Goldbay Fortis Ltd v. Rich Resource Development Ltd

HCA 2449/2013 and
HCA 371/2014
(Heard Together)

[2018] HKCFI 2684

HCA 2449/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2449 OF 2013

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ACTION NO 371 OF 2014

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(Heard Together)

Before:  Deputy High Court Judge Keith Yeung SC in Chambers

Date of Hearing:  3 December 2018

Date of Decision:  6 December 2018

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D E C I S I O N

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1.This is the second Pre-trial Review of HCA 2449/2013 (“HCA 2449”) and HCA 371/2014 (“HCA 371”). The actions have been ordered to be tried at the same time before the same judge. They are scheduled to commence on 15 January 2019.

2.The first Pre-trial Review took place on 26 September 2018.  On that day, I ruled on certain matters and gave reasons for my rulings (“1^st PTR Rulings”).  I refer to the 1^stPTR Ruling without repeating them here.  I also adopt the same terms which I used there.

3.There are a number of applications before me this morning.  I deal with them in turn.

Applications for leaves to amend

4.There are two applications by the two defendants for leave to amend.  To understand them in the proper context, it is necessary for me to first of all consider and set out the parties’ respective cases.

The parties’ cases in gist

5.The plaintiff’s pleaded cases against Rich Resource Development Ltd (“Rich Resource”) and Chun Wo Development Holdings Limited (“Chun Wo”, subsequently became known as Asia Allied Infrastructure Holdings Limited), and as summarized by Mr Jason Pow SC (who appears for the plaintiff) in his written submissions filed for the purpose of the 1^st PTR, are as follows:

(a) HCA 2449 arises out of the intended sale and purchase of (i) the “Commercial Development” at No 8 Clear Water Bay (“Commercial Development”) and (ii) 49% interest in the “Car Park Development” at the same address (“Car Park Interest”) (collectively “Properties”).  The plaintiff was the purchaser whilst Rich Resource was the vender;

(b) Under a written agreement dated 12 September 2013 between the plaintiff and Rich Resource, Rich Resource granted the plaintiff a pre-emptive right to purchase the Properties at the price of HK$399,990,000, with Rich Resource having the right to terminate only if the parties could not agree on the terms of a formal sale and purchase agreement;

(c) That agreement (called by Rich Resource, as will be seen below, “the Memorandum”) stated as follows:

「以上之支票為買方購入以上兩項物業之誠意金，賣方同意給予買方優先購買權，而該物業總成交價為港幣$399,990,000.00，賣方會安排代表律師草議該份買賣合約，而在該段時間內買賣雙方必須保密，但若雙方最终不能就正式買賣合約的條款達成一致協議，賣方有權取消本交易，並於七天內退還上述之支票給買方。買賣雙方同意不會向另一方追討任何因此產生的支出及損失。」

(d) The parties then entered into negotiations for a formal sale and purchase agreement.  On 4 November 2013 at 5:35 pm, Rich Resource’s solicitors Deacons suddenly terminated the Agreement on behalf of Rich Resource;

(e) Unbeknownst to the plaintiff, on the same day, Rich Resource executed a memorandum (“HP Memorandum”) with High Peace Corporation Limited (“High Peace”) for the sale and purchase of the Commercial Development.  Earlier on 27 September 2013, Rich Resource also signed a receipt of earnest money of HK$13.8 million from High Peace;

(f) It is the plaintiff’s case that:

(i) During negotiations of the formal sale and purchase agreement, Rich Resource informed the plaintiff that it had received a higher offer for the Commercial Development and asked for a higher offer from the plaintiff.  Rich Resource also indicated its reluctance to sell the Car Park Interest;

(ii) Prior to the termination letter, the parties were still in the process of negotiation.  Rich Resource had never indicated that there were any irreconcilable issues or that negotiations had irretrievably broken down.

