AU KAI TO KAREL v. END USER TECHNOLOGY LTD AND OTHERS

CACV 237/2017

[2019] HKCA 72

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 237 OF 2017

(ON APPEAL FROM HCA NO 170 OF 2015)

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REASONS FOR JUDGMENT AND
DECISION ON COSTS

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Hon Lam Ag CJHC:

1.1   I respectfully agree with the judgment of Ng J and adopt his abbreviations.

1.2   In coming to the conclusion set out at [47] below, we had taken account of the advantage of the judge in this respect highlighted by Bokhary PJ in Poon Hau Kei v Hsin Chong Construction Co Ltd (2004) 7 HKCFAR 148 at [24].  Having gone through the relevant parts of the pleadings, witness statements and transcripts and the matters set out at [15] to [29] in the judgment of Deputy High Court Judge Kent Yee on 16 March 2018, we cannot, with respect, find any basis for holding that there was any common ground that MMG was a party to the Agreement.

1.3   As explained by Ng J, the pleaded case of the plaintiff did not allege MMG to be a party to the Agreement.  It is not part of the plaintiff’s pleaded case that the Agreement was partly oral and partly written.  Instead, the pleading only pinpointed EUT as the party to the Agreement.  Without proper pleadings, it is also unclear as to the basis for contending that MMG was a party to the Agreement.  The mere fact that EUT was a wholly owned subsidiary of MMG and nominated by the latter to be the party to the Agreement did not, as a matter of law, make MMG a party to the Agreement.  Nor does the fact that the consideration of the purchase was to be settled by EUT procuring MMG to issue the Consideration Shares to the plaintiff.

1.4   The exchanges between the judge and defence counsel in the course of the opening at the trial were ambivalent.  The cross‑examination and evidence given at the trial were also ambivalent.  We were therefore of the view, with respect, that the judge was plainly wrong in holding that there was a common ground that MMG was a party to the Agreement.

1.5   When a trial judge notices that the case run by a party appears to depart from his pleaded case, he should consider inviting the parties to amend the pleadings in order to identify clearly the issues at the trial for the benefit of the record.  It is unsatisfactory to leave the matter to be dealt with based on impression arising from oral exchanges in the course of submissions.  At the very least, the judge should seek a clear and unequivocal statement from counsel or a party (if he is acting in person) that he has no objection to the departure from the pleaded case.  Some form of written record signed by both parties would be helpful to avoid any misunderstanding arising from oral exchanges.

1.6   In the present appeal, the deputy judge did not take any of the above steps and there was no clear intimation on part of the then counsel for the MMG accepting that MMG was a party to the Agreement. Hence, as explained by Ng J in greater details, we have to allow the appeal by MMG.

1.7   I have nothing to add in respect of the dismissal of the appeal by EUT and the decision on costs.

Hon L Chan J:

2.  I agree with the Judgments of Lam Ag CJHC and Ng J and have nothing to add.

Hon Ng J:

Introduction

3.  This is the appeal of the 1^st Defendant (“EUT”) and 2^nd Defendant (“MMG”) from the judgment of Deputy High Court Judge Kent Yee dated 28 September 2017 (“Judgment”) in a contractual dispute whereby it was ordered after trial that they do jointly and severally pay the Plaintiff HK$4,400,000 together with his costs of the action, including the counterclaim and all costs previously reserved.

4.  In gist, the grounds of appeal are two‑fold.

5.  As far as EUT is concerned, the learned Judge erred in holding at paragraph 66 of the Judgment that EUT had breached a written sale of shares agreement dated 2 May 2013 (“Agreement”) pursuant to which the Plaintiff agreed to sell to EUT the entire shareholding of Quasicom Systems Limited (“Sale Shares”), the breach being its failure to provide a share certificate to the Plaintiff.  The share certificate in question was in respect of 20 million shares in MMG (“Consideration Shares”) to be allotted to the Plaintiff as consideration for the sale (“Share Certificate”).  EUT contends the learned Judge ought to have held that EUT had duly complied with its obligation under the Agreement to deliver the Share Certificate to the Plaintiff (“Ground 1”).

