HERAEUS LTD v. CHAN YUN MUI AND ANOTHER

HCA 878/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 878 OF 2011

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D E C I S I O N

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THE APPLICATION

1. This is the 1^st Defendant’s (“D1’s”) application under O.20 r.5 RHC for leave to re-re-amend the Re-Amended Defence and Counterclaim of the 1^st Defendant by Summons dated 8 April 2016.  It has been agreed that this application be dealt with without affidavit evidence, which was subsequently varied by this Court to allow evidence from D1 on the withdrawal of admission.

2. D1 seeks to re-re-amend §20 of the RADC as set out below:

“Save that it is admitted that the invoices referred to in paragraph 4 of the Statement of Claim were issued to Sing Kwong for the cyanide compounds delivered to Sing Kwong on the dates stated therein total outstanding liabilities of Sing Kwong to the Plaintiff amounts to not more than HK$8,321,486.94, paragraph 4 of the Statement of Claim is not admitted denied. It is averred that the outstanding amounts due to the Plaintiff, if any, can only be calculated after reconciling the “cash account” between the Plaintiff and Sing Kwong with the amount of gold and other precious metal bars or bullions delivered to Sing Kwong (for which the price had not been fixed at the time of delivery) in the “metal account” between the Plaintiff and Sing Kwong.”

3. The Plaintiff (“P”) opposes this application and the parties are legally represented.[1]

THE FACTUAL BACKGROUND

4. It is not disputed that apart from the above application, the matter is ready to be set down for trial.

5. For the purpose of this application, it is only necessary to highlight the brief facts as follows:

(a) P, a manufacturer of precious metal products, claims against D1 as the guarantor pursuant to two Guarantees dated 12 November 2002 (“the Guarantee”) respectively in respect of alleged liabilities of Sing Kwong Jewellery & Gold Company Limited (“Sing Kwong”) to the Plaintiff accrued up to 11 May 2011 in the amount HK$8,321,486.94. D1 is one of the beneficiaries of Sing Kwong.

(b) D1 disputes liability. Her pleaded case is as follow:

(i) That there was a collateral contract, collateral warranty or a composite agreement between P and D1 that D1’s liability under the guarantee shall be confined and limited to such part of the liabilities of Sing Kwong to P which were in excess of $20M, with D1’s liability to P thereunder being limited to $10M;

(ii) That D1 was induced by P’s misrepresentation, and D1 is entitled to and does claim rescission of the guarantee;

(iii) That P is now estopped from contradicting the representation by suing D1 on the guarantee.

6. P submits that in this application the main complaint is D1’s withdrawal of her admission of the total liability of Sing Kwong to P in the sum of HK$8,321,486.94.

THE RELEVANT LEGAL PRINCIPLES

The general principles on amendment

7. D1 relies upon the authorities which provide that generally speaking, the court will be accommodating to application for amendment to the pleadings in order that the real issues of dispute can be dealt with fairly in court. Hong Kong Civil Procedure 2017, Vol.1, §20/8/6.

8. Order 1, rule 2(2) provides “In giving effect to the underlying objectives of these rules, the Court shall always recognize that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.”

Application for withdrawal of admission

9. P does not dispute the general legal principles above.  Against those general legal principles, this Court has to consider the special circumstances of this application, that is, D1 is now applying to withdraw the admission that she had made in paragraph 20 of the Re- Amended Defence and Counterclaim.

10. It cannot be disputed that it is the court’s discretion to allow the application for amendment even if such amendment amounts to withdrawal of the previous admission in the pleadings.

11. The Court of Appeal in Wingames Investments Ltd & Others v Mascot Land Ltd & Others [2013] 1 HKLRD 26 held that in order to determine there was a withdrawal of the admission, the court had to, first of all, determine whether the proposed amendment, read in the context of the pleadings as a whole, there was any admission and the proposed amendment amounts to withdrawal of such admission.  See paragraph 24.  The court had the discretion to allow the withdrawal of admission if it could be shown that it was not the intention of the applicant to make the admission and there was no real prejudice to the other party, coupled with the fact that fairness required that the applicant should be permitted to advance his true case.  This would be further fortified by O.1A of RHC that the primary objective is to adjudicate on the merit of the case by the court.  The Court of Appeal in this case allowed the appeal and granted leave to amend even the amendment amounted to withdrawal of the admission because the withdrawal was entirely consistent with other parts of the Defence and Counterclaim and that such amendments would not be prejudicial to the plaintiff.  See paragraph 26.

