SHIH MEI LING formerly known as SHIH MEI LING v. SHIH MEI KEI

HCA 797/2018

[2021] HKCFI 2964

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 797 of 2018

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J U D G M E N T

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1.  This is the Plaintiff’s appeal from a Master’s decision dated 9 February 2021.  The Master dismissed the Plaintiff’s summons dated 15 September 2020 (“Summons”) for leave to amend her Statement of Claim dated 20 June 2018 (“SOC”) and to expunge her Voluntary Further and Better Particulars filed on 20 August 2018 (“Voluntary Particulars”).  This appeal comes to me by way of a fresh hearing.

BACKGROUND

2.  The Plaintiff and Defendant are sisters, and the Defendant is the youngest sister in the family.  The underlying dispute concerns the beneficial ownership of a residential property in Cayman Rise, No 29 Ka Wai Man Road, Hong Kong (“Property”).

3.  The Plaintiff originally purchased the Property in 2008 for HK$3,280,000.  In 2015, the Plaintiff sold the Property to the Defendant for HK$6,000,000 (“2015 Transaction”).  The 2015 transaction was effected by a provisional sale and purchase agreement dated 15 January 2015, an agreement for sale and purchase dated 27 January 2015 and an assignment dated 27 February 2015. 

4.  The Property was later sold by the Defendant in March 2018 at a consideration of $9,000,000 (“2018 Transaction”) to a third party.  The sale proceeds of the 2018 Transaction, less mortgage redemption monies and expenses, have been paid into Court pending the determination of this action.[1]  This dispute is effectively over the entitlement to those proceeds.  The Plaintiff claims to be entitled to them on the basis that she is true beneficial owner of the Property, even though the Defendant became the registered owner under the 2018 Transaction. 

5.  This action was commenced by a Writ issued on 10 April 2018.  The SOC was filed on 20 June 2018.  The Plaintiff was represented by Messrs. Ko & Chow, and the SOC was drafted by counsel.  The SOC contains a Statement of Truth, in both Chinese and English, signed by the Plaintiff stating her belief that the facts stated in the SOC are true.  Below the Statement of Truth, there is a signed certificate by a solicitor, Mr. Cheung Hoi Ki (“Mr. Cheung”), stating that the SOC and Statement of Truth were translated to the Plaintiff and that she appeared to understand them and approved their contents as being accurate.    

6.  In broad outline, the Plaintiff’s pleaded case in the SOC is that during the course of at least two discussions in about late November 2014 and early 2015, the Plaintiff and the Defendant came to a common understanding, agreement or express arrangement that the Plaintiff would transfer the Property into the sole name of the Defendant.[2]  However, the Plaintiff would remain the sole beneficial owner of the Property, and the Defendant would have no such interest and hold the Property as a mere nominee for the Plaintiff.  As of 15 January 2015,[3] the Plaintiff’s case is that she was the sole legal and beneficial owner of the Property.[4]  Further, the Plaintiff alleges that in reliance on the common understanding, the Plaintiff solely contributed to the purchase of the Property, and the Defendant contributed nothing financially since she had no means to do so.[5]  She says that the Defendant wrongfully claimed herself to be the sole beneficial owner of the Property, and as such, the Defendant wrongly alleged that she was solely entitled to the proceeds of the 2018 Transaction.[6]  

7.  On 20 August 2018, the Plaintiff filed the Voluntary Particulars.  These were given in response to the Defendant’s request dated 26 June 2018 for further and better particulars of the SOC.  Some of the requests were entertained and particulars were provided, but others were refused.  A significant portion of the particulars related to details concerning the details of the alleged financial contributions of the Plaintiff.  There were also particulars provided of the discussions in November 2014 and early 2015 which the Plaintiff relied upon to support her pleaded case of common understanding in the SOC.    

8.  On 15 September 2020, the Plaintiff took out the subject application.  Apart from expunging her own Voluntary Particulars, the Plaintiff also sought leave to amend her statement of claim in the manner shown in the draft Amended Statement of Claim annexed to the summons (“Draft ASOC”). I will turn to the proposed amendments below.     

THE PROPOSED AMENDMENTS

9.  The Draft ASOC contains very substantial amendments to the Plaintiff’s claim.  The vast majority of the SOC has been re-written, and includes a significant amount of background facts which was not previously pleaded.   The Draft ASOC was prepared by new counsel.

10.  I do not propose to set out in the Draft ASOC in detail.  For present purposes, the important amendments are as follows.

11.  The first, and most obvious, proposed amendment is that the previous pleading relating to the common understanding in SOC §3 has been removed in the Draft ASOC.