6.  As far as MMG is concerned, the learned Judge erred in holding at paragraph 66 of the Judgment that MMG was jointly and severally liable with EUT for the said breach of the Agreement on the basis that “[it] is common ground that EUT entered into the Agreement and holds the Sale Shares on behalf of MMG as its agent/nominee”.  MMG contends there was no such common ground, and since MMG was never a party to the Agreement, it could not be held liable for the breach of it.  Further, it was never the Plaintiff’s pleaded case that MMG was liable to him for breach of the Agreement (“Ground 2”).

7.  At the conclusion of the hearing, this court unanimously dismissed the appeal of EUT but allowed the appeal of MMG, with reasons to be handed down later, which we now do.

The Plaintiff’s pleaded case and the Judgment below

8.  The Plaintiff’s pleaded case on breach of the Agreement is straightforward.  For ease of reference, the relevant parts of the Amended Statement of Claim are set out below.

“ 4.   By a written agreement dated 2^nd May 2013 made between the Plaintiff and the 1^st Defendant, the Plaintiff agreed to sell to the 1^st Defendant who agreed to purchase the Sale Shares at a consideration of HK$8,000,000.00 (the “Consideration”) which shall be paid by procuring the 2^nd Defendant to issue and allot 20,000,000 shares of the 2^nd Defendant at the issue price of HK$0.4 per share (the “Consideration Shares”) and credited as fully paid to the Plaintiff or his nominee(s) upon completion (or such other means as may be agreed between the parties) under the terms and conditions thereof (the “Sale of Shares Agreement”).

…

16.   It was an express term of the Sale of Shares Agreement that:-

   (a)   Clause 2.2 provides that

‘ The Consideration payable to the Vendor shall be Eight Million Only (HK$8,000,000)’; and

   (b)   Clause 2.3 provides that

‘ The Purchaser shall [the 1^st Defendant] [sic] pay the Consideration by procuring Merdeka [the 2^nd Defendant] to allot and issue an Aggregate of 20,000,000 Consideration Shares at the Issue Price and credited as fully paid to the Vendor [the Plaintiff] or his nominee(s) upon Completion (or such other means as may be agreed between the parties)’.

17.   It was an implied term of the Sale of Shares Agreement that the 1^st Defendant shall deliver the share certificates of the Consideration Shares to the Plaintiff upon completion of the Sale of Shares Agreement so that the Plaintiff could trade the Consideration Shares in the Hong Kong Stock Exchange at his own volition.

…

19.   Further or in the alternative, in breach of contract, the 1^st and/or the 2^nd Defendant(s) has failed to complete the transfer of the Consideration Shares to the Plaintiff and/or failed and or [sic] refused to deliver the certificates of the Consideration Shares or alternatively pay the Plaintiff the price of HK$8,000,000.00 upon completion of the Sale of Shares Agreement despite the Plaintiff’s repeated demands.”

9.  At this point, it is pertinent to note that, in defence to the plea of breach of contract at paragraph 19 of the Amended Statement of Claim, EUT’s pleaded case[1] is that the Share Certificate had been delivered to the Plaintiff on completion ie 18 July 2013.  EUT has not put forward any alternative date on which the Share Certificate was handed over to the Plaintiff in compliance with the Agreement.

10.  In the prayer for relief, the Plaintiff claims inter alia against EUT as follows:

“ Against the 1^st Defendant For Breach of Contract

(1) Specific performance of the Sale of Shares Agreement; or

(2)   Alternatively, damages in the sum of HK$8,000,000.00 in lieu of specific performance…”

11.  Importantly, in the Amended Statement of Claim, there is no claim against MMG for breach of the Agreement as such.  Instead, in paragraphs 20A to 20D as well as the prayer for relief, the Plaintiff claims against MMG for inter alia inducing/procuring breach of the Agreement by EUT for failing to deliver the Share Certificate to the Plaintiff. The learned Judge did not make any finding on this claim against MMG, as the Plaintiff confirmed he would no longer pursue this claim at paragraph 1 of his Closing Submissions.

12.  At paragraph 8 of the Judgment, the learned Judge identified three issues for his adjudication.  The present appeal of EUT and MMG relates only to the second issue viz the “Share Certificate Issue”.  On this issue, the learned Judge

(1)   made a factual finding that EUT had failed to deliver the Share Certificate to the Plaintiff;

(2)   held that EUT was in breach of the Agreement for this failure; and

(3)   held that both EUT and MMG were jointly and severally liable to the Plaintiff for breach of the Agreement given the common ground that EUT entered into the Agreement and holds the Sale Shares on behalf of MMG as its agent/nominee.