DISCUSSION

12. P refers to my previous Decision in West Coast International Trading Ltd, trading as Dandelion Fine Arts v Chelsea Art Co Ltd. (unreported, HCA 1636/2010, 10 January 2014), in which I disallowed the defendant to withdraw its admission in the Defence for the reason that the defendant had not set out the reason for the withdrawal.  This decision was overturned upon appeal by Chung J.  See his judgment delivered on 24 July 2014. However, when the plaintiff made an application for amendment of the pleading where the defendant opposed, I had reviewed Chung J’s judgment and took the view that the parties had not referred the learned judge to the decision of the Court of Appeal in Leung Kin Fook & Others v Eastern Worldwide Co Ltd & Another (unreported, CACV 184/1990, 8 February 1991, per Power JA at page 3).  The Court of Appeal adopted the reasons of Hunter J.A. in TSE Yuk-tin v. Chee Cheung-hing & Co. Ltd. [1984] HKLR 391 at 395 that an applicant who seeks to withdraw an admission is required to place before the court “a convincing credible explanation of the circumstances in which the admission was in fact made, which is sought to be said to have been made under a mistake”.  This was a case where the 1^st defendant withdrew admission of a contractual relationship with the plaintiff. This case also decides that where a serious dispute has arisen, the affidavit evidence should not come from a solicitor who sworn that she had the information from her client without particularity of the source of the information to explain the situations under Order 41, rule 5(2) RHC.  See page 6.

13. D1 refers me to In Re Chung Wong Kit (a bankrupt) [1999] 1 HKLRD 410 (CA) Rogers JA held:

“In determining whether it was fair to allow a party to resile from an admission, it was not sufficient for the Court to presume prejudice to the opposing party but it was necessary to balance the prejudice suffered by the admitting party if deprived of his right to resile against any prejudice which the relying party had specifically established he would suffer if the admission was withdrawn. The requirement to give a proper explanation was not a rule of law in itself but an example of this proposition (see pp.413J–414C.)”

P’s reasons in opposition

14. P has raised the following reasons in opposition:

(a) the proposed amendment has raised no additional real question to be resolved;

(b) the proposed amendments lack the necessary material particulars;

(c) the resolution of the new plea, if admitted, would cause substantial delay to the progress of the action;

(d) delay.

15. P argues that because of the conclusive evidence clause 2.02 in the guarantee, D1 cannot argue the amount of indebtedness.  It is trite law that the conclusive evidence clause must be strictly adhered to for its enforcement as Chow J. in Ho Ming Pui Andy v Midland Realty (Strategic) Ltd. (unrep. HCA 1699/2012, 6 August 2014) at §20 said “I consider that before the defendant can rely on a conclusive evidence clause of this nature, the defendant must show, fairly and squarely, that all the conditions precedents for triggering the operation of the clause have been satisfied.”

16. Clause 2.02 provides for the statement of account signed as correct by a duly authorized officer of P, shall, in the absence of manifest error, be conclusive evidence of the amount due.  It was not pleaded in §4 of the Amended Statement of Claim that the amount was in the statement of account signed as correct by a duly authorized officer of P.

17. By the proposed amendments D1 simply withdraws her earlier admission of the amount of indebtedness, the particular of which is not relevant as she now puts the burden of proof on P.

18. It is common sense that the new plea as proposed would cause delay to the progress of the action as P would have to prove the amount, which had been admitted.  It is a matter of whether such delay should outweigh the primary objective under O.1A RHC.  If such withdrawal amounts to an abuse of the process or there cannot be a fair trial and the prejudice is such that P cannot be compensated by costs, I consider that the court should not allow the application.

19. It is undisputed that the amount is the crucial issue for the trial, the burden being squarely on P to prove at the trial.