12.  In contrast, the Plaintiff now alleges that there was an oral agreement with the Defendant prior to 15 January 2015 that the Property would be sold to the Defendant but subject to a number of conditions.  One of these conditions was that the Defendant would live in the Property to take care of her elder sister, Shih Po Chuen, unless the Defendant gets married.[7]  The Plaintiff discovered that the Defendant moved out of the Property on 19 February 2015 without giving any prior notice, and this was a breach of one of the conditions previously agreed between them.[8]

13.  On 9 April 2015, the Plaintiff and Defendant met and the Defendant indicated that she had overestimated her ability to repay the mortgage, and requested the Plaintiff to continue paying the mortgage for her.[9]  There was an oral agreement that the Plaintiff would be responsible to pay the mortgage installments, government rent and management fees.  However, the Defendant would not be the legal or beneficial owner of the Property, and would be a constructive trustee holding the Property in trust for the Plaintiff.[10] Accordingly, since 9 April 2015, it was the common intention that the Plaintiff would be the sole beneficial owner of the Property and the Defendant would hold the Property under a common intention construction trust in favour of the Plaintiff absolutely.[11]

14.  From the above overview, although the Plaintiff still seeks to establish that she is the true beneficial owner of the Property, it is apparent that the Plaintiff has changed her factual case substantially from what was originally pleaded and verified by her Statement of Truth.  The Defendant objects to this, and maintains that the Plaintiff should not be entitled to leave to amend unless there is a proper explanation for the change of case. 

15.  At the hearing before me, there was no dispute between the parties that the proposed amendments in the Draft ASOC and the application to expunge the Voluntary Particulars were to be considered together and they stood or fell on an ‘all or nothing’ basis. 

EXPLANATION FOR CHANGE IN CASE

16.  The Plaintiff’s explanation for her change of case is that ‘background, information and all materials’ were provided to her former solicitors but not all information was pleaded.  She claims that she left what should be pleaded to her lawyers, and that she did not know that material facts were missing from the SOC.  She placed trust in her former legal team, and she was a layman with no litigation experience.  She alleges that she had never been explained the contents of the SOC or the Statement of Truth by anyone.  

17.  With respect to the Statement of Truth, the Plaintiff says that she was asked by her former solicitors to sign it before having sight of any draft SOC.  An e-mail dated 7 June 2018 from her former solicitor was produced requesting the Plaintiff to print two copies of the statement of truth and to sign them.  On 14 June 2018, the Plaintiff was sent a final draft of the SOC by e-mail.  She was requested to send an e-mail confirming that she read the SOC, and that she confirmed that the facts stated in the SOC were true. 

18.  She blames former counsel for ‘mistakes’ in the SOC in the following terms:

“ … Admittedly, I have made some mistakes in terms of when these meetings took place but much more important is that there were these meetings in which we discussed about selling the property to her and not as my previous Counsel twisted it to be meetings for just holding the suit property in trust for me. The meetings for holding the property in trust for me came later”.

19.  Against the above background, the Plaintiff seeks leave to amend to rectify these ‘mistakes’ and to allow what she now says is the ‘real question’ in dispute to be determined at trial in these proceedings.

LEGAL PRINCIPLES

20.  Amendments to pleadings are generally allowed for the purpose of determining the real question in controversy between the parties to any proceedings or to correct any defect or error in any proceedings.  Moreover, precluding a party from raising a case by way of amendment which has not been put forward at trial is a drastic measure, and should only be done in plain cases: Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 at §§25-26 per Cheung JA.

21.  The primary aim in the exercise of powers of the court is to secure the just resolution of disputes in accordance with the substantive rights of the parties: RHC Order 1A, rule 2(2).  On an amendment application, the court must have regard to the underlying objectives in RHC Order 1A and balance all relevant factors to decide how its discretion should be exercised if the application is made in circumstances offending one or more of the underlying objectives.  It cannot be assumed that once the principles in Ketteman v Hansel Properties [1987] AC 189 are satisfied that the amendment will be allowed: Topwell Corp Ltd v Kwan Kam Kee [2014] 5 HKLRD 1 at §39 per Kwan JA.    

