OCEAN BASE CO LTD v. TSANG CHIU MING AND ANOTHER

HCA 1916/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1916 OF 2015

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D E C I S I O N

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APPLICATIONS

1.  This is the hearing of the Defendants’ Summons dated 14 October 2015 to strike out the Plaintiff’s Statement of Claim endorsed on the Writ of Summons (“the Striking Out Summons”) and the Plaintiff’s Summons dated 25 November 2015 seeking, inter alia, leave to amend the Statement of Claim as per the Amended Statement of Claim dated 23 November 2015 (“the Amendment Summons”).        

BACKGROUND

2.  It is not disputed that:-

a) the 1^st Defendant was at all material times since 1 January 1992 a director and shareholder of the Plaintiff, and that he was entrusted with an American Express Credit Card issued in name of the Plaintiff.

b) the 2^nd Defendant was at all material times since 1 September 1994 the Financial Manager of the Plaintiff.

3.  On 21 August 2015, the Plaintiff instituted the present action and sought to claim from the Defendants jointly and severally the sum of $1,534,595.99.

4.  On 14 October 2015, the Defendants took out the Striking Out Summons to strike out the Plaintiff’s original Statement of Claim under O.18, r.19(1) of the Rules of High Court, Cap.4A (“RHC”) and the inherent jurisdiction of the Court.

5.  On 25 November 2015, the Plaintiff took out the Amendment Summons pursuant to O.20, r.5 of the RHC to amend the original Statement of Claim as per the Amended Statement of Claim dated 23 November 2015.

6.  In face of the two applications, it is only convenient that I should first deal with the Amendment Summons.

7.  In the draft Amended Statement of Claim, the Plaintiff avers that the Defendants were fiduciaries and trustees of the Plaintiff’s assets and properties, and therefore the Plaintiff sought inter alia, declaration that the 1^st Defendant and the 2^nd Defendant are liable to, account to the Plaintiff for the amount of HK$2,531,050.37 incurred on the American Express Card (or such other sum as the Court thinks fit) on the ground of breach of fiduciary duty and/or breach of trust and further as against 2^nd Defendant, dishonest assistance.

8.  Paragraphs 9 and 10 of the original Statement of Claim have been crossed out in the Amended Statement of Claim.

9.  In the course of the hearing, the Plaintiff proposed to make further amendment to the drafted Amended Statement of Claim. Plaintiff also undertakes to cause Statement of Truth to be signed and filed for the latest draft Amended Statement of Claim if leave to amend is granted.

10.  Mr Pao, Counsel for the Defendants submitted that the draft Amended Statement of Claim is fundamentally defective in that:-

(a) the nature of the 83 payments referred to in the draft Amended Statement of Claim have not been properly pleaded or particularized.

(b) it is alleged that 2^nd Defendant owed duties to the Plaintiff by reason only of her capacity as Financial Manager of the Plaintiff.

(c) it alleges that 2^nd Defendant acted in breach of fiduciary duty and in breach of trust when there is no allegation that she used the credit card to incur liabilities on behalf of the company.

(d) it seeks to introduce new claims based on payments allegedly made prior to July 2009 which are time‑barred under the Limitation Ordinance.

Applicable legal principles on amendment of pleadings

11.  Ms Yu, counsel for the Plaintiff, referred the Court to the case of Honey Bee Electronic International Ltd v Golden Lucky Co Ltd [2007] 3 HKLRD 524, where the Court of Appeal restated the guiding principles on amendment to pleadings in paragraph 11 as follows:

“Principles on amendment

11. It is sufficient for the purpose of this appeal to identify the following principles on amendment:

First, it is a guiding principle of cardinal importance on amendment that generally speaking, all such amendments ought to be made “for the purpose of determining a real question in controversy between the parties to any proceedings…” per Jenkins LJ in GL Baker Ltd v Medway Building and Supplies Ltd [1958] 1 WLR 1216 at p.1231.

Second, leave is readily granted, in respect of application to amend made before the trial or hearing, on payment of the costs occasioned, unless the opponent would be placed in a worse position than he would have been if amendment had been served in the first instance, see Hong Kong Civil Procedure 2008, Vol.1, p.368 para.20/8/10/.” (emphasis added)

12.  Order 20, rule 5 of RHC reads:-

“(1) Subject to Order 15, rules 6, 7 and 8 and the following provisions of this rule, the Court may at any stage of the proceedings allow the plaintiff to amend his writ, or any party to amend his pleadings, on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.

(2) Where an application to the Court for leave to make the amendment mentioned in paragraph (3), (4) or (5) is made after any relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so.