20. D1 had as far back as 25 May 2011, more than five years from now, known this amount of indebtedness, which was supported by particulars set out in paragraph 4 of the Statement of Claim.  Those particulars include the document numbers, the dates of the documents and the dates that the debts due to and the amounts.  It is inconceivable that those particulars should have escaped D1’s attention.  Also, D1 cannot argue that she had not considered those particulars before her admission in her Defence, which she now seeks to withdraw.  The Court of Appeal had decided that admission in the pleadings should not be withdrawn without explanation.  This is apparent for the reason that if a party is allowed to blow hot and cold at different stages of the legal proceedings, it will be difficult, if not impossible, to have a fair trial.  The opponent will not be able to prepare the case properly.  The court will be put in a very difficult position to evaluate the evidence at the trial. The trial will be unduly complicated and lengthened and more costs will be incurred.  Most importantly, the trial process may be disrupted from time to time, rendering the process impossible.

D1’s explanation

21. The proposed amendment amounts to withdrawal of the admission in respect of the amount of indebtedness.  From the tenor of the original Defence and Counterclaim, D1 did not dispute the amount of indebtedness.  This is obviously different from Winggames Investment. It therefore falls upon D1 to give an explanation for such withdrawal of her admission of the amount of indebtedness for this Court’s consideration.

22. Although counsel for D1 had, in the written submissions, disclosed that it was after the discovery of the “metal account” D1 queried the indebtedness, this is not sufficient.  First, this is from counsel, not D1 on affidavit.  Secondly, there is no explanation as to the way the indebtedness was settled and why D1 had admitted the indebtedness in the first place.  How would D1 respond to clause 2.02 – the conclusive evidence clause when she raises this issue?  All these have to be considered before this Court considers whether leave should be given to her to withdraw her admission.

23. It was because of the reasons above that at the last hearing on 2 September 2016 D1’s former counsel asked for an adjournment of the hearing in order to enable D1 an opportunity of making explanations for withdrawing the admission.

24. D1 has now filed the affirmation explaining the factual situations.  P has also filed the affirmation in dispute and finally, D1 has filed the affirmation in reply.

25. D1 challenged the outstanding debt by saying that the AR Balances did not give a true and fair view of the actual outstanding balances.  She further said that Sing Kwong was unable to determine the actual outstanding amount owed to P.  See §5 of her affirmation dated 21 November 2016 [417 of bundle].

26. On the other hand, P said in his affirmation that outstanding balances of indebtedness of D1 to P were given to D1 in 2007.  D1 had made no objection to those accounts.  In April 2011, P’s solicitor had written to D1 as the guarantor demanding from her the indebtedness of HK8,321,486.94.  See [p.394 of bundle].

27. D1 has not answered the conclusive evidence clause in the Guarantee.

Prejudice

28. This Court bears in mind that the burden of proof of the amount of indebtedness lies upon P.  Now D1 is withdrawing her admission of the amount.  P says that this will cause prejudice to it.  There will be delay in the proceedings, which is inevitable, given the fact that the matter is ready for trial but for the present application.

29. We have to take an analytical view of the admission in the first place. D1 admits that indebtedness is up to HK$8,321,486.94, which is the amount claimed by P in the Amended Statement of Claim.  P submits that the proposed amendments will give rise to no real question for adjudication, relying upon the conclusive clause.  P further submitted in his 2^nd affirmation dated 24 October 2016, with the exhibits that D1 had never challenged the various amounts of the debts owed by Sing Kwong from time to time in the course of correspondence between P and D1.

30. D1 replied in her 3^rd affirmation dated 21 November 2016 that the AR Balance relied upon by P to support the amount of debt by Sing Kwong is not reliable “since it does not reflect the value of gold delivered to Sing Kwong when the price of gold was not determined on delivery (since the price of gold fluctuates on daily basis)…I had elaborated on the unreliability and inadequacy of the Plaintiff’s reliance on the AR Balance and the circumstances when this was first revealed from the evidence of the Plaintiff in the course of the present proceedings.”[2]

31. In paragraph 4 e. of her reply affirmation, she also said: “At all material times, there had been no written agreement nor written confirmation between the Plaintiff and Sing Kwong as to the correct amount of the outstanding debts.  Sing Kwong, given the limited information available to it, did not dispute the correctness of the alleged indebtedness, considering the many years of business relationship between Sing Kwong and the Plaintiff and the priority of Sing Kwong in endeavours to maintain the operation of Sing Kwong as a going concern.”