22.  A pleading must be verified by a statement of truth.[12] A statement of truth is a statement that the party putting forward the document believes that the facts stated in the document are true.[13] The court has power to strike out a pleading that is not verified by a statement of truth,[14] and contempt proceedings may be brought against a person if he makes a false statement in a document verified by a statement of truth without an honest belief in its truth.[15] Moreover, a statement of truth verifying facts in a pleading which are subsequently deleted by amendment will not be regarded as if it was never made.[16]

23.  Although a statement of truth is not an affidavit, it has an important role under our civil procedure rules.  The requirement seeks to ensure that only genuine and honest claims are advanced in our courts, to deter claims from being made without factual foundation, and to encourage discipline and precision in setting out a party’s case.  Moreover, in my view, the requirement ensures that the client has personally approved of the case presented and cannot later seek to shift responsibility to his legal representatives when it is convenient to do so.  In my judgment, it is readily apparent that a statement of truth advances each of the underlying objectives set out in RHC Order 1A, rule 1.  

24.  Therefore, where a party advances a defective case which is verified by a statement of truth and where it is a demonstrated that the verification should never have been made in the first place, a proper explanation as to why the amendment should be granted may be necessary especially where it relates to an integral aspect of the case.  The burden rests on the party seeking the amendment, and although there is no hard and fast rule, it should not be assumed that the court will necessarily grant the amendment as a matter of course even where an explanation has been offered. Each case will depend on its own facts.    

25.  In Tong Kin Hing v Auton Mauritius Corp [2010] 1 HKLRD 77, Rogers VP[17] struck out a derivative action commenced by a shareholder and director of a company for breach of fiduciary duty in relation to the arrangement of certain loans by the company.  The plaintiff did not disclose in his statement of claim, which was verified by a statement of truth, that the loans were made according to an agreement between all shareholders and directors, and that the plaintiff himself had also approved almost all of the loans in question.  Thus the action was struck out, and Rogers VP declined to allow the plaintiff an opportunity to amend in order to reformulate the case based on a legitimate complaint. 

26.  I agree with Rogers VP’s observations at §19 on the importance of a statement of truth and its role in the achievement of the underlying objectives of civil litigation.  Rogers VP stated:   

“Hence, the seriousness of the statement of truth cannot be brushed aside. It may not be an affidavit or an affirmation but the rules themselves treat the statement with similar seriousness. The requirement of a statement of truth is important. Its purpose is to focus the mind of the relevant party and to deter sloppy or speculative pleadings and prevent dishonest cases being put forward. It is a very important part of the court process in applying the rules. In this respect, as much as in any other, the requirement serves to help the court and the parties to achieve the underlying objectives which are set out in O.1A1 r.1 of the Rules of the High Court” (emphasis added).

27.  Further at §20:

“In my view, when faced with a situation where a pleading has been verified in circumstances where it has been demonstrated that the verification should never have been made, the court should be very slow to permit any amendment to that pleading. If the part of the pleading that is defective is the central part of a claim then the court may well consider that the pleading should be struck out and party left to whatever course is open to him in bringing new proceedings. It is a matter of discretion and in exercising that discretion the court recognises that the primary aim in exercising its powers is to secure the just resolution of disputes in accordance with the substantive rights of the parties. Hence, there can be no hard and fast rule, but the onus lies heavily on the part in default”.

28.  More recently, in Joesh Overseas Ltd v Lee Sai Nam & Ors. [2020] HKCFI 350, Harris J refused to grant leave to re-amend an amended petition.  After referring to Rogers VP’s judgment in Tong Kin Hing, Harris J held at §14 that the onus lies on the applicant seeking to change his case in a manner inconsistent with an earlier statement of truth to explain why he came to make a mistake. At §17, Harris J stated:

“… It seems to me that in these circumstances the Court should decline leave to make the amendments. The significant change of case, particularly against the backdrop of previous litigation in which various judges have rejected Ken Li’s case, require a proper explanation for the changes. None has been forthcoming. Although I would not reject the application on what I shall call the Lawrence v Lord Norreys principle, although I harbour serious concerns about the veracity of the new case, I will do so on the grounds explained by Rogers VP in Tong Kin Hing. However, Ken Li may have come to see it, litigation is not a game and the court process is not to be treated lightly. The court is entitled to expect its processes to be respected and the application to re-amend does not do that”.

29.  In Yu Man Fung Alice v Chau Sing Chi Stephen (CACV 13/2016, 20 January 2016), the Court of Appeal allowed certain amendments to the statement of claim to be made.  Most of the changes were attributable to different legal formulations of the cause of action, and there was no fundamental change of her story and the amendments were not made to support a hopeless case.  Lam VP held that the case was distinguishable from Tong Kin Hing.  At §26, Lam VP observed that Rogers VP in Tong Kin Hing at §20 did not intend to lay down any inflexible or hard and fast rule, and it is a matter of discretion. 