(3) An amendment to correct the name of a party may be allowed under paragraph (2) notwithstanding that it is alleged that the effect of the amendment will be to substitute a new party if the Court is satisfied that the mistake sought to be corrected was a genuine mistake and was not misleading or such as to cause any reasonable doubt as to the identity of the person intending to sue or, as the case may be, intended to be sued.

(4) An amendment to alter the capacity in which a party sues may be allowed under paragraph (2) if the new capacity is one which that party had at the date of the commencement of the proceedings or has since acquired.

(5) An amendment may be allowed under paragraph (2) notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment.”

13.  Order 20, rule 8 of RHC reads:-

“(1) For the purpose of determining the real question in controversy between the parties to any proceedings, or of correcting any defect or error in any proceedings, the Court may at any stage of the proceedings and either of its own motion or on the application of any party to the proceedings order a pleading or any other document in the proceedings to be amended on such terms as to costs or otherwise as may be just in such manner (if any) as it may direct.

(1A) The Court shall not under paragraph (1) order a pleading to be amended unless it is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

(2) This rule shall not have effect in relation to a judgment or order.”

14.  As said by Bowen L.J in the case of Cropper v Smith (1884) 26 Ch.D. 700 at 710-711, “It is a well established principle that the object of the Court is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights … I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party.  Courts do not exist for the sake of discipline, but for sake of deciding matters in controversy, and I do not regard such amendment as a matter of favour or grace … It seems to me that as soon as it appears that the way in which a party has framed his case will not lead to a decision of the real matter in controversy, it is as much a matter of right on his part to have it corrected if it can be done without injustice, as anything else in the case is a matter of right”.

15.  In Tildesley v. Harper (1878) 10 Ch.D. 393 at 396 and 397, Bramwell L.J. said: “My practice has always been to give leave to amend unless I have been satisfied that the party applying was acting mala fide, or that, by his blunder, he had done some injury to his opponent which could not be compensated for by costs or otherwise.” “However negligent or careless may have been the first omission, and however late the proposed amendment, the amendment should be allowed if it can be made without injustice to the other side.  There is no injustice if the other side can be compensated by costs”.  An amendment ought to be allowed if thereby “the real substantial question can be raised between the parties”, and multiplicity of legal proceedings avoided (Kurtz v. Spence (1888) 36 Ch.D. 774; The Alert (1895) 72 L.T. 124).

16.  Further, paragraph §18/19/5 of the Hong Kong Civil Procedure 2017 reads that:-

“Where an amendment is sought so as to avoid a strike out it is instructive that the Court will scrutinize such application on “strike out” principles: see Tsang Foo v. Chu Jim Mi Jimmy (unrep., HCA 7140/1995, [2013] H.K.E.C. 1652) per Master KW Lung.”

Pleading requirement for account, breach of fiduciary duty,

breach of trust and dishonest assistance

17.  Bullen & Leake & Jacob’s Hong Kong Precedents of Pleadings (Sweet & Maxwell, Thomas Reuters, 2013) (“Bullen & Leake (HK)”).  Section 26 on Accounts, p.748, says that:-

“The essential feature of the cause of action for an account is that the defendant is an “accounting party”, someone who is or has been in such a relation to the plaintiff that he is obliged to render an account (i.e. under a duty to account). Such a person may be an agent, a broker, a trustee, or a person who has rendered himself liable to account as a constructive trustee by reason of his dealings with property the subject of a trust or fiduciary obligation (see Section 41 below on “Constructive Trust and Tracing”). The circumstances in which an account may be ordered are almost infinitely variable (Bullen, Leake, and Jacob, Precedents of Pleadings (17^th ed, Vol 2, London, Sweet & Maxwell, 2012) p. 929).” (emphasis added)

18.  Section 22 on Constructive Trust and Tracing of Bullen & Leake (HK), p.665, §§22-15 to 22-16 reads:-

“22-15 Breaches of trust are of many different kinds. A breach of trust may be deliberate or inadvertent; it may consist of an actual misappropriation or misapplication of the trust property or merely of an investment or other dealing which is outside the trustees’ powers; it may consist of a failure to carry out a positive obligation of the trustees or merely of a want of skill and care on their part in the management of the trust property; it may be injurious to the interests of the beneficiaries or be actually to their benefit. A deliberate breach of trust is not necessarily fraudulent: Armitage v Nurse [1998] Ch 241 (Eng CA).