(g) In a nutshell, the plaintiff claims that Rich Resource has wrongfully repudiated the Agreement by wrongfully terminating it; acting in bad faith with a view to depriving the plaintiff of its pre-emptive right and to selling the Commercial Development to High Peace at a higher price; and failing to keep the transaction with the plaintiff confidential;

(h) For those alleged breaches, the plaintiff commenced HCA 2449 against Rich Resource;

(i) Subsequently, the plaintiff commenced HCA 371 against Chun Wo, the ultimate holding company of Rich Resource, for procuring the said alleged breaches by Rich Resource.  

6.Rich Resource filed its Defence and Counterclaim (“Rich Resource D&C”) on 12 March 2014.  According to the Rich Resource D&C, and as summarized by Mr C Y Li SC (who appeared for Rich Resource) in his written submissions filed for the purpose of the 1^st PTR, Rich Resource’s defence goes as follows:

(a) The MTR Corporation Limited (“MTRC”) was the registered owner of New Kowloon Inland Lot No 6179 (the “Lot”) on which No 8 Clear Water Bay was build and now situates;

(b) By the Development Agreement dated 13 August 2001 (“Development Agreement”) made between MTRC, Rich Resource, and Asia Allied, Rich Resource agreed to develop the Lot;

(c) In addition, Rich Resource and MTRC had made a CommercialManagement Agreement dated 13 August 2001 (“CommercialManagement Agreement”) to form a joint venture to let/‌operate the Car Park Development with Rich Resource having 49% interest in the joint venture;

(d) MTRC was the registered owner of both the Commercial Development and the Car Park Development.  According to the Development Agreement, Rich Resource was appointed as the sales agent of MTRC for the sale of the Commercial Development excluding the Car Park Development.  Any such sale required MTRC’s approval;

(e) According to the Commercial Management Agreement, Rich Resource could only sell the Car Park Development Interest to a third party after MTRC did not accept Rich Resource’s offer to sell the same;

(f) During a meeting between the plaintiff and Rich Resource on 12 September 2013, the plaintiff expressed interest in purchasing the Properties.  On the same day, the plaintiff and Rich Resource signed a memorandum (“Memorandum”) recording, inter alia, the plaintiff’s offer to purchase the Properties in the sum of HK$399,990,000.00.  Along with the Memorandum, the plaintiff gave Rich Resource a cheques in the sum of HK$8,000,000.00 payable to the solicitors of the MTRC as the earnest money for the transaction;

(g) There was a term in the Memorandum to the effect that if the parties could not reach agreement on the terms of the sale and purchase agreement, Rich Resource should have the right to terminate the transaction and return the earnest money to the plaintiff;

(h) After the signing of the Memorandum, the parties continued to negotiate the terms of the sale and purchase agreement for the purpose of the sale of the Properties.  Nevertheless, no agreement on the terms could be reached by the parties, in particular on the time for completion of the transaction and the apportionment of the purchase price for the Commercial Development and the Car Park Interest;

(i) It is Rich Resource’s case that as the terms of the sale and purchase agreement could not be agreed between the parties, on 4November 2013, Rich Resource notified the plaintiff through Rich Resource’s solicitors that the Memorandum was terminated and the cheques for the earnest money was returned to the plaintiff;

(j) Subsequent to the termination of the Memorandum, Rich Resource entered into a Memorandum with High Peace whereby High Peace agreed to purchase the Commercial Development and Rich Resource agreed to arrange and procure MTRC to sell the same to High Peace.

7.On 4 June 2014, Chun Wo filed its Defence and Counterclaim.  It was amended once on 2 April 2015 (“Chun Wo AD&C”). No positive case in defence has been raised.  Rather, Chun Wo avers therein that HCA 2449 is being contested by Rich Resource (§6.1), and that it “understands that Rich Resource had denied any wrongful repudiation and/or breach of the Agreement.  In the premises, [Chun Wo] denies any intention to procure the alleged wrongful act of Rich Resource as pleaded by the Plaintiff…” (§15)

Applications by Rich Resource and Chun Wo to amend their respective Defences

8.By summonses dated 12 and 19 November 2018, Chun Wo and Rich Resource respectively seek leaves to amend the Chun Wo AD&C and Rich Resource D&C. 

