Chan Ping Che v. Gao Gunter

Read the full judgment text of HCA 2134/2013 on BabelCite. This High Court CFI judgment was delivered on 13 March 2019.

1. This is an appeal by the Defendant (by original action) against the order of Master Chang dated 28 September 2018 granting the Plaintiff (by original action) leave to amend his Statement of Claim.

Cited by 5 cases · Cites 10 cases

Case No.HCA 2134/2013[2019] HKCFI 670
Court
High Court CFI
Date13 Mar 2019
Judge
Case Document
100%Judiciary

HCA 2134/2013

[2019] HKCFI 670

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2134 OF 2013

________________________

BETWEEN
  CHAN PING CHE Plaintiff
and
  GAO GUNTER Defendant

________________________

(By Original Action)


AND BETWEEN
  GAO GUNTER Plaintiff
and
  CHAN PING CHE 1st Defendant
  DADRA INC. 2nd Defendant

________________________

(By Counterclaim)

Before: Deputy High Court Judge Anita Yip SC in Court
Dates of Hearing: 14 and 15 February 2019
Date of Decision: 13 March 2019

________________

DECISION

________________

1.This is an appeal by the Defendant (by original action) against the order of Master Chang dated 28 September 2018 granting the Plaintiff (by original action) leave to amend his Statement of Claim.

2.For present purposes, the parties have handed up an agreed chronology.  The agreed chronology explains the background of the case which will be elaborated later in this decision when necessary.

3.At the hearing before Master Chang, two major proposed amendments respectively termed the “Breach of Warranties Claim” and the “Rectification Claim” were raised. The Defendant objected to both.

4.At this hearing, Mr Andrew Liao SC (together with Mr Kenneth Chow, Miss Grace Tam, and Mr William Tse) confirmed that the Defendant no longer objects to the Plaintiff’s proposed amendments relating to the “Breach of Warranties Claim”.  An Amended Statement of Claim showing the respective parts to which amendment were agreed and disagreed was handed up.  This document was prepared based on the version of the Amended Statement of Claim which was filed on 4 October 2018 after leave to amend was granted by Master Chang.  Those parts highlighted yellow are the objectionable parts and which require resolution at this appeal.

BACKGROUND

5.The Plaintiff commenced this action against the Defendant by writ endorsed with a statement of claim on 7 November 2013 for moneydue and owing under three loan agreements, with the 1st and 2nd loans dated 16 December 2010 and the 3rd loan dated 27 January 2011 respectively.

6.It is the Plaintiff’s pleaded case that in purported repayment, the Defendant drew two cheques for partial settlement of the outstanding amount together with part payment of interest, which cheques had subsequently been dishonoured.  The Plaintiff therefore claimed the outstanding amounts owing under the three loans, alternatively for amounts plus interest under the dishonoured cheques.

7.The Defence and Counterclaim was filed on 13 March 2014.  The major complaints were, inter alia, first, that the three loan agreements were unenforceable because the Plaintiff was an unlicensed money lender,contrary to section 23 of the Money Lenders Ordinance (“MLO”).  Secondly, the loan agreements were illegal in that they charged an effective rate of interest in excess of 60% per annum, in breach of section 24 of the MLO.

8.On 14 April 2014, the Plaintiff applied for summary judgment under Order 14.

9.On 30 April 2014, the Plaintiff filed a Reply and Defence to Counterclaim.

10.Hearing of the Order 14 application came before DHCJ Seagroatt on 9 October 2014.  His Lordship gave judgment on 17 October 2014 granting the Defendant leave to defend his claim upon payment of HK$124,471,243 (representing the entire outstanding debt less repayments made) within 28 days.

11.The Defendant immediately applied for variation of the payment condition and leave to appeal plus a stay of execution of DHCJ Seagroatt’s order.

12.Leave was refused at first instance but was granted by the Court of Appeal on 11 December 2014.

13.On 16 June 2015, the Court of Appeal allowed the appeal to theextent of varying the condition such that the Defendant would be permitted to defend upon payment of $30 million.  Essentially, it was the Court of Appeal’s ruling that the 1st and 3rd loans were offensive to section 24 of the MLO in that they charged an effective rate of interest exceeding 60% per annum and hence irrecoverable.  The same, however, could not be said of the 2nd loan which charged an effective rate of interest of 38.7%.  Section 24 of the MLO was disengaged leaving (mainly) the defences under section 22‌(1)(a) and (c) and section 23 of the MLO.  The written decision of the Court of Appeal was handed down on 5 June 2017.

14.On 21 March 2018, the Plaintiff issued the summons for leaveto amend his statement of claim, introducing what the parties agreed to call the Breach of Warranties Claim and the Rectification Claim.

RELEVANT LEGAL PRINCIPLES — LEAVE TO AMEND

15.There is no dispute on the relevant legal principles governing an application for leave to amend.  They can be found in Hsu Ming Chi v Lam Shu Chit & others HCCL 8/2013, unreported, 22 October 2014.  In this case, Ng J said as follows:

“ 13. It is a guiding principle of cardinal importance on the question of amendment that generally speaking, all such amendments ought to be made ‘for the purpose of determining thereal question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings’: Re Playmates Investments Ltd [1996] 4 HKC 577 at 582E–H (per Le Pichon J as she then was); Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 at para. 25 (per Cheung JA); Hong Kong Civil Procedure 2014 Vol. 1 para. 20/8/6.

14. Leave is readily granted to amend before trial unless it can be shown 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 prolongedinvestigation: Natamon Protpakorn v Citibank NA supra at para.25 (per Cheung JA).

15. If the proposed amendments are bound to fail, no leave to amend should be granted. In this regard, the court will take the applicant’s proposed pleaded case to the highest: Bank of China v Leigh Hardwick unrep., HCA 1110 of 2006, 28 August 2013, per Anthony Chan J at para. 2.

16. Absent any real prejudice, an application for amendment,albeit late, must be decided upon the general principle that a courtof law seeks to adjudicate on the real issues and disputes betweenthe parties and, if possible, technical and procedural rules should not stand in the way of allowing the parties to raise their real claims or defences before the court for adjudication: VSC Building Products Co Ltd v Kono Insurance Ltd., unrep. HCA 947/2005, 9 September 2009, per A Cheung J (as he then was) at [22].

17. Where prejudice is claimed, the burden is on the party opposing the amendment to show prejudice. There is no injustice to the opposing party if he can be compensated by appropriate orders as to costs: Re Playmates Investments Ltd supra at 582H, 584C (Le Pichon J as she then was).

18. Lastly, in giving effect to the underlying objectives of theRules of the High Court, including those concerning amendments,the court shall always recognize that the primary aim in exercisingthe powers of the court is to ‘secure the just resolution of disputes in accordance with the substantive rights of the parties’: RHC O 1A r 2(2).”