22-16 A breach of fiduciary duty is defined differently from a breach of trust, although a breach of fiduciary duty may also be a breach of trust.  A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.  The distinguishing obligation of a fiduciary is the obligation of loyalty.  It is important to note that not every breach of duty by a fiduciary is a breach of fiduciary duty.  A fiduciary who breaches his obligation owed in law and equity to use proper skill and care in the discharge of his duties has not committed a breach of fiduciary duty.  A breach of fiduciary duty is a breach of those duties which are special to fiduciaries and which attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory.  Those duties include the duty to act in good faith, not to make a profit out of the trust, not to place himself in a position where his duty and his interest may conflict, not to act for his own benefit nor the benefit of a third person without the informed consent of his principal.  A fiduciary may be guilty of breach of fiduciary duty notwithstanding that the breach was not deliberate or subjectively dishonest, but in each case there must be a breach of the fiduciary’s core duties of loyalty and fidelity: Bristol and West Building Society v Mothew [1998] Ch 1 (Eng CA); Akai Holdings Ltd (In Liq) v Thanakharn Kasikorn Thai Chamkat (Mahachon) (also known as Kasikornbank Public Co Ltd).  Mere incompetence is not enough.  Third parties fixed with liability as constructive trustees for dishonest assistance or knowing fiduciaries or subject to fiduciaries or subject to fiduciary obligationsII: Dubai Aluminium Co Ltd v Salaam, [141]; see also the discussion by the Court of Appeal and the Court of Final Appeal in Peconic Industrial Development Ltd v Lau Kwok Fai [2008] 4 HKLRD 473 (CA) and [2009] 2 HKLRD 537.”

19.  As for the elements for an action for dishonest assistance, section 22 of Bullen & Leake (HK) at pp.664-665, §§22-10 to 22-13 and 22-17 reads:-

“3. Elements of an action for dishonest assistance

22-10  The Claimant must plead and prove:

(1) that there has been a disposal of his assets in breach of trust or fiduciary duty;

(2) in which the defendant has assisted or which he has procured;

(3) The defendant has acted dishonestly; and

(4) resulting loss to the claimant.

22-11  (See Barnes v Addy (Eng CA); Royal Brunei Airlines v Tan [1995] 2 AC 378 (Eng PC); Twinsectra Ltd v Yardley [2002] AC 164, [2002] 2 WLR 802 (Eng HL). See also the CFI and CA decision in Peconic Industrial Development Ltd v Lau Kwok Fai (HCA 3083/2002, 1 June 2006) [2006] HKCFI 525 (CFI) and [2008] 4 HKLRD 473 (CA), High Fashion Garments Co Ltd v Ng Siu Tong and Menno Leendert Vos (substituted pursuant to the Order of A Cheung, K dated 18 October 2006) v Global Fair Industrial Ltd.)

22-12  Liability for dishonest assistance is not restricted to those who assist in the original disposal of funds in breach of trust or fiduciary duty.  It extends to everyone who consciously assists in the continuing diversion of the money: Twinsectra Ltd v Yardley [2002] UKHL 165 (Eng HL), [2002] 1 AC 164 at [107].”

22-13  In Ultraframe (UK) Ltd v Fielding, Lewison J held that a dishonest assistant can be held liable not only for any loss which the beneficiary suffers as a result of the breach of trust but also to account for any profit which he himself has made from his dishonest assistance or from the underlying breach of trust (but not for any profits made by the defaulting fiduciary or others): See paras.1589-1601.  In Sinclair Investments Holdings SA v Versailles Trade Finance Ltd, Rimer J appears to have doubted (without expressing a concluded view on the matter) whether this statement of principle was correct but he did hold that any profits obtained by a dishonest assistant were not held on constructive trust.  Accordingly, the beneficiary or principal whose assets have been disposed of in breach of trust or fiduciary duty has no proprietary claim arising under a constructive trust in respect of any identifiable benefit obtained by a dishonest assistant: see paras.109-135.”

22-17  In an action for dishonest assistance, also called “accessory liability”, the Court of Appeal has held that it may be sufficient to plead a breach of fiduciary duty in relation to, eg the management of a company’s property, although there has been no disposal of property in breach of trust or fiduciary duty: Brown v Bennett [1999] BCC 525, (Eng CA); Hecny Shipping Ltd v Huang Chun Jen Jerry (HCA 1126/2007, 3 November 2011) [2011] HKCFI 1568 (CFI in Chambers).  However, the boundaries of the cause of action are unclear.  If possible, it would be preferable on such facts to plead an alternative or additional case based on, eg procuring a breach of contract.” (emphasis added)

20.  The meaning of “dishonesty” for the purposes of dishonest assistance is stated in the same section of Bullen & Leake (HK) [C/2] at pp.665-667, §§22-19 to 22-24.  In particular, it is stated at p.667, §22-24 that:

“22-24  An allegation of dishonesty must be pleaded clearly and with particularity: Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250, 268 (Eng CA); Deak Perera Far East Ltd v Chase Manhattan Bank, NA [1995] 2 HKC 28(CA).”