9.In respect of the application by Rich Resource:

(a) a draft Defence and Counterclaim (“Draft Rich Resource AD&C”) is attached to its summons;

(b) In his Skeleton Submission filed on 27 November 2017, Mr Pow indicated on behalf of the plaintiff that only §8(d)(iv) in the Draft Rich Resource AD&C will be opposed;

(c) Rich Resource seeks by the addition of paragraph 8(d)(iv) to plead the defence of absence of consideration.  It reads as follows:

“ (d) The Defendant further says that insofar as the Memorandum contained or evidence any agreement made between the Plaintiff and the Defendant concerning the sale and purchase of the Property.

…

(iv)  without prejudice to the matters said above, there was no consideration for the agreement as no payment was made by the Plaintiff to the Defendant whether by the Cheque (which was never cashed by the Defendant and had been returned to the Plaintiff as pleaded below) or otherwise and no other valuable consideration was given by the Plaintiff for the making of the agreement.”

10.In respect of the application by Chun Wo:

(a) a draft Re-amended Defence and Counterclaim (“Draft Chun Wo RAD&C”) is similarly attached to its summons;

(b) Mr Pow has indicated that he objects to the majority of the proposed amendments.  In fact, given the extent of the opposition, and for the present purpose, it may be taken that all of the proposed amendments are objected to;

(c) Chun Wo seeks thereby to plead a positive case in defence of the claim it is facing.  In particular:

(i) it expressly adopts the entirety of Rich Resource’s Defence (§6.1);

(ii) its specifically avers that no valuable consideration or payment moved from or was made by the plaintiff to Rich Resource under the purported Agreement (§6.2);

(iii) it pleads that the purported Agreement was void for uncertainty for failing to specify any specific period for the “first and/or pre-emptive right to purchase” or any completion date for purchase (§6.3);

(iv) it pleads that the purported Agreement was not a sufficient agreement and memorandum in writing for the purpose of section 3(1) of the Conveyancing and Property Ordinance, Cap 219 (“C&PO”) (§6.4);

(v) it avers that in the absence of a complete and binding agreement between the plaintiff and Rich Resource, there was neither wrongful repudiation nor breach of contract by Rich Resource, and Chun Wo could not have procured any breach of the same (§6.5);

(vi) it raises the further or alternative plea that the termination of the purported Agreement on 4 November 2013 was in exercise by Rich Resource of its express right under the same to terminate. That being the case, there was no repudiation on its part (§6.6)

(vii) it makes a number of what may be regarded as consequential averments at §16, and the further or alternative plea on the basis of what it calls an “agreed damages clause” in the purported Agreement (§16(b)).

The submissions on behalf of the plaintiff

11.In respect of Rich Resource’s application, Mr Pow, as I have indicated above, opposes the addition of §8(d)(iv).  He does so on two bases:

(a) That the proposed amendment is inconsistent with the original pleas in the Rich Resource D&C:

(i) he submits that in the Rich Resource D&C, Rich Resource has accepted that on true construction of the Memorandum, the plaintiff and Rich Resource had entered into a valid contract of pre-emption.  What Rich Resource disputes there is whether there was between the party a valid contract for the sale and purchase of the Property;

(ii) in an attempt to make good that point, Mr Pow takes me through the pleadings in great details;

(iii) he submits that having evinced that acceptance, and the proposed §8(d)(iv) being a blanket challenge in respect of the validity of the Memorandum, the proposed new sub-paragraph is inconsistent with the acceptance.

(b) Given that acceptance on the face of pleadings, the proposed §8(d)(iv) is in truth a withdrawal of admission without any valid explanation.

