

C.  THE AMENDMENT APPLICATION

C1. Relevant legal principles

8.  It has long been said a Statement of Claim cannot, without the defendant’s consent, be amended to include post-writ matters where the effect of the amendment is to add a cause of action which had only accrued since the issue of the writ.  This is often referred to as the rule in Eshelby v Federated European Bank Ltd [1932] 1 KB 254.

9.  The practical purposes served by the Eshelby rule was explained in Moscow Narodny Bank Ltd v Wong Wing Cheung Edward [1981] HKC 416, at 422B-C (per Liu J): -

“… All rules of practice are primarily designed to ensure fair play, eliminate prejudices and improve efficiency. This rule of practice in litigation is no exception. Its unchecked relaxation would likely cause an inundation of the registry with premature writs, encourage molestation of most contingent obliges, invite unwarranted harassing or protective litigation and create unnecessary nuisance or anxiety. There is every conceivable reason for this deep-rooted rule of practice to be more jealously guarded.”

10.  The Eshelby rule (which is a rule of practice) has been applied by the Court of Appeal in Lark International Finance Ltd v Lam Kim Marisa [2000] 4 HKC 688 (CA), at 699C-700A (Keith JA).

11.  In view of the emergence of some English authorities which appeared to cast doubt on the Eshelby rule, the matter was considered by the Court of Appeal in Wing Siu Co Ltd v Goldquest International Ltd [2003] 2 HKC 64: -

(1)   As correctly pointed out by the defendant, the ratio of that case is found in paragraph 17 of Rogers VP’s Judgment, which states that in respect of applications to amend a pleading to include post-writ matters, a distinction should be drawn between (a) “an amendment which allows the real dispute in the case to be determined”; and (b) “one which introduces into the action a cause of action which could be said to be incurably bad because it did not exist at the date of the original claim” (emphasis in bold supplied).  The former is permissible and the latter is not.

(2)   As pointed out by the defendant, Rogers VP considered the English authorities which appeared to cast doubt on the Eshelby rule, and found that:

(a)   Vax Appliances Ltd v Hoover plc [1990] RPC 656 at 661, line 50 (Mummery J) was decided on the basis that the amendment was permissible because it did not constitute a new cause of action;

(b)   Hendry v Chartsearch Ltd [1998] CLC 1382 at 1389B (Evans LJ), likewise, concerned a situation where “[t]he purpose of the re-amendment is to specify the reason why the plaintiff alleges that he is entitled to bring the claim.  The cause of action remains the same”; and

(c)   Maridive & Oil Services (SAE) v CNA Insurance Co (Europe) Ltd [2002] 2 Lloyd’s Rep 9involved the drawing of the distinction explained by Rogers VP at paragraph 17 in Wing Siu, ie that it is permissible to plead post-writ matters which allows an existing cause of action to be determined, but impermissible to plead post-writ matters for the purpose of introducing a new cause of action which did not exist as at the date of the writ.

(3)   Rogers VP concluded at paragraph 18 of Wing Siu: “In the light of those cases it cannot be said that the original rule in the Eshelby case has disappeared.  The courts in England have clearly been disposed to adopt a more flexible attitude, specifically, where they have permitted the pleading of subsequent events which clarify why a claim could be made based on a cause of action which existed at the date of the issue of the writ.  No decision has been brought to our attention which has gone so far as permitting, in the face of opposition, an amendment which would introduce into a writ a cause of action which simply did not exist at the date of the issue of the writ.” (emphasis in bold supplied)

12.  It is therefore clear from Wing Siu thatwhilst it may be permissible to amend a pleading to add post-writ matters where the effect is merely to clarify the basis of an existing cause of action that had already accrued at the time when the writ was issued, it is not permissible to plead post-writ matters so as to introduce into the proceedings a cause of action that did not exist at the time when the writ was issued.

13.  Subsequently, in Chan Yuen Yee v Chan Chuck Kwong [2005] 2 HKLRD 416, Deputy High Court Judge Saunders carefully reviewed the relevant authorities again, and concluded at paragraph 14 of his judgment that Wing Siu was binding authority for an “absolute prohibition” against amendments which introduce a cause of action which has only arisen following the issue of the writ.  Further, at paragraph 16 of his judgment, Deputy High Court Judge Saunders helpfully pointed out that when Rogers VP made a reference to “incurably bad” at paragraph 17 of Wing Siu, Rogers VP was of the view that the “new cause of action” was incurably bad because it did not exist at the time of the issue of the writ, rather than a situation where the original writ contained an “incurably bad” cause of action.

14.  Wing Siu was also applied in Cheung Hon Wah v Cheung Kam Wah [2005] 2 HKLRD 599 at paragraphs 39 and 40 (Barma J, as he then was), in the context of a petition for unfairly prejudicial conduct; Asia-Pac Infrastructure Development Ltd v Shearman & Sterling [2012] 3 HKLRD 321 (CA) at paragraph 4 (Cheung CJHC); and Re PM [2014] 6 HKC 256 at paragraphs 28 to 32 (P Li J), in the context of an application for judicial review. 