In Peconic Industrial Development Ltd v Lau Kwok Fai (2009) 12 HKCFAR 139 [C/3], the Court of Final Appeal confirmed at §§24-26 that the limitation defence provided by s.20 of the Limitation Ordinance, Cap.347 is denied to express trustees and fiduciaries (i.e. persons who, without any express trust, have assumed fiduciary obligations in relation to the trust property, for example as purchaser on behalf of another, trustee de son tort, company director or agent holding the property for a trustee) but it is available to non-fiduciaries such as dishonest assisters.”

DISCUSSION

21.  The Defendants opposed the Amendment Summons.

22.  They say that in the original Statement of Claim, no particulars were given by the Plaintiff as to the sum of HK$1,534,595.99 which the Defendants allegedly jointly deceived the Plaintiff.

23.  Further, they say in the draft Amended Statement of Claim, the Plaintiff now seeks to increase the claim from HK$1,534,595.99 to HK$2,531,050.37 by adding certain payments prior to July 2009 not originally pleaded in the Statement of Claim.

24.  They say even now that particulars were given as to the date and amount of each payments, whether by cheques issued by the Plaintiff, with cheque number and the identity of drawing bank or dates and amount of sums debited from the Plaintiff’s Bank of China bank account, the draft Amended Statement of Claim is still fundamentally defective.

25.  The relevant paragraph in the draft Amended Statement of Claim reads:-

“Between about February 2007 and February 2014, in breach of their fiduciary duties and/or in breach of trust, and without the informed consent of the Plaintiff, the 1^st Defendant used the Card for his own benefit and/or the benefit of third persons who were not the Plaintiff’s clients, and incurred expenditures which were not made for any legitimate commercial or other purpose of the Plaintiff’s business or interests.”

26.  The Defendants complained the Defendants are not aware of the nature of the individual 83 payments, whether they were payments for the personal benefit of the 1^st Defendant or for the benefit of third person or were not for the Plaintiff’s clients incurred for any legitimate commercial or other purpose of the Plaintiff’s benefits. They were also not aware of the material facts in support of such allegation. As a matter of fairness, the Defendants say they are entitled to know the full particulars of the case advanced against them with respect to each of these payments.

27.  Under RHC Order 18, rule 7(1), every pleading must contain a statement of the material facts on which the party pleading relies for his claim.  This is to enable the other side the properly understand the case to be met.  See White Book 2017 at §18/7/7.

28.  They submitted therefore that the draft Amended Statement of Claim fail to comply with RHC Order 18, rule 7(1), as it is contrary to the purpose of properly particularized pleadings. 

29.  They referred this Court to what Bokhary JA held in ADS v Wheelock Marden [1994] 2 HKC 264, 269I-270C, where the Defendants say the Plaintiff should inform the other side of the nature of the case that they have to meet, so that the other side will not be taken by surprise at trial.

30.  This, they say, will enable the other side to know what evidence they ought to prepare for trial, so that they are able to limit the generality of pleadings, the claim and evidence and also to limit and define the issues to be tried and as to what discovery is required.  The pleadings will tie the hands of the parties so that they cannot, without leave, go into matters not included.

31.  Here, the Defendants say they can only speculate as to the precise case of the Plaintiff with respect to each payment.

32.  The Defendants further say that the Plaintiff need to prove they suffer the claimed amount as loss to the Company.

33.  Mr Pao also criticized the stance taken by the Plaintiff, that the burden lies on the Defendants to establish that the subject payments were justified.

34.  He says in the present case, the Defendants did not actually receive any corporate assets or property which would trigger the liability to account.  Putting the Plaintiff’s case to the highest, he says, all that occurred is that the Plaintiff was subjected to a liability to the credit card company by reason of the various payments.  The actual corporate funds of the Plaintiff were not received by the Defendants, but rather the credit card company.  In this connection, the Plaintiff bears the onus of proving that the Defendants have received property into their control in circumstances sufficient to import an equitable obligation to handle the property for the benefit of another: see Snell’s Equity, 33^rd ed., at §20-015.