DEFENDANT’S GROUNDS OF OBJECTIONS

A.   Bound to fail

16.On behalf of the Defendant, Mr Liao and his team submit thatthe Plaintiff’s Rectification Claim is bound to fail for the following reasons:

(a)   the alleged common intention was too general and not a term which the court could ascertain;

(b)   the alleged common mistake relates to legal consequences of the transaction; and

(c)   the alleged common intention was a device to circumvent the statute, namely, section 24 of the MLO.

The legal principles

17.Mr Liao has cited many authorities relating to the law of rectification, for which I am grateful.  Having gone through the authorities, I do not find any major divergence on the applicable legal principles between Mr Liao and Mr Kenneth C L Chan (together with Mr Fung Pak Kay) for the Plaintiff.

18.The authority upon which Mr Chan places heavy weight is the Court of Appeal decision in Kowloon Development Finance Ltd v Pendex Industries Ltd [2012] 5 HKLRD 11 where the Court of Appeal set out the legal principles for rectification due to common mistake.  This case went to the Court of Final Appeal: see Kowloon Development Finance Ltd v Pendex Industries Ltd (2013) 16 HKCFAR 336.  Lord Hoffmann NPJ gave the judgment of the Court with which all the other members agreed.  At §31 Lord Hoffmann NPJ said:

“ 31. … I entirely agree with the reasoning and conclusions of the Court of Appeal on the question of common mistake. …”

19.The present proposed amendment also advances a case about the parties’ common intention which by mistake was not correctly reflected in the written instrument.

20.Kowloon Development Finance involves a settlement of a mortgagee action between the plaintiff money lender and the defendants debtor (D1) and guarantors (D2 and D3) by a Tomlin order in 2004 and a subsequent order in 2005, both drafted by the plaintiff’s solicitors.  When there was a dispute over whether the instalment payments under the 2004 and 2005 orders had discharged the defendants’ liabilities under the entire loan, the plaintiff brought an action seeking, inter alia, rectification of both orders to reflect the common mistake premised upon the common intention that the loan was not to be discharged simply upon payment of the instalments under the orders. 

21.The following paragraphs laid down the principles:

“ 25. The legal requirements for rectification for common mistake can be taken from the judgment of Peter Gibson LJ in Swainland Builders Ltd v Freehold Properties Ltd [2002] 2 EGLR 71, 74:

The party seeking rectification must show that: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention.

26. The following additional remarks of Peter Gibson LJ after this passage are also relevant:

I would add the following points derived from the authorities:

(2) While it must be shown what was the common intention,the exact form of words in which the common intention isto be expressed is immaterial if, in substance and in detail,the common intention can be ascertained: Co-operative Insurance Society Ltd v Centremoor Ltd [1983] 2 EGLR 52 at p.54 per Dillon LJ with whom Kerr and Eveleigh LJJ agreed.

(3) The fact that a party intends a particular form of words in the mistaken belief that it is achieving its intention does not prevent the court from giving effect to the true common intention: see Centremoor at p.55A–B and Re Butlin’s Settlement Trusts (Rectification) [1976] Ch 251 at p.260 per Brightman J.

27. Swainland Builders Ltd v Freehold Properties Ltd concerned a sale of a block of flats and the vendor intended to retain interests in two flats within the block. However, the transfer of the freehold failed to reserve any rights and the vendor sought rectification. For our purposes, the following finding of the judge (Neuberger J) in that case is of interest (see p.73):

I believe it is clear that the claimant and defendant intended and envisaged that the claimant would transfer the freehold of the property to the defendant on the basis that each of the 39 flats was subject to 99 year leases … the benefit of the two leases being vested in the claimant. How this was to be achieved was not discussed, and it should have been. The claimant and the defendant left the machinery to their respective solicitors, each of whom overlooked the need to deal with the matter. (Emphasis added.)

If I am extending the principle, then I do so without qualms. Where parties have concluded their negotiations on a clear, common, communicated and continuing assumption and/or with a clear, common, communicated and continuing intention and through an oversight on the part of their respective solicitors the ultimate contract does not reflect that assumption and/or intention to the manifest unfair disadvantage of one party and to the manifest unfair advantage of the other, then, unless there is some good reason to the contrary, a court of equity must be able to remedy the situation at the suit of the former party. The obvious remedy, again in the absence of good reason to the contrary, is to refashion, or rectify, the contract so it reflects the assumption and/or intention. …

28. … At p.75, Peter Gibson LJ dealt with the argument that the precise manner in which the common intention was to be effected had not been agreed by reference to Whiteside v Whiteside [1950] Ch 65:

I find helpful the way in which Sir Raymond Evershed MR in Whiteside v Whiteside [1950] Ch 65 at pp.75 and 76, formulated the appropriate principle, that is to say, where a document has been executed that does not carry out the intention of the parties, each party has the right against the other to have the document reformed in such manner that thedocument will place each other in the same position vis-à-vis each other as they intended. I emphasise that formulation, as it seems to me that it correctly distinguishes between the common intention, to which effect has not been given by theunrectified document, and the remedy that the court can order. The court can grant relief by putting the parties in the same position vis-à-vis each other as they intended.

No doubt in most cases it will be possible to see from the material that the parties have considered, and about which they have reached a common intention, the precise wording to be included in the document to be rectified. In the unusual case, such as the present, there may be more than one way of achieving the common intention. … I see no reason, in principle, why equity should be prevented from giving relief merely because the parties had not agreed on the mechanics by which effect should be given to a clear and simple common intention.

30. A more recent case in which rectification was sought in respect of a mistake arising from the oversight of a solicitor in preparing the contract after the parties had reached a prior accordis Daventry District Council v Daventry and District Housing Ltd [2012] 1 WLR 1333. The Master of the Rolls said at paras.211 and 212:

… it is self-evidently insufficient for a defendant to defeat a rectification claim simply by establishing that the terms of the provision which he put forward clearly departed from the prior accord. Rectification is often sought, and granted, in relation to contractual terms which are perfectly clear. … Many, possibly most, rectification claims involve the claimant seeking to rectify a provision in an agreement whose terms are clear …

Inevitably, the question whether the proposal of such a provision should be treated as a resiling from the prior accord will depend on all the circumstances of the particular case. As with virtually any issue involving the effect of the contentsof a document, the question has to be assessed not merely byreference to the words of the document, but also to the factualand commercial context in which the document is produced.…

33. In Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC1101, Lord Hoffmann placed emphasis on the objective nature ofthe inquiry as to the existence of a continuing common intention. At para.60, His Lordship said:

… rectification is also available when there was no binding antecedent agreement but the parties had a common continuingintention in respect of a particular matter in the instrument to be rectified … the authorities suggest that in both cases the question is what an objective observer would have thought the intentions of the parties to be …

35. In the same case, Etherton LJ observed at para.80 that therequirements of ‘an outward expression of accord’ and ‘common continuing intention’ are not separate conditions, but two sides of the same coin.