DISCUSSION

30.  With these legal principles in mind, I turn to consider the relevant considerations in the present as to whether the proposed amendments should be granted. 

31.  The first matter to consider is the nature of the amendment put forward.  I accept that the Draft ASOC involves a significant and fundamental change of the Plaintiff’s case.  I do not agree that the change only involves a mere change of date on which the alleged trust arose.  I specifically reject the submission that it was not inexcusable for the Plaintiff to ‘get the date wrong by a few weeks’.  This was not, in my judgment, an inadvertent or minor mistake.  I also reject Mr Chan SC’s submission that the cause of action remains unchanged because the set of facts giving rise to the alleged trust has been substantially changed.

32.  In my judgment, the essential facts giving rise to the alleged common intention constructive trust has been changed from two discussions which were said to take place in late November 2014 and early 2015 to now an oral agreement entered into in April 2015.  The originally pleaded discussions took place before the provisional sale and purchase agreement dated 15 January 2015 was entered into.  This stands in stark contrast to what is now pleaded, namely, an oral agreement after completion of the 2015 Transaction took place.  There is also no mention of any conditional transfer or sale in the SOC, which is a prominent feature of the draft ASOC.  Moreover, the two versions of events pleaded are necessarily inconsistent because the SOC suggests that the Defendant had never been the beneficial owner of the Property.  However, the Draft ASOC is pleaded on the basis that the Defendant was the beneficial owner at least until April 2015.   

33.  It is also important the Plaintiff has now deleted the two discussions in late November 2014 and early 2015 which were pleaded at SOC §3 as forming the basis of the common understanding that the Property would be held by the Defendant as nominee.  At the hearing before me, Mr Chan SC confirmed that the Plaintiff would no longer rely on those discussions for the effect originally pleaded.  There is no clear evidence as why it was deleted.  In my judgment, the original Statement of Truth should never have been verified by the Plaintiff. 

34.  I next turn to the explanation offered for the proposed amendments.  I am not impressed by the explanation given by the Plaintiff for the change of case.  As I have mentioned, one of the purposes of a Statement of Truth is ensure that a litigant assumes personal responsibility for the factual averments contained in a pleading.  It will be a very rare case where a court will look behind a signed Statement of Truth to conclude that a party did not actually verify the contents of a pleading.  In the absence of clear evidence, the court will be reluctant to shift responsibility for the factual correctness of a pleading to a party’s legal advisers.  In this case, the circumstances fall short of such a situation.  There is simply no evidence that the Plaintiff’s former legal advisers were ever informed of the April 2015 oral agreement and decided not to plead it despite express instructions from the Plaintiff.  The Plaintiff’s evidence in this regard is vague and does not condescend on particulars. Moreover, I specifically reject the Plaintiff’s assertion that her evidence was “twisted” by her former counsel.  This is a serious allegation to make and I am not satisfied that the evidence comes anywhere near showing that her former counsel did such a thing. 

35.  I do not think too much can be read into the fact that the Statement of Truth was sent by the Plaintiff’s former solicitors on 7 June 2018 for her signature before a draft SOC was prepared.  As a matter of fact, she was given a draft SOC to review before filing even if this was after 7 June 2018.  In the absence of confirmation from the Plaintiff that she believed that the facts in the SOC were true, I do not believe that the Plaintiff’s former lawyers would have filed the SOC with her signed Statement of Truth attached.  On the evidence before me, it appears that her former solicitors did, in fact, seek such confirmation by way of e-mail.  Moreover, the Plaintiff’s assertion that she was never explained the contents of the SOC by anyone is contrary to the signed certificate by Mr Cheung below the Statement of Truth.  Further, and in any event, the SOC was filed in June 2018, and it was not until September 2020 that the present application was taken out.  If there were truly such important ‘mistakes’ in the SOC, it is unclear to me why it has taken so long for an attempt to made to rectify them.  Overall, this strikes me a case where the Plaintiff seeks to cast all the blame on her former legal advisers in order to distance herself from her own Statement of Truth.    

36.  Mr Chan SC submits that this is an interlocutory hearing, and therefore I should not conduct a mini-trial on the affidavits. That may be the case, but as Mr Chiu submitted, in seeking leave to amend the Plaintiff has put forward an explanation and the court will not suspend its critical faculties and simply accept whatever version of events is advanced at face value even on an interlocutory application.  I have also not lost sight of the fact that this is a family dispute between sisters where there may have been frequent discussions in an informal setting, but in my view, I do not think that is a sufficient reason to explain away the fundamental change of case which is now proposed.    