35.  He says the burden of proof on a fiduciary to prove proper discharge may arise on the taking of the account itself, but the court is not yet concerned with that stage.  Before a party can be ordered to account, the liability to account must first be established: see Snell’s Equity, 33^rd ed., at §20-015, 20-018.

36.  In any event, the authorities as to burden of proof of a fiduciary do not support the proposition that at the pleading stage it is unnecessary to provide proper particulars with respect to the nature of payments made.

37.  The Defendants submitted further that in the case against 2^nd Defendant, the pleading that 2^nd Defendant owed fiduciary duties to the Plaintiff was solely based on the fact that she was the Financial Manager of the Plaintiff.

38.  They say the Plaintiff fails to state the necessary material facts in support of the allegation that 2^nd Defendant owed fiduciary duties to the Plaintiff, other than being the Financial Manager.  The draft Amended Statement of Claim is therefore defective and the averment that 2^nd Defendant acted in breach of fiduciary duty or trust is also defective.

39.  He further stated that it is established law that the mere existence of an employment relationship is insufficient in itself to generate a fiduciary duty owed to the employer.  Any fiduciary duties result from the fact that within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes these rigorous duties in addition to contractual obligation: see Fiduciary Duties, Directors and Employees (2^nd ed) at §3.86; University of Nottingham v Fishel [2000] ICR 1462, 1491E-H cited with approval in Noble Spirit t/a Life Solutions v Wong Shu Yuen, HCA 842/2011, 23 December 2013.

40.  Whether an employee owes a fiduciary duty to his employer therefore depends on material facts which are in addition to the mere existence of an employment relationship.

41.  He submitted that in the present case, contrary to the requirements in RHC Order 18, rule 7(1), no such material facts are pleaded at all.  This is defective and insufficient and the case as pleaded against 2^nd Defendant in draft Amended Statement of Claim and therefore amendments in paragraphs 3A, 6B and 7 should not be permitted.

42.  Mr Pao says the 2^nd Defendant never used the credit card in question.  The same was used by 1^st Defendant alone and the mere fact that she had given instructions to vary the mode of payment for credit card or issued cheques in payment of credit card sums without informed consent of the Plaintiff do not constitute a breach of fiduciary duty.

43.  Initially, the Defendants also opposed the Amendment Summons by reasons that limitation defence of six years applies to cases of dishonest assistance: see Peconic Industrial Development Ltd v Lau Kwok Fai [2009] 12 HKCFAR 139; Williams v Central Bank of Nigeria [2014] AC 1189 as they say that for the sums claimed which existed prior to August 2009 i.e. the sums claimed under paragraph 6C of the Amended Statement of Claim are time barred even at time of issuance of the present action.  Such amendment to include claims for these sums should not be allowed as the Defendants would be prejudiced.

44.  Defendants further say that in the present case, the breach of fiduciary duty and breach of trust attracts limitation period of 6 years and is subject to time bar in Section 20 of the Limitation Ordinance.

45.  Section 20 of Limitation Ordinance Cap.347 , Laws of Hong Kong reads:-

“Limitation of actions in respect of trust property

(1) No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Ordinance, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property, until the interest fell into possession.

(3) No beneficiary as against whom there would be a good defence under this Ordinance shall derive any greater or other benefit from a judgment or order obtained by any other beneficiary than he could have obtained if he had brought the action and this Ordinance had been pleaded in defence. [cf. 1939 c. 21 s. 19 U.K.]”

46.  Defendants submitted in order to take advantage of Section 20 of the Limitation Ordinance, the fiduciary must have assumed fiduciary obligations in relation to the trust properly whereas Mr Pao says the present case does not involve misappropriation of Company assets or property by a party which stood in fiduciary relationship to the Plaintiff.

47.  Mr Pao asks the court to refuse the Amendment Application.

48.  Firstly, the present action is only in its early stage of the proceedings.  It was only 12 days after the Defendants filed their defence that they took out the Striking Out Summons followed by the Amendment Summons by the Plaintiff five week later.

49.  As said earlier, the Court generally allows amendment for the purpose of determining real questions in controversy between the parties.

50.  Apart from the time bar issue which relates to payments prior to August 2009, the Defendants did not oppose the Amendment Application by reason by prejudice which cannot be compensated by costs.

51.  All along, the Plaintiff has accepted that they have to bear all costs of and incidental to the amendment.

52.  As Ms Yu, counsel for the Plaintiff submitted, the proposed amendments merely serve to substitute the original cause of action of deceit with account, breach of fiduciary duty, breach of trust and dishonest assistance.  These causes of action, though newly pleaded, arise out of substantially the same facts, namely, the Defendants’ use of the American Express Card for purposes other than entertaining the clients of the Plaintiff at the material times.  The Defendants therefore should not be taken by surprise by these amendments.