15.  In view of the above, I agree with the defendant that the principles governing amendments to introduce post-writ matters as enunciated in Wing Siu remains good law and binding on this court.  I consider myself bound by the Court of Appeal’s decision in Wing Siu, in that, in the face of opposition by the defendant, it is not permissible for the plaintiff to plead post-writ matters so as to introduce into the proceedings new causes of action that did not exist at the time when the writ was issued.

C2. Whether the Amendment Application introduce new causes of action

16.  As pointed above, the plaintiff’s proposed amendments relate to a number of letters issued by her to the defendant in December 2016 and from July to December 2017, whereby she made various different requests to the defendant: -

(1)   Whilst the Dec 2016 Letter, July 2017 Letter and Dec 2017 Letter all involved requests for the defendant to purchase more Great Eagle shares, each of those requests were separate and were made (a) at different times and (b) on different terms (as to when, at what price and to what extent to purchase shares).  In particular, for the Dec 2017 Letter, rather than requesting the defendant to purchase a particular quantity of shares at a particular maximum price within a particular period of time, the request made in this letter was for the defendant to purchase Great Eagle shares until the Trust’s shareholding in Great Eagle exceeds 40%.

(2)   As for the 4 Sep 2017 Letter and the 27 Sep 2017 Letter, although they both involve requests to add certain individuals to the Excluded Class of the Trust, they are materially different because (a) the 4 Sep 2017 Letter merely sought to confirm the plaintiff’s previous request in the Sep 2016 Letter, (b) but the 27 Sep 2017 Letter comprises an entirely new request to add different individuals (ie Nina and Vincent) to the Excluded Class.

17.  The plaintiff argues that her proposed amendments do not introduce a new cause of action that did not exist at the time of the issue of the writ.  I agree with the defendant that this cannot be right.  In my view, the proposed amendments: (1) introduce new allegations of breaches of duty on the part of the defendant; and (2) are relied upon by the plaintiff as the bases for claiming various new losses and/or relief (see paragraph 7(10) above).  They plainly introduce new causes of action which arose after the issue of the writ. 

18.  Some of the principles relevant to the identification of a “cause of action” can be summarised as follows:

(1)   A “cause of action” comprises every fact which is material to be proved to enable the plaintiff to succeed: see Hong Kong Civil Procedure 2018, Practice Note 15/1/2; Cooke v Gill (1873) LR 8 CP 107, at 116 (Brett J).

(2)   In other words, it is a combination of facts which gives rise to a legal right, ie “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person”: Letang v Cooper [1965] 1 QB 232 at 242-243 (Diplock LJ, as he then was).

(3)   The question of whether an amendment pleads a new cause of action requires a comparison of (a) the duty, (b) the nature and extent of the breaches and (c) the nature and extent of the damage complained of in the original pleading with the proposed amendment [see: Steamship Mutual Underwriting Association Ltd v Trollope & Colls (City) Ltd 33 BLR 77 (CA) at 98 (May LJ)].

(4)   Where a party alleges a new loss, the Court should consider whether that new loss flows from the original breach of duty alleged, or whether it actually flows from another separate breach of duty (in which case the party would be raising a new cause of action).  As explained in Berezovsky v Abramovich [2011] 1 WLR 2290 (CA) at paragraph 63 (Longmore LJ), “If an act of violence constituting a single breach of duty causes the loss of both a cat and a dog, the claimant would not be substituting a new cause of action if he substituted the word “dog” for the word “cat” but would be relying on the original cause of action which had caused loss.  He would be substituting a new loss for the old loss but would not be substituting a new cause of action for the original cause of action.  If on the other hand the claimant was relying on a second and distinct act of violence causing a loss at some different time from the loss originally caused to the cat, he would no doubt be relying on a different cause of action.”(emphasis in bold supplied).

19.  I agree with the defendant’s submission that in the present case: -

(1)   The plaintiff is plainly seeking to allege, by way of her proposed amendments to plead the existence of 5 additional letters signed by the plaintiff and sent to the defendant since the commencement of these proceedings, namely the Dec 2016 Letter, the July 2017 Letter, the 4 Sep 2017 Letter, the 27 Sep 2017 Letter and the Dec 2017 Letter (collectively “the 5 Letters”), that the defendant, having received each of the 5 Letters, was in breach of duty in failing to properly consider, respond or give effect to the requests in each of them.

(2)   As mentioned above, the 5 Letters do not simply reiterate previous requests made by the plaintiff prior to the issue of the writ.  They involve separate and distinct requests, for example, the Dec 2016 Letter, July 2017 Letter and Dec 2017 Letter contain requests to purchase Great Eagle shares at different times and on different terms, and the 27 Sep 2017 Letter comprises a new request to add Nina and Vincent to the Excluded Class. 