36. Thus, one should examine the evidence (and in the contextof this appeal, the evidence of the plaintiff accepted by the Judge)to see whether to a reasonable objective observer the parties had acontinuing common intention that the defendants would continue to be liable for the loan after the payment of the instalments in 2004 and 2005.  If such continuing common intention existed, it would not matter that the parties gave no thought as to what term was to be inserted in the consent orders.”

22.Both parties referred me to Rectification, 2nd ed, by David Hodge QC:

“ The party seeking rectification must prove by convincing evidence that:

(1) the parties had a common intention, whether or not amounting to an agreement, in regard to a particular matter in the document to be rectified;

(2) that common intention was manifested by an outward expression of accord;

(3) that common intention continued up to the time of the execution of the document sought to be rectified;

(4) by mistake, the document as executed does not accurately represent that common intention;

(5) if rectified as claimed, the document would accurately represent the true common intention; and

(6) there is an issue between the parties capable of being contested.

… in his leading speech in the seminal case of Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, Lord Hoffmann endorsed the view that, in the case of a contract, rectification requires a mistake about whether the written document reflects the parties’ prior consensus, and not whether it accords with whatthe parties subjectively believed that consensus to have been ….”

23.It is the Defendant’s submission that even taking the Plaintiff’scase to its highest, “the common intention to comply with the relevant law,regulations and rules of Hong Kong and China” (“Purported Objective”) istoo general.  It does not “point to any specific common intention as to how the parties’ Purported Objective was to be achieved, and this flaw is fatal to P’s claim”—§32, Defendant’s skeleton submissions.  The Defendant says that “only a ‘specific intention’ is capable of giving rise to a claim for rectification”—§40, Defendant’s skeleton submission.  He criticised the Plaintiff’s pleading of common intention as being too general and non‑specific in that the Amended Statement of Claim failed to identify what the common mistake was—§46, Defendant’s skeleton.  He said the rectification was not one for the purpose of correcting a mistake made in recording any specific intention but rather, it was substituting a different bargain into the loan agreements—§44, Defendant’s skeleton.

24.To examine the validity of the Defendant’s complaint that the common intention pleaded by the Plaintiff was too general, it is important to look at what is really required of for a claim of rectification as a matter of legal principles.

25.It would be useful to refer to Neuberger J’s (as he then was) remarks in Swainland Builder Ltd v Freehold Properties Ltd (p 73):

“ … Where parties have concluded their negotiations on a clear, common, communicated and continuing assumption and/or with a clear, common, communicated and continuing intention and through an oversight on the part of their respective solicitors theultimate contract does not reflect that assumption and/or intentionto the manifest unfair disadvantage of one party and to the manifest unfair advantage of the other, then, unless there is some good reason to the contrary, a court of equity must be able to remedy the situation at the suit of the former party. The obvious remedy,again in the absence of good reason to the contrary, is to refashion,or rectify, the contract so it reflects the assumption and/or intention. ‌…”

(emphasis added)

26.It is also worth revisiting Peter Gibson LJ’s observations in the same case as follows:

at p 74:   “ … While it must be shown what was the common intention, the exact form of words in which the common intention is to be expressed is immaterialif, in substance and in detail, the common intention can be ascertained …”

at p 75:   “ … I see no reason, in principle, why equity should be prevented from giving relief merely because the parties had not agreed on the mechanics by which effect should be given to a clear and simple common intention.”   (emphasis added)

27.Swainland Builder was quoted with approval in Kowloon Development.  Thus, it seems clear that while the common intention oughtto be clear, communicated and continuing, it does not have to be as specific to the extent as suggested by the Defendants.  The exact form of words is immaterial so long as the substance of the common intention can be ascertained.  I do not accept the Defendant’s opposition to the Plaintiff’s amendment on this ground.

28.It may be one thing to say that the lack of a specific common intention (as opposed to a general common intention) is not fatal to rectification if the substance of the common intention can be ascertainedclearly; it is quite another thing to suggest that any claim of rectification can besubstantiated despite a common intention lacking any specificity. In my judgment, each case depends on its own facts.  The essence lies in whether or not the substance of the common intention in question can be ascertained clearly.  I find that, as a matter of pleading, the substance of the common intention in this case can be ascertained in a sufficiently clear manner.

29.As said, I must consider whether or not the rectification claim is bound to fail as a matter or amendment of pleadings.

30.In this context, it is important to look at this particular Amended Statement of Claim and the entirety of the document to see if, considered as a whole and taking the pleading to its highest, the common intention was so general as to doom the rectification claim a destined loser.

31.The relevant parts of the Plaintiff’s pleaded amendments read as follows, with my emphases italicised:

“ 2 (c) …At the end of the lunch meeting the Plaintiff and Defendant also agreed that all the intended loans will comply with the relevant law, rule and regulation of Hong Kong and China in all aspects. … (‘Verbal Agreement’)

(d) In the premises it is the common intention of the Plaintiff and the Defendant that the intended loans will be enforceable and in full compliance with the relevant law, regulations of Hong Kong and China. (‘Common Intention’)

(e)   The Plaintiff then instructed his lawyer to reduce the VerbalAgreement and Common Intention of the parties into writing by incorporating the same into the Loan Agreements (as defined below) which became the Loans Agreements pleaded herein below.”

32.The pleading of the parties’ intention did not end here.  It was further pleaded as follows:

“ 39. When the Plaintiff and the Defendant executed the 1st and 2nd Loan Agreements on 16 December 2010 and the 3rd Loan Agreement on 27 January 2011, both parties intended and believed that the Loan Agreements were enforceable and in compliance with all the relevant law, regulations and rules.

40. Further or alternatively, if the Loan Agreements were in breach of any laws, regulations and rules of Hong Kong or China on the ground that certain terms of the Loan Agreements concerning the calculation of default interest on the Loans which negatively impact the enforceability and legality of the Loan Agreements, the Plaintiff would seek rectification of the Loan Agreements on the basis of the mistake of facts common to the Plaintiff and Defendant that the Loan Agreements would be enforceable and in compliance with the law, regulations and rules of Hong Kong and China.

41. Contrary to the Plaintiff and Defendant’s Verbal Agreement and Common Intention the following unintended flaws were later found in the Clause 13 of the Loan Agreements, which may impact the enforceability and legality of the Loan Agreements.

Particulars

(a) In the respective Clause 13.1 of the Loan Agreements whichsays that the Defendant shall pay default interest on any sum payable under this Agreement when due, when in fact it is intended that the default interest would only apply to the outstanding Principal loan; and

(b) In the respective Clause 13.2 of the Loan Agreements concerning compound calculation of default interest when the parties never intended to apply compound interest in calculation of default interest. (“unintended flaws”)

42.   The Defendant should not be allowed to benefit from the above unintended flaws in the Loan Agreements which did not reflect the true intention of the parties by claiming illegality in the Loan Agreements after he had received the substantial funds from the Plaintiff.