37.  Mr Chiu has sought to persuade me that the proposed amendments were made by the Plaintiff in an attempt to escape certain stamp duty consequences.   At an interlocutory stage, I do not feel able to draw this inference on the available affidavit evidence alone.

38.  Having concluded that the amendments involve a fundamental change of case in circumstances where the original Statement of Truth should not have been verified by the Plaintiff because of factual inconsistency, Mr Chiu invites me to follow the approach in Tong Kin Hing and to refuse the amendments altogether and to leave the Plaintiff to whatever course is open to her by commencing fresh proceedings.  I do not think that Tong Kin Hing stands for a hard and fast rule that the court must necessarily adopt this course.  Rogers VP stressed that this was still a matter of discretion.  This is a point which Lam VP reiterated in Yu Man Fung Alice.

39.  I have borne in mind that the primary aim in the exercise of court powers under the RHC is the just resolution of disputes in accordance with the substantive rights of the parties.  I also take into account that it is a drastic step to take to prevent a party from advancing a case to trial at the amendment stage, especially if the proceedings are at an early stage and no adjournment of milestone dates are involved.  I am informed that the present action has not proceeded to the discovery stage.  

40.  At the hearing before me, it was agreed by counsel for both parties that the Plaintiff would be entitled to commence fresh proceedings in terms of that set out in the Draft ASOC.  It would follow that the refusal of the amendments would only lead to a fresh action being commenced on the same terms in the Draft ASOC.  This, to my mind, has significant weight in the exercise of my discretion.  For that fresh action to continue, the present action would then have to be discontinued by the Plaintiff with a likely adverse costs order against her in respect of the costs of the action incurred to date.  Despite the serious misgivings I have over the Plaintiff’s explanation for her change of case, I do not believe that it would be a sensible exercise of discretion to effectively compel the Plaintiff to commence fresh proceedings.  Although the parties have not even advanced to the discovery stage, there would still be wasted time, costs and resources involved in commencing a fresh action.  This action is still at a relatively early stage even though it was commenced in 2018.  Moreover, even though the matter was only lightly touched upon in oral argument by Mr Chan SC and Mr Chiu, for my own part, I do not see any limitation issues arising in this case. 

41.  In my judgment, the main prejudice that the Defendant has suffered as a result of these proceedings so far is that costs have been incurred in opposing a case which has been advanced by the Plaintiff on a factual basis which has now been abandoned.  I believe that the Defendant should be adequately compensated for that by the Plaintiff. 

42.  I agree with Mr Chan SC that granting leave to amend the SOC does not amount to “condoning” the verification of a factual case which is inconsistent with a Statement of Truth.  As I have explained above, I am not impressed with the explanation offered by the Plaintiff regarding her change of factual case.  I have made my views clear on this issue, and I believe my disapproval on the Plaintiff’s conduct can be reflected by an appropriate costs order against the Plaintiff.  For the avoidance of doubt, I make it clear that in my judgment the Statement of Truth should have never been verified in the first place.  To put the matter in Mr Chan SC’s own terms, the original Statement of Truth should be regarded as “rescinded”. 

43.  As the parties proceeded on the basis that the application before was on an ‘all or nothing’ basis, and subject to the question of costs, I am reluctantly driven to the conclusion that the Plaintiff ought to be given the opportunity to amend their case.     

CONCLUSION

44.  For these reasons, I will allow this appeal and make an order in terms of (1)-(5) of the Plaintiff’s summons dated 15 September 2020.

45.  There remains the question of costs.  I have already heard argument with respect to costs relating to and arising from the amendments.  I make an order that the Plaintiff should pay the Defendant all the costs incurred and thrown away by the amendments and expunging of the Voluntary Particulars, and the costs of any consequential amendment.[18]  To mark my disapproval over the Plaintiff’s conduct, these costs are to be payable forthwith, to be taxed if not agreed, by the Plaintiff to the Defendant on an indemnity basis.     

46.  I make an order nisi that the Defendant is entitled to costs of the application, including the hearing before the Master and this appeal, to be payable forthwith by the Plaintiff to the Defendant on a party and party basis with certificate for counsel, to be taxed if not agreed. 

47.  Even though I have decided to allow the appeal, and despite the general rule that costs should follow the event, my provisional view is that this is the appropriate costs order given that the Plaintiff has sought an indulgence from the court, there is no good explanation for the significant change in case by the Plaintiff, and to mark my disapproval of the fact that the Statement of Truth should have never been verified by the Plaintiff in the first place.