The conclusive evidence clause in the Guarantee

32. Against the above background, I shall now consider D1’s application.

33. If D1 were allowed to argue that there had not been any written agreement or written confirmation as to the correct amount of the outstanding debts, she must explain why the conclusive evidence clause in the Guarantee should not take effect between the parties.  She has not been able to offer any explanation in her affirmations.

34. However, as discussed in paragraphs 15 and 16 supra, if P is to rely upon this conclusive evidence clause, it has to specifically plead this fact in the pleadings.  The pleaded fact must show that P has, in all respects, complied with the conditions of this clause.

35. I have therefore written to the parties, requesting their counsel to address me on these issues at this hearing.

36. P’s counsel has submitted his supplemental written submissions, in which he accepts that at the current pleadings, no particular reference has been made to Clause 2.02 of the Guarantee.  However, he submits further that reliance on this clause will be pleaded if the proposed amendments are to be allowed.  He asked this Court to take this into account to consider D1’s prospect of success of the proposed amendments.

37. Despite the above deficiencies, P submits that Clause 2.02 has no condition imposed on P for it to be effective.  I disagree with this argument.  This clause states clearly that in order for P to rely on the conclusiveness of the amount of debt, P has to rely upon a statement, which has to be signed a duly authorized officer of P.  P further refers me to the materials, which, he submits, are sufficient to trigger this clause.  The materials that he refers to are the signed letter dated 21 April 2011 issued by P’s solicitors stating the amount due by Sing Kwong and the Statement of Claim in which the amount of indebtedness was set out was signed and verified by P’s director.

38. D1 has only made supplemental written submissions this morning.

39. In the final analysis, this Court, based upon the above legal principles, will take into consideration the following circumstances:

(a) D1 now challenges the AR Balance on the accuracy of the amount of indebtedness which she had guaranteed under the Guarantee.

(b) D1 had admitted the claimed amount though not in an express and affirmative as to the amount, however, I found such expression in the Defence amounts to an admission of the amount claimed by P.

(c) D1’s explanation for withdrawing her admission of the amount claimed was due to the fact that she had talked to the staff of Sing Kwong and discovered through discovery that P had relied upon the AR Balance to work out the amount of indebtedness, which she disagrees. She said that she did not have the AR Balance before.

(d) She would consider employing an expert to work on AR Balance to prove her case.

(e) P accepts that the conclusive evidence provision in the Guarantee has not been pleaded in the pleadings.

(f) It would be quite clear that the reason for P not pleading the conclusive evidence provision in the pleadings is because all along before the institution of these proceedings, D1 had been given the amount of indebtedness, to which she had never made any complaint.

(g) Even after the Statement of Claim with a schedule of the details of the amounts of indebtedness having been given to D1, D1 had not raised this issue in her Defence. She even did not challenge the amount in her Defence until the present application.

(h) P now submits that if the proposed amendment is allowed, the proceedings may be delayed by further and better particulars of the accounts and further discovery as well. This is not disputed by D1.

(i) P also indicates that if the amendment is allowed, it would amend its Statement of Claim to plead the conclusive evidence provision in the Guarantee, given the right to make the responsive amendments to P. It is clear that D1 cannot object to P’s right to amend.

(j) D1 has been given the opportunity of arguing what defence she might have against the conclusive evidence provision.

(k) Her counsel has submitted a supplemental written submission to this Court this morning addressing the issue of D1’s right to challenge the indebtedness for which she has guaranteed and the reasons for doing so.

(l) According to the conclusive evidence clause, D1 has the right to challenge the amount of indebtedness signed in a statement by the authorized person of P. But D1 can only do so if there are manifest errors. Counsel relies upon the authority of North Shore Ventures Ltd v. Anstead Holdings Inc and others [2012] Ch. 31;

(m) The above authority held that a “manifest error” was defined as one which is obvious or easily demonstrable without extensive investigation. See paragraph 51. And in order to make further investigation into the issue, D1 has to establish that there is a manifest error on the face of the statement of indebtedness. Counsel has raised the issues of finance charges and the interest rate of over 60% on the finance charge. All these are not apparent from the statement of indebtedness itself. They have to be found by cross references to the other account documents. As to the interest rate, it is given by her counsel, who cannot claim to be an expert on the effective rate of interest under the Money Lenders Ordinance herself. I do not accept that these are manifest errors on the face of the statement of indebtedness. Also, D1 now submits that she would have to require an expert to work out the deficiency, a draft report is in the bundle. This reflects that those are not the obvious errors.