43.   The Plaintiff avers that Clause 13.1 and Clause 13.2 in the respective Loan Agreements should be rectified as indicated in the schedule attached hereto.

AND THE PLAINTIFF CLAIMS:-

(c)   An order for Rectification of the Loan Agreements by amending the Clause 13 of the Loan Agreement in the manner as shown in the Schedule attached;

Schedule

a)   For the Clause 13.1 Rate of Default Interest, substitute the word ‘sum’ with ‘Loan’.

The rectified clause 13.1 should read ‘If the Borrower fails to payany Loan payable under this Agreement when due, the Borrower shall pay default interest on such Loan from and including the due date to the date of actual payment (after as well as before judgment) at the rate of five per cent (5%) per month.’

b)   In Clause 13.2 Calculation of Default Interest, delete the following words ‘shall be compounded at the end of each successive funding period considered appropriate by the Lender for the purpose of Clause 13.1:’

The rectified Clause 13.2 should read as ‘Interest at the rate or rates determined from time to time as aforesaid shall accrue from day to day, shall be calculated on the basis of the actual number of days elapsed and a 365 day year, and shall be payable from time to time on demand.’”

33.It can be seen that taking §2(d), §41(a) and (b) and §42 together, the Plaintiff’s pleaded case is that it was the common intention of the partiesthat the loan agreements would be enforceable and compliant with the law. It was specifically pleaded that it was never intended that default interest on any sum would be charged, the original intention being that default interest would only be charged on the outstanding principal amount.  Furthermore, there was no intention to compound the default interest.  Clauses 13.1 and 13.2 contained unintended flaws, or flaws which contravened the original common intention of the parties.  Hence, they need to be rectified as in the Schedule to reflect the parties’ common intention.

34.Taking the Plaintiff’s pleading at its highest, one cannot readily come to the conclusion that the common intention pleaded by the Plaintiff was too general to the extent that it renders the rectification claim doomed to fail.  In fact, the pleading identified parts of the particular provisions of the loan agreements (Clauses 13.1 and 13.2) which were never intended to be so written and contained errors (or unintended flaws as said in the Amended Statement of Claim) which did not reflect the intention pleaded under para 2(d). 

35.The plea of rectification is not doomed to fail.

36.The Defendant contends that the alleged common mistake relates to the legal consequences of the loan agreements rather than the way the documents had been recorded in writing.  He refers to the Plaintiff’s pleading which pleads a “mistake of facts common to [P and D] that the Loan Agreements would be enforceable and in compliance with the law, regulations and rules of Hong Kong and China” as the common mistake: see §§30(b) and 48 of Defendant’s skeleton submission.

37.In Hodge on Rectification, 2nd ed, it says:

“ 4-02 …Rectification is not an appropriate remedy where the mistake relates to the circumstances of the transaction itself, or its legal consequences, rather than the language, terms, meaning or effect of the document which purports to record it. …

4-03 … The mistake must also be a relevant mistake. It must relate to the language, terms, meaning or effect of the document which it is sought to rectify rather than its legal consequences.

4-59   A party may invoke the remedy to correct a mistake in the language, terms, meaning or effect of a document, but not a mistake as to its consequences of the advantages to be gained from entering into it. …”

38.The Defendant says that in the Amended Statement of Claim, the Plaintiff has referred to Clauses 13.1 and 13.2 respectively in respect of all three loans in §§5(c), 8(c), 16(c); and §§5(d), 8(d), 16(d), having also made clear that he would rely on the full terms and effect of the loan agreements in §§10 and 19 of the Amended Statement of Claim.  The Plaintiff had affirmed the original statement of claim, the Amended Statement of Claim, and had affirmed the loan agreements again in his Reply and Defence to Counterclaim. Thus, the Defendant argues there could be no mistake on the part of the Plaintiff in respect of the language, terms, meaning or effect of the loan agreements: §53, Defendant’s skeleton submission.  Any mistake at best relates to the legal consequences arising from the application of unidentified or unidentifiable law, regulations and rules of Hong Kong and China to the loan agreements: §54, Defendant’s skeleton submission.

39.With respect, I think the Defendant has ignored that even though the Plaintiff has made reference to Clauses 13.1 and 13.2, and his reliance on the loan agreements, there can be no dispute that whether in the original statement of claim or in the Amended Statement of Claim, the Plaintiff has consistently pleaded and only claimed interest, including default interest on the principal amount, on simple calculation, and not compounded calculation:see §16 of the original statement of claim and §31 of the Amended Statement of Claim.  This is at least, on the face of the document, and the court needs no more than that at this stage, consistent with the pleading of the common mistakes as alleged.

40.As said above, the Plaintiff has articulated the mistakes, or “unintended flaws” as he puts it in the Amended Statement of Claim.  For Clause 13.1, the unintended flaw or mistake which did not reflect the prior accord was that default interest would apply to the outstanding principal amount; whereas for Clause 13.2, the mistake was that compound calculation should not be applied to default interest.

41.These were clear references to mistakes relating to the terms, meaning or effect of the loan agreements.   As a matter of pleading, it was sufficiently pleaded that the mistake lies in the written instrument not reflecting the common intention of the parties.  While a mistake may havean implication on the legal consequences, that however does not mean that it was a mistake about the legal consequences itself.

42.This argument fails.

43.Finally, under this section, the Defendant contends that the Common Intention and the common mistake constitute a device to circumvent the MLO.

44.Mr Liao suggested that section 24 of the MLO would be rendered otiose, and the floodgate for money lenders to get round the sanction under section 24 opened if the Plaintiff’s amendments were allowed.  Any money-lender who charged in excess of 60%, said Mr Liao, could in the future raise common intention to comply with the law to seek rectification, thereby circumventing the prohibitions (including criminal) under section 24 of the MLO.

45.Mr Liao relies on Lei Shing Hong Credit Ltd v San Tong Lee Co Ltd HCMP 2525/2013, unreported, 26 May 2017, a decision of DHCJ Sakhrani; and Yang Long Shan v Chan Hau Kong HCA 1265/2011,unreported, 5 June 2015, a decision of Registrar Lung which was approved in Lei Shing Hong.

46.The plaintiff in Lei Shing Hong’s case was a money lender.  He applied to amend his claim to add a new alternative cause of action for money had and received.  The amendment was refused on the ground thatto allow the same would circumvent the operation of section 22 of the MLO:

“ 32. Mr Hon, for P, made it plain in his oral submissions that although it is pleaded in para 22A as being ‘Further or in the alternative’, what P was seeking to do was to introduce an alternative claim for money had and received.

33. I would observe that no new facts are pleaded in support of this new alternative claim. P relies on the same facts pleaded in the statement of claim in support of the new alternative claim for money had and received which have been verified by a statement of truth signed by a director of P. Furthermore, the facts on which P relies in support of its claims have also been affirmed by Lam Kam Leung, the general manager of P, in his affirmation in support of P’s claims filed on 11 November 2013.