13.  With regard to the Share Certificate Issue, the learned Judge accepted the evidence of the Plaintiff and rejected that of Mr Lau Chi Yan Pierre (“Mr Lau”) on behalf of all the Defendants.  Mr Lau was the managing director of both EUT and MMG.

14.  At paragraphs 53 to 56 of the Judgment, the learned Judge summarized the Plaintiff’s factual evidence on what happened on completion day as follows:

(1)   On 18 July 2013, Mr Lau, Mr Thomson Lai, company secretary of MMG, and the Plaintiff met in the office of MMG to complete the Agreement.  During the meeting, after Mr Lau and the Plaintiff had executed the bought and sold notes for the transfer of the Sale Shares, Mr Lau and Mr Lai showed the Plaintiff the Share Certificate and asked him to sign on its back and a receipt acknowledging his receipt of the Consideration Shares.  The Plaintiff did so.

(2)   Mr Lau immediately took the Share Certificate away and told the Plaintiff it would be kept in the safe in MMG’s office.  Mr Lau explained to the Plaintiff that MMG needed time to confirm whether Quasicom Systems Limited’s records and documents delivered under clause 6.2 of the Agreement were in good order before the Share Certificate could be released to him.

(3)   Thereafter, despite repeated demands, Mr Lau refused to return the Share Certificate to the Plaintiff.

15.  Mr Lau’s testimony, which the learned Judge rejected, was that he was not even present in the office during completion and therefore could not have taken away the Share Certificate from the Plaintiff.  He claimed the completion was handled by MMG’s solicitor and Mr Lai.

16.  At paragraphs 57 to 59 of the Judgment, the learned Judge further summarized the Plaintiff’s factual evidence on an incident[2] which took place in June/July 2014:

(1)   In June 2014, the Plaintiff was asked by Mr Lau to sign a proxy form for use in a shareholders’ meeting of MMG on 17 June 2014[3]with regard to the so‑called July 2014 Rights Issue.  Mr Lau explained to the Plaintiff what he needed to do was to first return the Consideration Shares to MMG ie pool returning.  MMG would then issue a new share certificate to replace the Share Certificate to reflect his enhanced shareholding.  No such new share certificate had ever been issued to the Plaintiff. 

(2)   On or about 14 July 2014, to effect the pool returning, the Plaintiff was given a set of documents including the Share Certificate for his signature.  These documents were placed on his desk in his office.  The Plaintiff did so and returned all of them including the Share Certificate to MMG.  One of the documents was a share transfer document to authorise the transfer of the Plaintiff’s MMG shares whilst no transferee was identified in it.

(3)   MMG’s shareholders list at 31 August 2014 showed that the Plaintiff was no longer a member.

17.  On these facts, the learned Judge concluded at paragraph 66 of the Judgment that EUT had breached the Agreement in that it had failed to provide the Share Certificate to the Plaintiff.

18.  Having found EUT to have committed a breach of the Agreement, the learned Judge went on to find that both EUT and MMG were jointly and severally liable to the Plaintiff for breach of the Agreement.  The learned Judge’s reasons for this finding were brief and, as far as we can ascertain, appeared only in two short paragraphs in the Judgment:

(1)   “Mr Chow, for the defence, accepts that EUT/MMG would be in breach of the Agreement if they failed to deliver the Share Certificate to Mr Au upon the completion of the Agreement.” — paragraph 7.

(2)   “It is common ground that EUT entered into the Agreement and holds the Sale Shares on behalf of MMG as its agent/nominee.” — paragraph 66.

19.  Having made these findings against EUT and MMG, the learned Judge ruled in favour of the Plaintiff and ordered EUT and MMG to pay him HK$4.4 million, being his loss as assessed by the learned Judge.  

EUT — Ground 1 of Appeal

20.  EUT submits that the learned Judge was wrong to hold it liable for breach of the Agreement for failing to deliver the Share Certificate to the Plaintiff.  EUT contends that, even on the Plaintiff’s own evidence,

(1)   on 18 July 2013, he voluntarily allowed Mr Lau to retain the Share Certificate to be kept in a safe in MMG’s office;

(2)   between August 2013 and June 2014, he signed 6 proxy forms to appoint a proxy to vote his MMG shares and submitted them to Mr Lau upon request;

(3)   on 14 July 2014, he voluntarily returned the Share Certificate left on his desk (together with other documents signed by him) to MMG to effect the so‑called pool returning.