12.In respect of Chun Wo’s application, Mr Pow opposes the majority of the proposed amendments on the following basis:

(a) internal inconsistencies:

(i) on the basis of his submissions summarized above that Rich Resource has in the Rich Resource D&C accepted that it and the plaintiff had entered into a valid contract of pre-emption, Chun Wo’s proposal to adopt Rich Resource’s defence will be internally inconsistent with its other proposed additions which seek to dispute the validity of that same contract;

(ii) the proposed §6.4 is superfluous and immaterial, as it is never the plaintiff’s case that the Memorandum was a contract of sale and purchase of the Properties.  It is the plaintiff’s case rather that it constituted a contract of pre-emptive rights;

(iii) the proposed §16 is plainly unarguable.

The submissions on behalf of Rich Resource

13.Mr Li in his Note of Submission filed on 27 November 2018 submits that the said amendment is simple, that it pleads that there is no consideration for the agreement alleged by the plaintiff, that no new facts are relied on, that the point is relevant for the determination of the real issue as to whether there was a valid and binding agreement between the plaintiff and Rich Resource, and that one cannot see any prejudice that the plaintiff may suffer as the point taken is a legal point without new facts.  He supplemented orally by drawing a distinction between an agreement and a legally enforceable contract, in that an agreement may not be legally enforceable for say want of consideration.  He accepts that the Rich Resource D&C could have been clearer (and hence the need of adding §8(d)(iv) to make the position clear), but he does not accept that there is any clear and equivocal admission as being contended for by Mr Pow.

The submissions on behalf of Chun Wo

14.In gist, Mr Chua Guan Hock SC, counsel for Chun Wo, submits that the proposed amendments are to say the least reasonably arguable.  In respect of the proposed §6.3, he relies on Walford v Miles [1992] 2 AC 128.  In respect of the proposed §16(b), he relies on Bunge SA v Nidera BV [2015] 3 All ER 1082.  He submits that the proposed amendments are based on the existing pleaded case and evidence, that they raise crisp legal issues for the determination of the real issues in controversy, and that the plaintiff would not suffer any real prejudice which cannot be compensated by costs.

Applicable legal principles on amendment of pleadings

15.The applicable rules and principles are not in dispute.  I have been reminded of Order 20, rules 8(1) and 8(1A).  I have been further reminded of Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 (CA), wherein Cheung JA observed at paragraph 25 that (authorities omitted):

“ It is well established that, generally speaking, all such amendments ought to be made ‘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’ …. Leave is readily granted to amend before the trial unless it can be demonstrated that the new claim based on the proposed amendment is bound to fail …. While the Court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation ….”

16.It is also not in dispute that an inconsistent amendment will not be allowed: Hong Kong Civil Procedure 2019 §20/8/24; Chan Chung Wai v Cheung Wai Pui (HCA 8721/1996, unreported, 19 November 2001), per Chung J at §9.

Application for amendment of pleadings resisted on the basis that the proposed amendments amount to withdrawal of an admission — the relevant considerations

17.Admissions may be express or implied.  They are in most cases made on the face of or by pleadings.  But that does not have to be so. For example, in Re Ng Wai Jing [2016] 2 HKLRD 1460, the admissions which the plaintiff sought leave from the Court of Appeal to withdraw were made by her in two letters which she wrote to the court.

18.In cases like Re Ng Wai Jing, the applicants by making the applications accept that they have made an admission.  There is no need for the Court to consider whether an admission has in fact been made.

19.However, when an application for amendment of pleadings is resisted on the basis that the proposed amendments amount in effect to withdrawal of admission, the first issue that need to be considered is whether an admission has in fact been made. 

20.To be admissions, “they must be clear and unambiguous (Re Chung Wong Kit (a bankrupt) [1999] 1 H.K.L.R.D.410…)”: paragraph 27/3/1 of Hong Kong Civil Procedure 2019; Wingames Investments Ltd v Mascot Land Ltd [2013] 1 HKLRD 26, at §16. 

21.In the present case, there is indeed no dispute between the parties that the criteria of “clear and unambiguous” are applicable when deciding whether any admission has been made.