49. What are the pleaded facts in support of the new claim for money had and received? As I have said, no new facts are pleaded in support of the claim for money had and received. The same facts are relied on. Clearly, on the pleaded facts, the loan of the principal sum of HK$18 million granted to D2 under the facility agreement was a money-lending transaction. As such, it was governed by the Ordinance and the provisions of sections 22 and 25 which were enacted to provide protection and relief to borrowers against excessive interest rates and extortionate stipulations.

56. I accept that the Registrar was dealing with a different section of the Ordinance. However, it seems to me that what the Registrar said in Yang Long Shan also applies in this case.…

58.   … There is no need for P to amend the statement of claim to add the new cause of action for money had and received in the alternative.  To allow the proposed amendments to be madeagainst D2 would, in my view, be to allow P as the money lender caught by the Ordinance to circumvent the sanction of the Ordinance.  P should not be permitted to do that.”

47.In Yang Long Shan:

“ 16. The plaintiff has stated it clearly in the written submissions that the purpose of the amendments is to avoid section 24 of the Ordinance, Cap. 163. See §50 of the written submissions. However, upon enquiry by this Court this morning, the plaintiff agrees that he is still relying upon the Revised Loan Agreement and the 2ndAgreement to lay this claim for restitution for his money given to the defendants.

17.   It will be apparent that if the plaintiff’s application is allowed,s.24(2) of the Ordinance will be rendered otiose because any money lender who had lent money in contravention of s.24(1) will be able to circumvent the sanction of subsection 2 by claiming restitution of the money lent.… The application for amendment is therefore misconceived and ought to be rejected.…”

48.It is Mr Liao’s submission that in similar veins to the plaintiff in Lei Shing Hong, the Plaintiff in the present case was maintaining the primary case that the loan agreements were valid, but in the alternative, if the loan agreements were found to be in contravention of the MLO, he would seek rectification on the basis of the pleaded Common Intention. 

49.There is also force in the floodgate argument. As Mr Liao pointed out, no one will ever say the agreement was intended to be illegal. Whenever a money-lender contract was charged with illegality, it would be easy enough to invoke such a general common intention to rectify the offending terms.  This might produce the absurd result that the defence of illegality will be effectively rendered unavailable.

50.That having said, I must consider the Amended Statement of Claim as a whole, and what it is really about that the no one should be allowed to circumvent the sanction of the Ordinance. 

51.First, the Plaintiff in the present case all along denied he was amoney lender at all material times: §3, Reply and Defence to Counterclaim whereas the plaintiff in Lei Shing Hong was a money-lender: see §6 and §39 of Lei Shing Hong.  By pleading money had and received which is an equitable relief, it is my view that the plaintiff in Lei’s case was changing the entire case from money lending to not money lending in an attempt to rid the governance by the MLO.  The plaintiff in Lei Shing Hong was disallowed to bring about the amendment because he was circumventing his capacity as a money lender, in which capacity he commenced the action in first place.  The attempt to circumvent the MLO was readily apparent as manifested in the pleading alone.  Thus it was a finding that could be made in that case based on the pleadings without a trial.  In this case, the Plaintiff is not seeking to circumvent his capacity as a money lender outright by the amendment.  As suggested by Mr Chan, it is for the court to determine at trial whether the Plaintiff is a money lender and whether the loan agreements had breached sections 22, 23 and 24 of the MLO. 

52.I accept Mr Chan’s submission that the present action does not concern a proposal to add “money had and received” as a new cause of action to circumvent the relevant provisions of section 22 in Lei Shing Hong and section 24 in Yang Long Shan.  The Plaintiff in the present action pleads rectification.  In essence, he is saying there were mistakes orerrors in the loan agreements which ought to be corrected. 

53.Unlike money had and received, which involves the claimant averring alternative claims based on the same terms of the relevant loan agreements (which are illegal by virtue of s. 22 and s. 24 of the MLO), here the Plaintiff was effectively saying the offending terms in the loan agreements were incorrectly recorded. 

54.In the former, the claimant was saying that his loan agreement was legal and did not contravene the MLO, but alternatively, if it did contravene the MLO, then the claimant relied on money had and received to claw back the principal amount.  Such alternative case will only arise when the primary case fails.  This would clearly constitute a device to get round the vigours of the law. 

55.In the latter, which is the rectification case here, there is no alternating between “legal” and “illegal”.  The Plaintiff all along maintains a legality case only.  He has clearly pleaded by way of amendment that the offending clauses had to be rectified as they were incorrectly recorded in that they did not reflect the true intention of the parties, namely that the loan agreement should be legal and enforceable.  The nature of a claim for rectification and money had and received is very different.  If someone is saying that they had all along intended to be law-abiding, the unlawful terms in the agreement were mistakes only, and hence rectification is required, how can it be concluded that they seek to circumvent the law?  

56.It has not escaped unnoticed the Plaintiff pleaded rectification by way of a “further or alternative” claim: see §40 (set out above) of his Amended Statement of Claim.  But the pleading was not averring “further or alternatively, if, which is denied, the Loan Agreements were in breach of any law regulation and rules of Hong Kong or China …”.  Reading the entire §40, it seems tolerably clear that the Plaintiff was simply seeking rectification if the terms of the agreements infringed the MLO, and not a denial that they were actually infringing terms. 

57.Furthermore, I must look at the entire pleading and cannot ignore his plea of simple interest in both the original statement of claim and Amended Statement of Claim.  On the face of it, this plea seems consistent with his case that he was not a money-lender and the references to charging default interest and compounding the same were errors which did not reflect the prior accord to comply with the law of Hong Kong. 

58.I do not, and it is not appropriate for me to pass a conclusion at this stage.  My obligation is to take the Plaintiff’s pleading to its highest.

59.I find that at this stage there has not been enough for me find on the pleading that the Plaintiff is seeking to circumvent the MLO.  This is different from Lei Shing Hong in which it was sufficient to find that the plaintiff was seeking to circumvent the MLO on pleading alone ie frommoney lending to not money lending.  Although the Plaintiff might still be found to be “circumventing” the MLO after the respective parties’ cases and evidence have been filed, it is plainly a matter for the trial judge.

B.   Advancing two inconsistent alternatives contrary to Order 18, rule 12A

60.Order 18, rule 12A provides that:

“ A party may in any pleading make an allegation of fact which is inconsistent with another allegation of fact in the same pleading if—

(a) the party has reasonable grounds for so doing; and

(b)   the allegations are made in the alternative.”