21.  EUT contends that such evidence shows that it was the Plaintiff’s voluntary decision to return to Mr Lau or allow Mr Lau to retain the Share Certificate on his behalf.  If so, on his own evidence, the Plaintiff has failed to establish his breach of contract claim concerning delivery of the Share Certificate.

22.  The Plaintiff submits and this court agrees that Ground 1 of the Appeal is in substance a challenge to the learned Judge’s finding of primary facts.  On well‑established authorities, in order to succeed, an appellant must satisfy the Court of Appeal that the trial judge’s conclusion on the facts is “plainly wrong”: Ting Kwok Keung v Tam Dick Yuen & Others (2002) 5 HKCFAR 336 at [42]; China Gold Finance Limited v CIL Holdings Limited & Others unrep, CACV 11 of 2015, 27 November 2015, Lam VP, Kwan & Chu JJA, at [11].

23.  As observed by Lam VP in China Gold Finance Limited v CIL Holdings Limited & Others at [15]‑[19]:

“ 15. In an appeal, the court of appeal should focus on the question whether the primary judge has fallen in palpable errors which could give rise to grounds for intervention by the appellate court. As explained in the cases, it is not germane that judges in this court may reach a different conclusion from that of the judge. There are many areas, particularly those in relation to findings of fact, where judges can reasonably reach different conclusions from each other. That would not be a ground for intervention.

16. Thus, in an appeal …[t]he starting point should be the judgment of the primary judge and the identification of palpable errors (which must be errors of such nature which warrants intervention from this court) in the judgment. The mere assertion that the finding of the judge is against the weight of the evidence or that the judge should have reached another conclusion because of points advanced in the closing submissions below are not errors coming within that category.

17. We respectfully agree with the judgment of the Privy Council in Beacon Insurance Co Ltd v Maharaj Bookstore Ltd, supra, where Lord Hodge explained at paragraph 12 the phrase “plainly wrong” in the context of an appeal against a finding of fact:

‘ This phrase does not address the degree of certainty of the appellate judges that they would have reached a different conclusion on the facts … Rather it directs the appellate court to consider whether it was permissible for the judge at first instance to make the findings of fact which he did in the face of the evidence as a whole. That is a judgment that the appellate court has to make in the knowledge that it has only the printed record of the evidence. The court is required to identify a mistake in the judge’s evaluation of the evidence that is sufficiently material to undermine his conclusions.’

18. Similar statement was made by Lord Reed in Henderson v Foxworth Investments Ltd, supra at paragraph 62.

19. The kinds of mistake which could engage an appellate court’s power of intervention were recently explained by Lord Neuberger in In re B (A Child) [2013] 1 WLR 1911, at paragraph 53:

‘ …where a trial judge has reached a conclusion on the primary facts, it is only in a rare case, such as where that conclusion was one (i) which there was no evidence to support, (ii) which was based on a misunderstanding of the evidence, or (iii) which no reasonable judge could have reached, that an appellate tribunal will interfere with it.’ ” (emphasis added)

24.  The learned Judge’s findings of fact are summarised in paragraphs 14 to 16 above.  The gist of these factual findings is that the Plaintiff was shown but was not given the Share Certificate on completion day ie 18 July 2013.  Rather, Mr Lau took it away on the excuse that time was needed for MMG to check whether Quasicom Systems Limited’s records and documents were in good order.  This is something which was entirely permissible for the learned Judge to find in the face of the evidence as a whole.

25.  Importantly, the learned Judge did not find that the Plaintiff voluntarily allowed any of the Defendants to keep the Share Certificate indefinitely.  Again, this is something which was entirely permissible for the learned Judge so to do.  There being no suggestion that the records and documents in question were not in good order, EUT must hand over the Share Certificate to the Plaintiff.  As found by the learned Judge, EUT had failed to do so, notwithstanding the Plaintiff’s repeated demands for its return.