22.Once it has been established that an admission has been made, the next issue is whether leave for its withdrawal should be granted.  Whether to do so is in the discretion of the Court.  In Sowerby v Charlton [2006] 1 WLR 568, Brooke LJ observed at paragraphs 35 and 36 that:

“ 35. … the unreported judgment of Sumner J in Braybrook v Basildon and Thurrock University NHS Trust [2004] EWHC 3436 (QB) at [45] appears to us to offer valuable guidance on the way in which a court should exercise its discretion when determiningwhether or not to permit the withdrawal of an admission that was made after an action was commenced. After referring to a number of earlier cases he said, at para 45:

‘From these cases and the CPR I draw the following principles. (1) In exercising its discretion the court will consider all the circumstances of the case and seek to give effect to the overriding objective. (2) Amongst the mattersto be considered will be: (a) the reasons and justification for the application which must be made in good faith; (b) the balance of prejudice to the parties; (c) whether any party has been the author of any prejudice they may suffer; (d) the prospects of success of any issue arising from the withdrawal of an admission; (e) the public interest, in avoiding where possible satellite litigation, disproportionate use of court resources and the impact of any strategic manoeuvring. (3) The nearer any application is to a final hearing the less chance of success it will have even if the party making the application can establish clear prejudice. This may be decisive if the application is shortly before the hearing.’

36. Above all, the exercise of any discretion will always depend on the facts of the particular case before the court.  The words ‘will consider all the circumstances of the case’ have particular resonance in this context.”

23.In Re Ng Wai Jing, Kwan JA, having cited the above observations of Brooke LJ in Sowerby v Charlton, observed at paragraph 21 that:

“ We think the above guidance should apply equally to Hong Kongin view of the underlying objectives in O.1A r.1(a) to (d) and (f) of the Rules of the High Court (Cap.4A, Sub.Leg.) introduced as a result of the Civil Justice Reform.”

24.When deciding whether leave should granted, the need of the applicant applying to withdraw an admission to put forward a convincing and credible explanation of the circumstances in which the admission was in fact made is, although no conclusive, a power powerful factor.  That also goes to the issue of good faith on the part of the application (Re Ng Wai Jing, at §18). 

25.I will adopt the above approach when considering the present applications.

Discussions

26.The main thrust of Mr Pow’s submissions in opposition is that Rich Resource has in its D&C accepted that it and the plaintiff had entered into a valid contract of pre-emption.  His opposition on the basis of inconsistent averments flows also from that.

27.He has taken me through the pleadings in great details.

28.The first thing I note is that there is no such express admission made either by Rich Resource or by Chun Wo.  It is not as if the plaintiff had pleaded specifically in a paragraph of its Statement of Claim that such a contract of pre-emption had been entered upon, and that Rich Resource and/or Chun Wo had then on pleadings expressly admitted to that particular paragraph.

29.I note in this regard the wording of paragraph 5 of the Statement of Claim, wherein the plaintiff pleads that:

“ … the Plaintiff and [Rich Resource] entered into and executed aChinese Agreement (‘the Agreement’) in the following terms …”

The terms of the Agreement (as reproduced in paragraph 5(c) above) are then set out.  I note further the wording of paragraph 6 of the Statement of Claim, wherein the plaintiff pleads that:

“ In consideration of and pursuant to the terms of the Agreement, the Plaintiff provided [Rich Resource] with a cheque issued by Goldbay Capital Limited in the sum of HK$8,000,000.00 (‘the Cheque’) which was described in the Agreement as ‘誠意金’ (earnest money) for the sale and purchase of the Properties.”

30.Mr Pow’s submissions are therefore this, that despite the wording of the Agreement (or Memorandum as Rich Resource calls it), and despite how the “誠意金” was described therein (being earnest money for the sale and purchase of the Properties as opposed to any contract of pre-emption), but given the overall way in which the plaintiff pleads and frames its case in the Statement of Claim, and given the overall way Rich Resource pleads its defence in its D&C, Rich Resource has in fact and in effect accepted that it and the plaintiff has entered into a valid contract of pre-emption.

31.The trial will on 15 January 2019 commence before me.  I will not at this stage express anything beyond my view that, having considered the pleadings and the submissions made before me, I am not satisfied that Rich Resource or Chun Wo has made any clear and unambiguous admission of the nature and to the effect Mr Pow is contending for.