61.In gist, the Defendant argues that the Plaintiff is advancing two inconsistent factual scenarios by pleading in the alternative a case on rectification.  It is suggested that the primary case of the Plaintiff must rest on the full terms and effect of the loan agreements, including the full rigours of Clauses 13.1 and 13.2 which stipulate default interest to apply to any outstanding sum and a compound calculation to the default interest. On the other hand, by the new plea, the Plaintiff must be seeking to establish in the alternative, a case that default interest only applied to the outstanding principal amount with no compound calculation.  The aforesaid two sets of facts are inconsistent with each other.  The Plaintiff must possess personal knowledge as he verified upon oath the veracity of both the original and the Amended Statement of Claim.  As such, it is contended that he must know which alternative is the correct version.  He should not be allowed to add this inconsistent allegation of facts.

62.I agree with Mr Chan that there is no inconsistent allegation of facts.  By way of amendment, the lunch meeting at Fook Lam Moon was pleaded: §2(c) and (d), Amended Statement of Claim to support the claim for rectification.  The Plaintiff was merely supplying additional facts.  There is no change of story.  In the original claim he has all along pleaded and only claimed default interest for the outstanding principal amount based on simple interest.  This is consistent with his case that there was a Common Intention that the contracts were lawful and enforceable.

63.The Plaintiff’s case is that Clauses 13.1 and 13.2 are parts of a binding agreement which remain binding unless and until the additional facts are established, in which case, they will be rectified.  Whether or notthe provision is enforceable is not a matter of fact, it is a matter of opinion.

64.If A first contended he signed on an agreement, but then further or alternatively contended that he did not sign on that agreement. These are inconsistent allegations of fact.  On the other hand, if A first contended he signed on a binding agreement, but then further or alternatively contended that he did sign on the binding agreement but the same is not binding. These are not necessarily inconsistent allegations of fact ie A could still have signed on the agreement.

65.In this action, before or after the Plaintiff’s amendment, the Plaintiff has been consistently claiming against the Defendant for the money lent to the latter.  I do not find that the Plaintiff has abused the process especially when we compare the present case with Lei Shing Hong (where on pleading the plaintiff therein sought to change outright hiscapacity from money lending to non–money lending).  This is particularly so when the fact remains that since the original Statement of Claim, the Plaintiff has been consistently claiming default interest on simple calculation not compounded calculation.  It was not a shift from claiming compound interest to simple interest.  Even if that was the case, the change itself might still reflect a genuine mistake.

C.   Abuse of process and waiver

66.In short, the Defendant’s complaint is that the Plaintiff had knowingly omitted to plead the underlying facts in support of his rectification claim.  Those facts were all along within his knowledge.  There is no evidence suggesting that they only came to light until recently.  With such knowledge, the Plaintiff chose to suppress this rectification case and proceeded to apply for summary judgment under Order 14. Had this been told at the Order 14 stage, the Plaintiff’s Order 14 application would have been bound to fail.  This is because the pleading of the Verbal Agreement at the Fook Lam Moon lunch was bound to give rise to factual disputes which would result in unconditional leave to defend being grantedto the Defendant.  Notwithstanding all this, the Plaintiff pressed on with hisOrder 14 application, meting out serious prejudice to the Defendant in thatthe Defendant almost had to fork out $124 million odd within four days tocomply with the condition for obtaining leave to defend.  It was no excuse, said the Defendant, that this was later reduced to $30 million by the Court of Appeal.

67.It is common ground that the facts underlying the Fook Lam Moon lunch meeting wherein the Verbal Agreement was made and the Common Intention was sketched, were available to the Plaintiff at all times.  The Defendant’s complaint about the Plaintiff being unforthcoming in the Order 14 application might be relevant to the latter’s credibility.  However, if any, this is again plainly a matter for the trial judge.  I have notbeen taken to any authority which suggests that an amendment of pleadingsought not be allowed following an Order 14 application, or an unforthcoming Order 14 application.  To formulate such a rule in a rigid fashion would only defeat the fundamental objective for amendment of pleadings ie the determination of the real question in controversy between the parties.

68.Of importance to note is that this is just an application for amendment of a pleading.  There will be a full assessment of the Plaintiff’s credibility at the trial.  As stated above, the Plaintiff is not running an inconsistent case on the pleadings.  Whether or not he was a money-lender, whether there was a common intention / prior accord that the agreements should comply with the law and regulation of Hong Kong, whether it was intended by the parties that default interest would apply to any sum or only the outstanding principal, whether the parties never intended to apply compound calculation to the default interest are all factual matters which can and should only be resolved at the trial, and not at this stage. 

69.As observed by Ng J in Hsu Ming Chi:

“ 32. As the authorities show, if the objection is put on the basis that the plea is bound to fail, the court will take the applicant’s proposed pleaded case to the highest. As submitted by Mr Neoh SC, in the present case, it means the Defendants would have to show that the plea is incapable of belief by any trial judge. But the viability of this plea of Oral Collateral Termcan only be assessed on ‘the totality of the evidence’, particularly, in the light of the credibility of the Plaintiff and Lam. This is clearly a matter which calls for viva voce evidence at trial when the testimony of the witnesses can be tested. It is difficult to seehow, at the interlocutory stage, the court can resolve the matter infavour of the Defendants and rule that the plea of Oral Collateral Term is bound to fail.

33.   This action is still in an early stage.  It seems to me that justice requires the plea of Oral Collateral Term to be investigated by the court, and in the absence of any appreciable prejudice to the Defendants (other than having to deal with the plea), leave to amend should be given: ….”

70.Quite obviously, if leave to amend is allowed, the Defendant would have to deal with the plea.  But the trouble that he is put through will be compensated by an appropriate costs order against the Plaintiff. 

71.I am aware that he paid $30 million to secure a chance to defend, which would not have been necessary had the Plaintiff pleaded his rectification claim before proceeding with his Order 14 application.  This submission necessarily involves, inter alia, a conclusion of this court that the Defendant would have obtained unconditional leave to defend or a lesser condition to defend or a dismissal of the Plaintiff’s Order 14 application.  This does not seem to be possible, nor is it necessary, and the Court declines to do so.  

72.As regards waiver, this can be dealt with relatively swiftly.

73.The basis of this ground of objection stems from the argument that one should not be allowed to assert an inconsistent stance with his previous position thereby leading to a change in relationship between the parties. In this case, the party taking such an inconsistent stance should be taken as having waived his right to raise the inconsistent case or is estopped from running the inconsistent plea.  The Defendant relies on Commonwealth v Verwayen (1990) 170 CLR 394 at 481–2.

74.As this Court finds that the Plaintiff is not asserting an inconsistent case by raising rectification, it follows that there is no waiver or estoppel of his right to plead this case.

75.This ground of objection fails.

D.   Limitation

76.There is no dispute between the parties that six years had already elapsed since the accrual of the Plaintiff’s claim for rectification.

77.At the hearing, the parties agreed that the only issue which theCourt has to decide is whether the new cause of action arises out of the same or substantially the same facts as are already in issue in the existing claim.