53.  Plaintiff has also deleted paragraph 9 and 10 of the original Statement of Claim, the inclusion of these paragraphs have been objected to by the Defendants before as being irrelevant, embarrassing and prejudicial to the Defendants.

54.  It is said by Ms Yu, counsel for the Plaintiff that the requisite elements of the new causes of action, as explained in Bullen & Leake (HK) have been included in the Amended Statement of Claim.  Further, she submitted that it is for the Defendants to establish justification for their dealings as the Plaintiff is not required to plead and prove that the payments were not justified: Ross River Ltd and another v Waveley Commercial Ltd and others [2014] 1 BCLC 545 at §§64 & 94; Psycare Ltd v Mundy & anor [2013] EWHC 4573 (Ch) at §§30-31 & 42.  The burden is thrown on the Defendants to provide justifications for those payments, which the Defendants have not yet disclosed in the Defence they filed on 2 October 2015.

55.  Ms Yu says further that it is entirely appropriate for the Plaintiff to plead account, breach of fiduciary duty, breach of trust and dishonest assistance on the facts of this case.

56.  In the course of the hearing, Ms Yu for the Plaintiff proposed further amendments to the draft Amendment Statement of Claim in which the Plaintiff pleads concealment by the Defendants. The Plaintiff is entitled to plead claims for these payments prior to August 2009 as they are clearly not time barred by reason of Section 26 of the Limitation Ordinance.

57.  Section 26 of the Limitation Ordinance reads:-

“Postponement of limitation period in case of fraud, concealment or mistake

(1) Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either—

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

(2) References in subsection (1) to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent.

(3) For the purposes of subsection (1), deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

(4) Nothing in this section shall enable any action—

(a) to recover, or recover the value of, any property; or

(b) to enforce any charge against, or set aside any transaction affecting, and property,

to be brought against the purchaser of the property or any person claiming through him in any case where the property has been purchased for valuable consideration by an innocent third party since the fraud or concealment or (as the case may be) the transaction in which the mistake was made took place.

(5) A purchaser is an innocent third party for the purposes of this section—

(a) in the case of fraud or concealment of any fact relevant to the plaintiff’s right of action, if he was not a party to the fraud or (as the case may be) to the concealment of that fact and did not at the time of the purchase know or have reason to believe that the fraud or concealment had taken place; and

(b) in the case of mistake, if he did not at the time of the purchase know or have reason to believe that the mistake had been made.

(6) Sections 31 and 32 shall not apply to any action to which subsection (1)(b) applies (and accordingly the period of limitation referred to in that subsection, in any case to which either of those sections would otherwise apply, is the period applicable under section 4(1)).”

58.  The submission by Mr Pao on the time bar issue, in my view, is no longer arguable in view of the further paragraphs added to the draft Amended Statement of Claim, i.e. addition to paragraphs 6B, 6C, 7, 7A, 8AA regarding concealment of the relevant facts from the Plaintiff resulting in the Plaintiff not having discovered the alleged breaches until sometime around January 2014, as pleaded in the latest draft Amended Statement of Claim.

59.  The other complaints by the Defendants as to the nature of the individual payments are not grounds for refusing leave to the Plaintiff to amend the Statement of Claim.  I have no doubt that the Defendants clearly knows the case that they are going to meet, namely that the credit card entrusted to 1^st Defendant by the Plaintiff had been used for purpose other than the designated purpose of entertaining Plaintiff’s clients and 2^nd Defendant was assisting him dishonestly.

60.  In any event, there is nothing to prevent their seeking further and better particulars of the pleadings if they deem fit.  That is however not a valid ground for refusing leave to amendment.

61.  It is the Plaintiff’s case that the 1^st Defendant, is a director of the company entrusted with the credit card of the Plaintiff, given to him for entertaining clients of the Plaintiff.  Of course, he owes a fiduciary duty to the company in relation to the possession and use of the credit card.

62.  As for the 2^nd Defendant, she is the financial manager of the Plaintiff, contractually under the duty to manage the financial matters of the Plaintiff including that of managing the operation of bank accounts of the Plaintiff and safeguarding the assets of the Plaintiff.

63.  It is the Plaintiff’s case that she was able to take part in varying the mode of settling the credit card payments.  Her important role with the Plaintiff in the circumstances would have given rose to a relationship of trust and confidence.