(n) In fact, according to the evidence from the affirmations filed by the parties as Mr. Lai, P’s counsel has taken me through, it is quite obvious that throughout the negotiation for repayment of Sing Kwong’s debt to P, not only had D1 raised no challenge to the debt of Sing Kwong, she had even made proposal for the repayments. The proposal must have been a conscious calculation of all the relevant factors including the amount of indebtedness and her ability of repayment. It is simply inconceivable that she had not paid attention to the amount of debt of Sing Kwong when she designed the repayment schedule herself.

40. On the question whether leave should be given to D1 to amend the Defence by withdrawing her admission, the Court will have to consider all the relevant circumstances, one of which will be whether such proposed amendment, if allowed, will be bound to fail as decided by A. Chan J. in Bank of China (Hong Kong) Ltd v Leigh Hardwick (unrep. HCA 1110/2006, 29 August 2013) at paragraph 2:

“……There is no dispute that if they are bound to fail, no leave should be granted for the amendment. For the purpose of this appeal, there is also no dispute that this court should take the pleaded defences at the highest.”

41. P has already indicated that the pleadings will be amended to incorporate that the amount of indebtedness was in a statement signed by the authorizing officer of P to be correct.  This will trigger the conclusive evidence of D1’s indebtedness as provided under the Guarantee.  Given the reasons above, I do not agree that she has a valid challenge to the conclusive evidence clause.

42. In the absence of any argument on the conclusive evidence provision of the Guarantee from D1, to allow the amendment as proposed and then P will amend the Amended Statement of Claim would be a waste of time and costs.  I have also taken note that in the case of Chong Hing Bank Ltd (formerly known as Liu Chong Hing Bank Ltd) v Perfecta Dyeing Printing & Weaving Works Ltd & Others (unrep., HCA 956/2008, 5  February 2009), the late DHJC Carlson had accepted affirmation evidence in support of the conclusive evidence clause.

43. I also accept P’s submissions that the writ of summons with the amount of indebtedness verified and signed by the director of P will be sufficient evidence to constitute a statement as required by the Guarantee.

44. Although P is not allowed to bring in the evidence of conclusive evidence provision without pleadings, see Aspial Inv. Ltd. & Another v Mayer Corporation Development International Ltd. (2014) 17 HKCFAR 401 at §22, if D1 is allowed to make the amendment, P will certainly be allowed to amend the pleadings consequentially, bringing in the conclusive evidence provision of the Guarantee in the pleadings.  In such circumstances, D1 will have to answer.  If D1 is unable to answer it now, I see no reason that she would be able to answer it by then.

45. For the reasons above, I disallow D1’s application for the proposed amendments.

COSTS AND ORDER

46. As to the costs of this application, including the costs reserved, the parties agree that the costs of the application, including the costs for the call-over hearing, the costs for the 2 September hearing and today’s costs (with counsel’s certificate)  should be for the sum of $220,000 to be paid by D1 to P within 28 days from the date hereof.

47. I shall now make an order in terms as follows:

(a) D1’s summons be dismissed;

(b) The costs are as per paragraph 46 above.

CASE MANAGEMENT

48. By consent of the parties, leave be to P to set down within 42 days from the date hereof for a 5-day trial before a Judge in the fixture list in consultation with counsel’s diaries.  There shall be a pre-trial review before the trial judge for 30 minutes on a date 12 weeks before the trial.  The parties shall prepare the agreed/certified translation for the Chinese documents (if the case is before a monolingual judge), raise the issue of recusal, if applicable, and confirm the length of the trial at the pre-trial review.  At the setting down, the plaintiff’s solicitor shall produce a letter to the Listing Clerk to confirm that there are no outstanding interlocutory applications. Before the pre-trial review, all interlocutory applications shall be listed before the Registrar for argument.  The costs of this Case Management Conference (15 min) be in the cause of this action.