78.Section 35 of the Limitation Ordinance provides that:

“ (3) Except as provided by section 30 or by rules of court, the court shall not allow a new claim within subsection (1)(b),other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Ordinance which would affect a new action to enforce that claim.

(5) Rules of court may provide for allowing a new claim to which subsection (3) applies to be made as there mentioned,but only if the conditions specified in subsection (6) are satisfied, and subject to any further restrictions the rules may impose.

(6) The conditions referred to subsection (5) are—

(a) in the case of a claim involving 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; …

(b)   ….”

79.In Shenzhen Futaihong Precision Industry Co Ltd & others v BYD Co Ltd & others HCA 2114/2007, unreported, 18 July 2016, Ng J summaried the principles as follows:

“ Where a party raises a limitation objection to proposed amendments to pleadings, it is useful to adopt the ‘three-stage test’set out in Ballinger v Mercer Ltd [2014] 1 WLR 3597 at [15], asfurther explained in Michael Agapios Diamandis v Sir David Seton Wills [2015] EWHC 312 (Ch) at [46]:

(1) Stage 1: Is it reasonably arguable that the opposed amendments are outside the applicable limitation period? Ifnot, then the amendments fall to be considered in accordancewith the general principles governing amendment applications.

(2) Stage 2: If the answer to (1) is yes, do the proposed amendments seek to add or substitute a ‘new cause of action’? If not, then again the amendments fall to be considered in accordance with general principles.

(3) Stage 3: If the answer to (2) is yes, does the new causeof action arise out of the same or substantially the same facts as are already in issue in the existing claim?  If not, the amendments cannot be allowed.If yes, then the court retainsa discretion to allow or refuse the amendments in accordance with general principles.”

80.On behalf of the Defendant, Mr Kenneth Chow submits that the Plaintiff seeks to introduce the following new facts in the Amended Statement of Claim, necessitating investigation, hence it cannot be said that their case arises out of the same or substantially the same facts:

(a)   §2(c) in relation to the pleading of the Verbal Agreement;

(b)   §12 pleading the common intention of the parties that the 1st and 2nd loans would comply with the law and regulations of Hong Kong;

(c)   §14(a) which pleads the parties’ agreement that the Verbal Agreement (deleting the words “on the simple interest”as agreed by Mr Chan) and Common Intention on the enforceability and legality would be reflected in the 3rd loan agreement;

(d)   §23 averring the common intention of the parties that the 3rdloan agreement would comply with the law and regulations of Hong Kong and China etc;

(e)   §39 pleading the common intention;

(f)   §40 pleading the mistake of facts which Mr Chow says must be new facts;

(g)   §41 the plea of “unintended flaws” must be new as they appeared for the first time.

81.Mr Chow refers the Court to the following provisions under Order 20, rule 5(2) and (5):

“ (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.

(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.”

82.Mr Chow says that the Plaintiff has never claimed rectificationas a relief in the original statement of claim and so he is barred from raising this new claim.

83.In Leung Kin Fook & Ors v Eastern Worldwide Co Ltd (No 2) [1997] 1 HKC 524, the appellants were plaintiffs in an action for breach of contractual duty and tortious liability against the respondent as first defendant, for the loss of a dumb barge chartered to the respondent for a voyage from Hong Kong to Macau.  Some eight years after the writ was issued, the appellants sought to amend the statement of claim seeking,inter alia, a new averment of breach of duties.

84.Litton VP (as he then was) said:

“ … In essence, the additional averments allege (i) failure to provide a suitable tug; (ii) failure to heed the meteorological conditions before embarking on the voyage and (iii) failure to react adequately when the emergency arose.

The judge’s approach

The judge held, in my view correctly, that these are new claims or new causes of action. The question then arises: Do they arisesubstantially out of the same facts as the original cause of action?

...

The judge is, in my view, correct to say that the facts pointing to the cause of loss of the barge are new: but is that conclusive of the issue before him?

Proper construction of O 20 r 5(5)

The words in O 20 r 5(5) are not to be narrowly construed: they should be given a broad and liberal interpretation in order to attain the objective of the rules. By focusing attention on the additional averments which the plaintiffs need to make to establish the new causes of action, the judge has, in my judgment, applied the provisions of O 20 r 5(5) too narrowly.

If one looks at the issue broadly, what does one see?  The contractual duties which are now pleaded arise from the originalcontract; the duty of care likewise arises from the relationship ofowner and charterer of the barge as originally pleaded.  There isno complete overlap of facts because, in the new causes of action,additional facts have to be pleaded.  This does not, however, take the case out of O 20 r 5(5).”

85.Godfrey JA (as he then was) said:

“ In my opinion, the claim based on negligence and breach of contract which the plaintiffs now seek to revive, although a claim of a different character from that originally pleaded in the statement of claim (ie, a claim founded on an allegation of bailment) is a claim which arises out of substantially the same facts; indeed the identical facts, save that it is now sought to supplement those facts with some additional facts necessary to support the allegations of negligence and breach of contract. In these circumstances, although the judge thought otherwise, the requirements of the rule to which my Lord Litton VP has referred, O 20 r 5(5), are satisfied, and I agree that we should exercise our discretion in the manner he proposes.”

86.In Sun Focus Investment Ltd v Tang Shing Bor and Liu Su Kei HCA 538/2007, a decision of Anthony Chan J dated 22 January 2013, the legal principles were re-visited:

“ 15. For leave to amend to be granted in these circumstances, this court must abide by O 25, r 5(5), which in turn reflects the provisions of section 35(5) and (6) of Cap 347. O 25, r 5(5) provides:

‘ An amendment may be allowed under paragraph (2) notwithstanding that the effect of the amendment will beto 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.’

16. For the present purpose, this court has to compare the ASOC with the New SOC to determine if the new causes of action arose out of the same or substantially the same facts.

17. There is a recent court of appeal authority in which the law in this area has been considered—Moulin Global Eyecare Holdings Ltd (in liquidation) v Olivia Lee Sin Mei, CACV 155 & 161/12, p 23R–25T and 28N–Q:

‘ …[counsel] reminded the court of the dictum of Litton VP (as he then was) in Leung Kin Fook & Ors v Eastern Worldwide Co Ltd (No 2) [1997] 1 HKC 524 at 528C to D: ‘The words in O 20 r 5(5) are not to be narrowly construed: they should be given a broad and liberal interpretation in order to attain the objective of the rules.’ The policy of the statutory provisions was described by Hobhouse LJ in Lloyds Bank plc v Rogers, Court of Appeal (Civil Division) Transcript No 1904 of 1996 in these terms:

‘ Section 35 contemplates that the introduced cause of action will be time barred. The policy of the section is that, if factual issues are in any event going to be litigated between the parties, the parties should be able to rely upon any cause of action which substantially arises from the same facts. There is no indication in the drafting of the Act that there should be a further limitation on section 35. If there is any relevant prejudice to the party opposing the amendment, it can and should be had regard to on the exercise of the court’s discretion whether or not to allow the amendment.’