32.In respect of Mr Pow’s submissions that some of the proposed amendments are superfluous, immaterial or plainly unarguable, I heed the warning of Cheung JA in Natamon, which I repeat, that:

“ While the Court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation …”

Again, I will not at this stage express anything beyond my view that, having considered the authorities cited to and the submissions made before me, I am not satisfied that it is readily apparent without any prolonged investigation that those points concerned are bound to fail.

33.The applications for amendments were made late.  Mr Li and Mr Chua accept it.  This is one consideration against granting leave to amend.

34.On the other hand, I accept the submissions of Mr Li and Mr Chua that the issues raised by the proposed amendments are primarily issues of law.  Neither Rich Resource nor Chun Wo seek to adduce any new evidence in support.  Nor has Mr Pow pointed to any specific prejudice which the plaintiff may suffer as a result of the amendments.

35.Further, I am most reluctant to deny parties the opportunity of arguing those issues of law raised by the proposed amendments which, in the light of the pleadings and evidence as presently assessed, may very well arise during the trial.

36.I have also enquired with the parties who confirm with me that whilst the plaintiff may want to file some evidence in answer to the proposedamendments (if allowed), there is no risk of the trial dates being jeopardized.

37.In all the circumstances, I am of the view that the applications for amendment should be allowed so that the real questions in controversy between the parties may be determined.  I am of the further view that the order is necessary for disposing fairly of the causes raised by the pleadings and before the Court.

Disposal

38.I order therefore that:

(a) leave be granted to Rich Resource to amend the Rich Resource D&C in the manner as shown in the Draft Rich Resource AD&C and to file and serve the same within 2 days from the date of the handing down of this Decision.

(b) leave be granted to Chun Wo to amend the Chun Wo AD&C in the manner as shown in the Draft Chun Wo RAD&C and to file and serve the same within 2 days from the date of the handing down of this Decision;

(c) leave be granted to the plaintiff to amend consequentially its Reply and Defence to Counterclaim dated 23 May 2014 and Amended Reply and Defence to Amended Counterclaim dated 21 May 2015 in HCA 2449 and HCA 371 respectively, and to file and serve the same within 14 days thereafter;

(d) leave be granted to the parties to file and exchange supplemental witness statements on evidence consequential upon the amendments within 7 days thereafter; and

(e) leave be granted to Rich Resource and Chun Wo to file and serve within 7 days thereafter witness statement(s) in reply.

39.On the question of costs, given the imminent trial, I make an order nisi that the costs of these applications be reserved, so that the matters can be re-visited upon the conclusion of the trial.  This may be a more sensible course, rather than wasting time and costs to deal with them at this stage.

The application by MTRC to discharge/vary the Writs of Subpoena duces tecum against it

40.I record that MTRC, represented by Mr Jenkin Suen, took out two summons dated 27 November 2017 for an Order that the two Writs of Subpoena against it be discharged or varied.

41.I have heard Mr Suen for MTRC.  I have also heard Mr Pow for the plaintiff.  I accept Mr Pow’s submissions that the documents and materials covered by the Writs are “apparently relevant” in the sense as explained Xstrata Queensland Ltd v Santos Ltd [2005] QSC 323.  Having considered all relevant factors, and in exercise of my discretion, I refuse to discharge the same.  I am however satisfied that the scopes of the Writs should be refined and narrowed down, which I have done after discussions with counsel.

Mr Jason Pow SC, instructed by Iu, Lai & Li, for the plaintiff (in both cases)

Mr C Y Li SC, leading Mr Jeremy Kwong, instructed by Deacons, for the defendant (in HCA 2449/2013)

Mr Chua Guan Hock SC, leading Ms Sharon Yuen, instructed by Norton Rose Fulbright Hong Kong, for the defendant
(in HCA 371/2014)

Mr Jenkin Suen, instructed by Munros, for MTR Corporation Limited