(3)   Therefore, it is wrong to regard the plaintiff’s proposed amendments as being merely “instances of the same breaches of duties”.  Each of the 5 Letters, insofar as they are not merely reiterating a prior request, must constitute separate and distinct causes of action involving a different breach and a different loss and/or entitling the plaintiff to different relief.  In respect of each of the letters, the relevant breach of duty alleged is the defendant’s failure to properly consider and implement the specific request made in the letter, and the alleged loss lies in the consequences of that alleged failure to consider and implement the request.

(4)   Accordingly, the plaintiff’s proposed amendments introduce new causes of action (in breach of trust) which have arisen following the issue of the writ on 9 December 2016. 

20.  As analysed above, it is impermissible to plead post-writ facts to introduce new causes of action that did not exist at the time when the writ was issued.  Accordingly, the plaintiff’s Amendment Application must be dismissed.

D.  SPLIT TRIAL APPLICATION

D1. Applicable legal principles  

21.  Order 33, rule 4(2) of the Rules of the High Court provides that one or more questions or issues in any action may be ordered to be tried before the others.  Under this rule, the Court has a wide discretion and is to be exercised where it is just and convenient to do so. Whilst the normal procedure should still be that liability and damages should be tried together, the Court should be ready to order separate trials of liability and damages whenever it is just and convenient to do so (see: Hong Kong Civil Procedure 2018, Practice Note 33/4/11).  In Coenen v Payne [1974] 1 WLR 984 (CA), Lord Denning held at 988F:

“In future, the courts should be more ready to grant separate trials than they used to. The normal practice should still be that liability and damages should be tried together. But the courts should be ready to order separate trials wherever it is just and convenient to do so.

In this case there is a strong point to be made in favour of separate trials. It is the time and expense which will be involved in trying the issue of damages. It will take four or five days to try ...” (Emphasis supplied)

Stamp LJ also held at 990A:

“It is the commonest thing in the world in the division with the practice of which I am most familiar for the question of liability to be determined before the quantum of damages: it is a regular practice to determine liability and then have an inquiry as to damages.”

22.  In Wincheer Investments Ltd v Lobley Co Ltd, HCA 8145/1992 (Judgment dated 23/02/1995), Findlay J agreed with the approach of Lord Denning and Stamp LJ in Coenen and stated as the “guiding principle” that:

“[the Court] should not order the issues to be tried separately unless it is just and convenient to do so; by "just", I mean fair to both sides, without one side or the other gaining an undue advantage by a separation, and by "convenient", I mean convenient to both sides and advantageous from the point of view of costs.”

D2. Justification for a split trial in the present case  

23.  In the present case, there is a clear line of demarcation between issues of liability and quantum, and I agree that it is just and convenient to both parties to have separate trials of these issues, particularly given that the trial is due to commence on 29 May 2018.

24.  I agree with the plaintiff that there is obvious justification for a split trial on issues of liability and quantum by reason that: -

(1)   There is a clear demarcation between issues of liability and quantum.  The issues of quantum (ie the amount of alleged losses arising from the defendant’s failure/refusal to implement the plaintiff’s request and instructions to purchase shares in Great Eagle as set out in the Apr 2016 Letter) are distinct and separate from the issues of liability (ie the defendant’s liability for breach of trust/duties).

(2)   Given the advanced age of the plaintiff, it is of crucial importance for the trial on issues of liability to take place as soon as possible. The issues as to quantum can be segregated without prejudice to the parties, and will primarily, if not exclusively, turn on expert evidence and not the evidence of the plaintiff.  It would obviously be conducive to the administration of justice for issues of liability to be determined first whilst the plaintiff is in a fit state to give evidence, and the trial as to issues of quantum to be deferred until after the determination of issues of liability at the trial.

(3)   Only 10 days have been allocated for the trial.  The estimate of 10 days was made based only on the number of factual witnesses which the parties expected to call to give evidence at the trial, without taking into account the need for expert evidence.  A split trial will minimise the risk of the trial overrunning. This is particularly so given the defendant’s recent indication that the defendant is likely to be calling more than 3 factual witnesses (as previously indicated when the trial dates were fixed).  

(4)   Given the limited time before the commencement of the trial on 29 May 2018, it is in the parties’ interests to focus on preparing their factual evidence for the purpose of determination of issues of liability.

(5)   If the Court is to give directions for the preparation of expert evidence (including the exchange of expert reports, joint meeting of experts, exchange of joint report/supplemental reports), the timing will necessarily be very tight given that there is less than 4 months before the commencement of the trial. 

(6)   Ultimately, having a split trial on issues of liability and quantum will be beneficial to both parties, and will not result in any prejudice to the defendant.

25.  Further, I agree with the plaintiff that even based on the existing RASOC, the alleged losses and damage caused by the defendant’s refusal to implement the plaintiff’s request and instructions to purchase shares in Great Eagle as set out in the Apr 2016 Letter has to be quantified, and extensive expert evidence will still be necessary.

26.  In the circumstances, it would be just and convenient to order the issues of liability and quantum of damages to be tried separately.