26.  In our view, EUT has not even begun to show in what way the learned Judge’s aforesaid finding of primary facts is “plainly wrong” or that he has fallen “in palpable errors”.  The Plaintiff’s case on breach of contract against EUT was supported by his own testimony which the learned Judge accepted as credible, as he was entitled to.  EUT’s pleaded defence was supported by Mr Lau’s testimony which the learned Judge rejected, as he was also entitled to.

27.  The signing of the proxy forms between August 2013 and June 2014 by the Plaintiff in no way undermines the learned Judge’s finding that the Plaintiff had repeatedly demanded for the return of the Share Certificate but to no avail.  It is irrelevant to the Plaintiff’s claim for breach of the Agreement as it was not even pleaded as a purported defence to it.  In any event, the act of signing the proxy forms is not inconsistent with the Plaintiff’s repeated demands for the Share Certificate.

28.  Similarly, what happened a year later on or about 14 July 2014 when the Share Certificate was left on the Plaintiff’s desk, as part of the so‑called Pool Documents, does not assist EUT at all.  As stated above, EUT’s pleaded defence is that the Share Certificate had been delivered to the Plaintiff on completion ie 18 July 2013.  EUT has not pleaded any alternative date, whether 14 July 2014 or otherwise, on which the Share Certificate was handed over to the Plaintiff in purported compliance with the Agreement.  As the learned Judge rightly observed,[4] placing the Share Certificate on the Plaintiff’s desk on 14 July 2014 was not relied upon as an acting of fulfilling EUT’s obligation under the Agreement.  Indeed, it is a complete non sequitur for EUT to suggest that because the Plaintiff returned the Share Certificate to MMG to effect the pool returning, there was no breach on its part prior to that time.

29.  To conclude, EUT’s appeal is wholly unmeritorious and must be dismissed.

MMG — Ground 2 of Appeal

30.  In relation to this Ground, MMG submits that the learned Judge fundamentally erred in law and in principle for the simple reasons that (i) it was not a party to the Agreement and (ii) the Plaintiff has never pleaded a case that it was a party to the Agreement or asserted a claim for breach of the Agreement against it.

31.  As far as (i) is concerned, it is not in dispute that the Agreement was expressly made between the Plaintiff as vendor and EUT as purchaser of the Sale Shares.  MMG was not a party to the Agreement in any capacity.

32.  As far as (ii) is concerned, the relevant parts of the Amended Statement of Claim are set out in paragraphs [7 and 9] above.  The claim for breach of Agreement was pleaded only against EUT.  Even the learned Judge himself was acutely aware of the absence of a pleaded claim by the Plaintiff against MMG for breach of the Agreement.[5]  Instead, the Plaintiff had pleaded a claim against MMG for inter alia inducing/procuring EUT’s breach of the Agreement.

33.  Consistent with what was pleaded in the Amended Statement of Claim, in the Plaintiff’s Opening Submissions under the section “B. Breach of Contract & Its Inducement/Procurement”, it was stated that the case for breach of the Agreement was directed against EUT only while the claim for inducing/procuring breach of the Agreement was directed against MMG as well as Mr Lau.

34.  Also consistent with what was pleaded in the Amended Statement of Claim, in the Plaintiff’s Closing Submissions, there was no invitation to the learned Judge to find MMG in breach of the Agreement jointly and severally with EUT.

35.  Time and again, the Court of Final Appeal has stressed the fundamental importance of pleadings to enable every procedural facet of the adversarial system to operate fairly.

36.  In Sinoearn International Ltd v Hyundai‑CCECC Joint Venture (2013) 16 HKCFAR 632, Ribeiro PJ observed at [30]‑[31] and [34] as follows:

“ 30. …A party must raise all the issues he wishes to raise to be dealt with at the trial. Parties are not entitled to have issues recently thought up dealt with separately and piecemeal. The other party is entitled to know from a clear pleading what is the entire case he has to meet so that he can decide whether particulars should be sought; how he should plead in response; what discovery he is entitled to; what evidence he should adduce to meet it; and what points of law should be taken. ...

31. Where a late attempt is made to introduce a new case, it is doubly important that the other side should have a clearly pleaded draft amendment so that proper consideration can be given as to whether objections should properly be made to such amendment and whether an adjournment should be sought.