64.  In such circumstances, the facts substantiating the existence of the fiduciary duty of 2^nd Defendant to the Plaintiff in financial matters of the Plaintiff has, in my view, been sufficiently pleaded. 

65.  All elements for account, breach of trust and breach of fiduciary duty as well as concealment has been pleaded in the latest Amended Statement of Claim.

Conclusion

66.  There is no good reason at all why the Court should not exercise discretion to grant leave to the Plaintiff to amend the original Statement of Claim to the latest draft Amended Statement of Claim.  Accordingly, I allow the Amendment Summons.

67.  Leave to the Plaintiff to amend the original Statement of Claim as per the Amended Statement of Claim annexed to the Amendment Summons and as varied on the 20 July 2016, the same to be filed within 7 days from today.  Re-service of the same on the Defendants be dispensed with.

68.  Leave to the Defendants to file and serve the Amended Defence within 21 days thereafter.

69.  Leave to the Plaintiff to file and serve with his Reply within 21 days thereafter.

70.  Having ruled the Amendment Summons, I now deal with the Striking Out Summons.

71.  The Defendants submitted that the original Statement of Claim pleading fraud is hopelessly defective.

72.  The relevant paragraphs are paragraphs 7 and 8 of the same which reads:-

“7. On 24 June 2009, the 1^st Defendant and the 2^nd Defendant conspired to deceive the Plaintiff by giving instructions to the issuing bank to vary the payment method of the Card from cheque settlement to autopay from the Plaintiff’s account.

8. Between the period August 2009 to February 2014, the 1^st and 2^nd Defendants jointly deceived the Plaintiff in the amount of HK$1,534,595.99 claiming the amount was expenses incurred for entertainment purpose.”

73.  They say the Plaintiff has now abandoned the cause of action in the Amended Statement of Claim and the Plaintiff must be taken to have accepted that its original cause of action was unsustainable as pleaded.

74.  The Defendants say therefore the Court should allow the Striking Out Summons.

75.  It is well established that an allegation of fraud must be pleaded distinctly and with the utmost particularity: see White Book 2017 at §18/12/16; per Bokhary JA (as he then was) in Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co Ltd [1994] 2HKC264 and it is not allowable to leave fraud to be inferred from the facts.

76.  It is submitted that the Statement of Claim falls far short of meeting the stringent requirements for a properly pleaded allegation of fraud.

77.  Plaintiff says that although the Defendants took out the Striking Out Summons under Order 18 rule 19(1) of RHC, one can see from their submission that they are relying only on Order 18 rule 19(1)(a) of the RHC.

78.  O.18, r.19(1) and (2) provides that:

“(1) The Court may, either of its own motion or on application, at any stage of the proceedings order to be struck out or amended any pleading or the indorsement of any writ in the action, or anything in any pleading or in the indorsement, on the ground that-

(a) it discloses no reasonable cause of action or defence, as the case may be; or

(b) it is scandalous, frivolous or vexatious; or

(c) it may prejudice, embarrass or delay the fair trial of the action; or

(d) it is otherwise an abuse of process of the court;

and may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.

(2) No evidence shall be admissible on an application under paragraph (1)(a).”

79.  They say the Court should only strike out a claim in plain and obvious causes, where the claim must be “obviously unsustainable” and the pleadings “unarguably bad” Ha Francesca v Tsai Kut Kan & others (No.1) [1982] HKC 382.

80.  In case where a deficient Statement of Claim can be remedied by amendment or if it is defective only for want of particulars, the same should not be struck out.  C.T. Foundation Group Ltd v Best Max Holding Ltd (unrep., HCA 787/2011, 3 June 2013).

81.  Ms Yu for the Plaintiff also invited the Court to consider the case of Patriarch Partners Media Holdings LL v Wong Siu Wa Sammy (unrep., CACV 248/2014, 22 May 2015) [C/12], in which the Court of Appeal held at §§16-17 that although the plaintiff’s pleaded case on misrepresentation and conspiracy was defective, it was not a case for striking out because both causes of action were capable of being salvaged by the proposed amendments in the re-amended statement of claim.

82.  Further, she submitted that a pleading that includes non-essential facts or averments is not, for that reason, liable to be struck out.  In Ma Toi Ling & anor v Lam Man Kwong (unrep., HCA 2208/2014, 5 January 2016) [C/13], Chow J said at §25 that the Court does not sit to micro-examine every pleading and does not insist on perfect pleadings in every case and that even if the Statement of Claim disclosed no reasonable cause of action, it does not follow that the action has to be dismissed.