47. Colman J discussed what could be relevant prejudice in this context in these decisions: Goode v Martin [2001] 3 All ER 562 at 566g to h; P & O Nedlloyd BV v Arab Metals Co [2005] 1 WLR 3733 at para 42; and BP plc v Aon Ltd [2006] 1 Lloyd’s Rep 549 paras 52 to 55. I quote from the relevant passages in the last two cases:

‘ 42. … The concept involved in ‘substantially the same’ in CPR r 17.4(2) must, in my judgment, involve something going no further than minor differences likely to be the subject of inquiry but not involving any major investigation and/or differences merely collateral to the main substance of the new claim, proof of which would not necessarily be essential toits success.’ (P & O Nedlloyd BV v Arab Metals Co)

‘ 52. At first instance in Goode v Martin [2001] 3 All ER 562 I considered the purpose of section 35(5) in the following passage:

‘ Whether one factual basis is ‘substantially the same’ as another factual basis obviously involves a value judgment, but the relevant criteria must clearly have regard to the main purpose for which the qualification to the power to give permission to amend is introduced. That purpose is to avoid placing a defendant in the position where if the amendment is allowed he will be obliged after expiration of the limitation period to investigate facts and obtain evidence of matters which are completely outside the ambit of, and unrelated to those facts which he could reasonably be assumedto have investigated for the purpose of defending the unamended claim.’

54. The substance of the purpose of the exception in subsection (5) is thus based on the assumption that the party against whom the proposed amendment is directed will not be prejudiced because that party will, for the purposes of the pre-existing matters [in] issue, already have had to investigate the same or substantially the same facts.

55. It follows that if that party would not previously have had to investigate the same or substantially the same facts for the purposes of a pre-existing claim because he never had been party to such a claim, the prejudice which the exception assumes not to exist does indeed exist. If the amendment is allowed that party has to embark upon investigating a claim against him which arises out of facts which he would not previously have been concerned to investigate. Accordingly, in my judgment neither CPR 17.4(2) nor section 35(5) can be construed to have as wide a scope as that contended for by the Claimants. …’ (BP plc v Aon Ltd)

48. Thus, in considering whether the Share Repurchases Claim and the Convertible Notes Claim arose out of the same or substantially the same facts as a cause of action in respect of which relief has been claimed, I should consider whether the new facts required for these new causes of action would go no further than introducing ‘minor differences likely to be the subject of inquiry’ and would not involve any ‘major investigation’ which would not already have been undertaken in respect of the Dividends Claim.

56. [counsel] submitted whether the new cause of action arose out of substantially the same facts as that already pleaded is ‘substantially a matter of impression’ (Welsh Development Agency v Redpath Dorman Long Ltd [1994]1 WLR 1409 at 1418D). I would respectfully agree withMillett LJ (as he then was) in Paragon Finance plc v DB Thakerar & Co at 418g to h this may be so in borderline cases. In others, it must be a question of analysis.’

18.   It is suggested by Mr Ma that there is a tension between the two court of appeal decisions of Leung Kin Fook and Moulin Global.  Mr Ma is concerned that the adoption of the ‘question of analysis’ approach is more restrictive than the ‘broad and liberal interpretation [of the rules]’.  I do not believe that such concern is well-founded.  The court of appeal in Moulin Global did not see any inconsistency between the judgment of Leung KinFook, which was referred to in its judgment, and the ‘question of analysis’ approach.  I believe that in the analysis to be carried out here, the court should not be over technical or restrictive so as to give effect to the dicta in Leung Kin Fook.”

87.Applying the principles, and comparing the original statement of claim with the Amended Statement of Claim, it is readily discernable that the original claim was for breach of loan contracts, the new claim to which the Defendant opposes is the claim for rectification based on the same loan contracts.

88.I agree with Mr Chow that new facts have been pleaded to support the new cause of action.  But it is obvious they are additional facts necessary to support the new cause of action.  The new additional facts raised mainly concern the Fook Lam Moon lunch meeting, viz, the Verbal Agreement and the Common Intention. 

89.I agree with Mr Chan that the lunch meeting was first raised by the Defendant at §52 of the Defence and Counterclaim. At §16 of the Reply, the Plaintiff admitted there was this meeting although he denied what took place as pleaded in §52.  As such, facts and matters surroundingthe Fook Lam Moon meeting—what was discussed, between whom, what was agreed or not agreed, etc—was something which both parties would have gone into and scrutinized at trial anyway.  These are “factual issues [that] are in any event going to be litigated between the parties, [hence] theparties should be able to rely upon any cause of action which substantially arises from the same facts.”

90.Furthermore, the Defendant must have done investigation relating to this lunch meeting before the time-bar when he first raised it in his Defence and Counterclaim.  The lunch meeting was not only referred to by the Defendant first, it also concerned the discussions leading to the conclusion of the written instruments which were the subject of the original Statement of Claim already.  He suffers no prejudice of having to start investigation of facts after the long lapse of time which is impermissible by statute.

91.I note that new or additional facts in support of rectification have also been pleaded under §41 of the Amended Statement of Claim in relation to the discovery of the unintended flaws and the parties’ intention that default interest would only apply to the outstanding principal amount and not to be compounded.  These are quite separate and distinct averments from the Common Intention or Verbal Agreement which took place at the Fook Lam Moon lunch meeting.  Investigation may need to be undertaken to ascertain how the circumstances under which the unintended flaws came about.

92.They may be new facts, but nonetheless are only facts relating to the same loan agreements which have all along been the subject matter of the present action.  In other words, the Defendant would have already investigated the same or substantially the same facts for the purposes of tackling the pre-existing claim of breach of contract in relation to the three loan agreements.  Indeed, the very reason why he consented to the new Breach of Warranties Claim is testament to the absence of prejudice which he might suffer, as any new investigation which might need to be undertaken relates to the same loan agreements.  Similarly, the investigation in respect of the circumstances relating to the unintended flaws concerns the same three loan agreements.  The Defendant “against whom the proposed amendment is directed will not be prejudiced because [he] will, for the purposes of the pre-existing matters [in] issue, already have had to investigate the same or substantially the same facts.”

93.Accordingly, this limitation objection also fails.

CONCLUSION

94.The Defendant’s appeal is dismissed and I make an order thatthe Defendant shall pay the Plaintiff’s costs of and incidental to the appeal with certificate for two counsel.

95.I am indebted to counsel for their helpful submissions.

 
 

  (Anita Yip SC)
  Deputy High Court Judge

Mr Kenneth Chan, Mr Fung Pak Kay, instructed by Mason Ching & Associates, for the plaintiff (by original action)

Mr Andrew Liao SC, Mr Kenneth Chow, Miss Grace Tam and Mr William Tse, instructed by Wellington Legal, for the defendant (by original action)