…

34. Pleadings are not mere formalities. They impose a necessary discipline and are fundamental to enabling every procedural facet of the adversarial system to operate fairly.” (emphasis added)

37.  Again, in Kwok Chin Wing v 21 Holdings Limited (2013) 16 HKCFAR 663, Ma CJ stressed the unacceptability of allowing unpleaded issues to be raised out of evidence.  At [21]‑[23], Ma CJ observed:

“ 21. …The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues: Wing Hang Bank Limited v Crystal Jet International Limited. It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced. As the Court of Appeal remarked in Wing Hang Bank Limited v Crystal Jet International Limited :

‘(2) In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained. It will simply not do for unpleaded issues to be ‘slipped in’ when evidence is being given in the hope that the other side is not sufficiently alert to object.’

22. In the present case, much reliance was placed on the Plaintiff’s testimony given in cross examination to evidence the assertion made before us to the effect that the Rockapetta Group companies accepted a joint and several liability in respect of the Plaintiff’s loans. It is simply not permissible for an issue to be raised in this way: one does not sift through the evidence adduced in a trial in the hope that something was said that can conceivably found a cause of action. Issues, I would reiterate, must be properly pleaded unless for some reason the pleadings have assumed a less significant role in the proceedings. I would perhaps also observe here that in any event the said passage from the Plaintiff’s testimony at best indicates only a subjective intention on his part. This is not admissible to establish the terms (or even the existence) of an agreement.

23. The purpose of pleadings, in clearly and unambiguously setting out the true extent and nature of a dispute not just for the benefit of the parties but also for the Court in managing and trying cases, remains important under our system of civil justice. The retention of the old rules as to pleading as well as the introduction of new provisions over four years ago under the Civil Justice Reform, reinforce this.” (emphasis added)

38.  In this appeal, the Plaintiff contends that its case against MMG for breach of the Agreement has been sufficiently pleaded, albeit that there was no such a claim against MMG in the prayer for relief.  In this regard, counsel for the Plaintiff refers this court to paragraphs 3, 10(b) and 19 of the Amended Statement of Claim.  With respect, reading the Amended Statement of Claim as a whole, we do not see how it can seriously be argued that a case for breach of the Agreement against MMG has been sufficiently pleaded.

39.  It is true that at paragraph 19 of the Amended Statement of Claim, it was pleaded that, in breach of contract, EUT and/or MMG have refused to deliver the Share Certificate to the Plaintiff.  But in order for MMG to be in breach of contract, the Plaintiff had to plead the material facts which made MMG a party to the Agreement and was thus under an obligation to deliver the Share Certificate to him in the first place.  This the Plaintiff had failed to do.  Quite on the contrary, the Plaintiff had pleaded a written agreement between the Plaintiff and EUT only and had not pleaded any obligation on MMG’s part to deliver the Share Certificate to him.

40.  As stated earlier, the learned Judge’s reasons for finding EUT and MMG were jointly and severally liable to the Plaintiff for breach of the Agreement can be found in 2 short paragraphs in the Judgment.  We have looked at the transcript of the 1^st day of trial where the exchanges between the bench and counsel on both sides were recorded.  With respect to the learned Judge, we do not see anything in the transcript which clearly showed counsel for the Defendants unequivocally accepted that MMG (as opposed to EUT) would be in breach of the Agreement if it failed to deliver the Share Certificate to the Plaintiff upon completion.  Nor do we see any “common ground” that EUT entered into the Agreement on behalf of MMG as its agent/nominee.

41.  At most, all that can be said during those exchanges was this: when counsel for the Plaintiff opened his case on the basis that EUT had acted on behalf of MMG in entering into the Agreement and that MMG should be held liable on that basis, counsel for the Defendants did not rise up to object.  But there is a world of difference between not objecting to the Plaintiff’s (mistaken) characterisation of his own case and acceptance of the said “common ground”.  Given that it was never the Plaintiff’s pleaded case that EUT had entered into the Agreement on behalf of MMG, it is difficult to see why counsel should be faulted for not standing up to object.

42.  In these circumstances, it seems to us that the learned Judge has clearly fallen in errors in finding (i) counsel for the Defendants accepted MMG would be in breach of the Agreement if it failed to deliver the Share Certificate to the Plaintiff and (ii) the existence of the said “common ground”.  These errors are of such nature as to give rise to legitimate grounds for intervention by this court.  