83.  She relied on the case of Sun Focus Investment Limited v Tang Shing Bor & anor (unrep., HCA 538/2007, 5 October 2009) (“Sun Focus (No 1)”) [C/14], where Recorder Paul Shieh, SC struck out the whole statement of claim but did not dismiss the action, and instead gave the plaintiff a short timeframe to amend the statement of claim again:

“32.  The question, then, is whether or not the pleading should be struck out and the action dismissed or whether or not the plaintiff should be given a chance to salvage the matter by being given a chance to file an amended pleading or to apply for leave to file an amended pleading.”

84.  In paragraph 33 of the judgment, the learned Recorder said that:

“33. It is well known that from time to time the courts strike out a pleading without dismissing the action because from the mass of materials filed the court can see that although the original pleading did not perhaps disclose a reasonable cause of action, there could just be enough underlying facts disclosed in the evidence to enable a pleader to plead a proper pleading. If that is the case in our present action, then the proper course to take would be to strike out the action, not to dismiss the claim, but to give a short timeframe for the plaintiff to apply to amend the Statement of Claim again. ... (emphasis added)”

85.  It is advanced by Ms Yu for the Plaintiff that regardless of how defective the original Statement of Claim might have been, it can be remedied by the proposed amendment as per the Amended Statement of Claim and borrowing the words of Recorder Paul Shieh, SC in Sun Focus (No 1), there are “enough underlying facts disclosed in the evidence to enable a pleader to plead a proper pleading” and “viable cause of action could conceivably be pleaded”, namely, an action for account, breach of fiduciary duty, breach of trust and dishonest assistance.

86.  As for the Defendants complaints about paragraphs 9 and 10 of the original Statement of Claim, the Plaintiff says these are only “non‑essential facts or averments”, the inclusion of which is not ground for striking out the original Statement of Claim.

87.  Firstly, I took the view that the original Statement of Claim is an example of poor pleadings.  The cause of action being conspiracy, deceit and fraud, yet numerous requisite essential elements are lacking in the original Statement of Claim.

88.  One can see however that there are enough underlying facts which enable pleader to plead a proper cause of action and viable cause of action would conceivably be pleaded.

89.  I accept that though paragraphs 9 and 10 should not be included in the original Statement of Claim, that is not sufficient ground to strike out the whole Statement of Claim and dismiss the action.

90.  In the circumstances of this case, I find it not totally unreasonable for the Defendants to take out the application for striking out the Statement of Claim in the first place, however, once the Plaintiff has taken out the Amendment Summons with the draft Amended Statement of Claim annexed thereto, it would be unreasonable for the Defendants to proceed with the Striking Out Summons in its entirety.  I am however aware of the arguable limitation issue pertaining to the draft Amended Statement of Claim, and that the latest further amendment to the draft Amended Statement of Claim was very late.

CONCLUSION

91.  Accordingly, I make no order in respect of the Striking Out Summons.

COSTS

92.  Costs is always a matter of discretion of the Court.

Amendment Summons

93.  It is conceded by the Plaintiff that all cost of and occasioned by the amendment be borne by the Plaintiff.

94.  As for the cost of the Amendment Summons, the Plaintiff shall pay the Defendants costs of the same until 9 December 2015. This allows the Defendants sufficient time to consider the Amendment Summons.  In fact, that is the date the Defendants replied the Plaintiff that they will object to the Amendment Summons. 

95.  However as from 10 December 2015, except for the limitation issue which might be arguable, in my view, it is unreasonable for the Defendants to object to the Summons. Lessy S.A.R.L. v Pacific Star Development Ltds ann. [1996] 21 HCLR 1.

96.  All the objections raised by the Defendants are not meritorious.  The only arguable issue is the limitation issue which relates to the sums under paragraph 8C of the draft Amended Statement of Claim. Nevertheless, this Court has reservation on the application of the Peconic case in the present action where the 2^nd Defendant is a fiduciary to the Plaintiff.

97.  The Defendants had chosen to object to all proposed amendments in the draft Amended Statement of Claim.

98.  On the other hand, it is also true the Plaintiff has chosen only to tender the final version of the proposed amendments in the middle of the hearing.

99.  I make an order nisi that the costs of the Amendment Summons as from 10 December 2015 be Plaintiff’s costs in the cause.

Striking out Summons

100.  In the circumstances of this case, I make an order nisi that the Plaintiff shall pay the Defendants costs of the Striking out Summons up to the 10 December 2015 and therefore, cost of the Striking out Summons be the Plaintiff’s costs in the cause of the action.

101.  I thank both Counsels for their assistance.