43.  Lastly, the Plaintiff asks this court to affirm the Judgment on the grounds that (i) the parties had chosen to proceed with the trial in disregard of whether a “joint and several” liability has been specifically pleaded against MMG, (ii) no prejudice has been or could have been identified by MMG, and (iii) that in any event it is fair and just to do so.

44.  In support of the above, counsel for the Plaintiff refers this court to Poon Hau Kei v Hsin Chong Construction Co Ltd (2004) 7 HKCFAR 148 at [21], Mak Kang Hoi v Ho Yuk Wah (2007) 10 HKCFAR 552 at [101] as well as Wing Hang Bank Ltd v Crystal Jet International Ltd & Others [2005] 2 HKLRD 795 at [6]‑[7].

45.  In Mak Kang Hoi v Ho Yuk Wah, Mortimer NPJ observed that:

“ The General Approach to the Pleading Issue

101. [Poon Hau Kei] in the Court of Appeal sets out the practical tests and the principle that the trial must be fair. A party must not be ambushed at trial by a case he has not been called upon to prepare and meet. As was said by Bokhary PJ in the same case in this court at p. 160J:

‘Was there any unfairness in the process by which the trial judge reached his findings? In Bank of America National Trusts and Savings Association v. Chai Yen [1980] 1 WLR 350 at p.353D, Lord Lane, delivering the advice of the Privy Council, said that ‘the essence of any rule of procedure must be fairness’. The same is true of any rule of practice.’ ” (emphasis added)

46.  In Wing Hang Bank Ltd v Crystal Jet International Ltd & Others, Ma CJHC (as he then was), after reiterating some basic principles of pleadings at [6], observed as follows: 

“ 7. What has just been set out is not to be construed as an encouragement to take ‘pleading points’ by which I mean pedantic, small or quite insignificant points of pleadings. Nor will objections as to pleadings have much force where the parties have chosen to disregard the pleadings and conduct the hearing on some unpleaded basis. As Isaacs and Rich JJ said in Gould v Mount Oxide Mines Limited (1916) 22 CLR 490, at p.517:

‘But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly thought out, it is impossible for them to hark back to the pleadings and treat them as governing the area of contest.’

Ultimately, a court is to be guided by what is fair and just in the circumstances, not just to the party seeking to rely on the unpleaded case but to all the parties before it. The Court ought also to bear in mind the following passage at p.297 para. 18/12/1 of Hong Kong Civil Procedure 2004 Vol. 1:

‘The purpose of pleadings is not to play a game at the expense of the litigants but to enable the opposing party to know the case against him.’

8. What is set out above as representing acceptable practice will be all the more emphasized when the civil justice reforms in Hong Kong take shape. The object is not to invite prolixity in pleadings but to achieve what has always been the position: to fairly inform the other side and the Court of a party’s case, identifying the issues and the true extent of the dispute between the parties.” (emphasis added)

47.  Applying these principles, it is difficult to see how the trial could be considered as fair when MMG had clearly been ambushed by a case it had not been called upon to prepare and meet.  Further, notwithstanding the Plaintiff’s submissions to the contrary, this court cannot find any evidence that the parties, or at least the Defendants, have chosen to disregard the pleadings and conduct the trial on some unpleaded basis.  Guided by what is fair and just in the circumstances, this court is of the view that it is neither fair nor just to hold MMG liable to the Plaintiff for breach of the Agreement, when there is neither factual nor legal basis for the learned Judge to do so.

48.  For these reasons, we would allow MMG’s appeal.

Costs

49.  As far as EUT is concerned, we order EUT to pay the Plaintiff’s costs of appeal and below, save that the costs below should be confined to the Plaintiff’s claims against it, to be taxed if not agreed and paid forthwith.

50.  As far as MMG is concerned, we order the Plaintiff to pay MMG’s costs of appeal and below, save that the costs of the counterclaim below should be paid by MMG to the Plaintiff, to be taxed if not agreed and paid forthwith.

51.  As far as Mr Lau is concerned, we would vary paragraph 4 of the learned Judge’s sealed Judgment and order EUT to pay Mr Lau’s costs of the action, including any costs previously reserved, to be taxed if not agreed and paid forthwith.