Delco Participation B.V. v. Hwh Holdings Ltd

HCA 2943/2015

[2019] HKCFI 3136

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2943 OF 2015

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AND

HCA 3040/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3040 OF 2015

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AND

HCA 2939/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2939 OF 2016

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(Heard together)

Before: Hon Coleman J in Chambers (Open to Public)

Date of Hearing:  20 December 2019

Date of Judgment:  31 December 2019

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J U D G M E N T

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Introduction

1.By three summonses dated 11 October 2019, HWH Holdings Limited (“HWH”) – the defendant in HCA 2943/2015 (“A2943”) and the 3^rd defendant in HCA 2939/2016 (“A2939”) – and Fang Ankong (“Fang”) – the 2^nd defendant in HCA 3040/2015 (“A3040”) and the 4^th defendant in A2939 – apply to amend their Defences and, where applicable, Counterclaims in accordance with drafts as attached to the summonses.  HWH is a BVI incorporated vehicle controlled by Fang.

2.Delco Participation BV (“Delco”) – the plaintiff in each of the actions – opposes the amendment applications, though the opposition is confined to the proposed amendments concerning what is defined in the pleadings as the “Chern Debt”.  Mr Victor Dawes SC, leading Mr James Man, identifies that the basis of opposition is that those amendments assert claims or counterclaims which are time-barred under section 35 of the Limitation Ordinance Cap 347 (“LO”), and/or are either lacking in particulars or are unarguable.

3.Mr Norman Nip, appearing with Mr Roger Phang for Fang and HWH, submits that the proposed amendments pertaining to the Chern do not constitute a “claim” of set-off to which section 35 of the LO applies.  Alternatively, if section 35 is engaged, Fang and HWH submit that the “new claim” of the Chern Debt is permissible under Order 20 rule 5 on the basis that it arises out of the same or substantially the same facts as the existing claims in respect of the Fang Debt and the HKM Debt (as defined in the pleadings).  Mr Nip also argues that the proposed amendments read as a whole are sufficiently particularised and are not unarguable.

4.In so far as application is made for other amendments not related to the Chern Debt, those amendments are not opposed and I would accordingly allow them.

5.In passing, I note but place no particular reliance on the fact that there seems to have been significant delay on the part of Fang and HWH in formulating the amendments proposed, notwithstanding that it had previously been indicated the amendments would be put forward many months before in fact they were.

Background and Genesis of Proposed Amendments

6.The general background to the three actions has been summarised, at least at a high level, in §§3-10 of the Decision of G Lam J dated 26 July 2019 and §§7-14 of the Decision of DHCJ Hall-Jones dated 30 October 2019.  I do not think it profitable to attempt another high-level summary in this Judgment, and reference can instead be made generally to the summaries in those two Decisions, which I gratefully accept as fair and appropriate summaries, including for present purposes.

7.However, it is necessary for present purposes to identify broadly the nature of each action:

(a)  In A2943, Delco claims against HWH for the sum of approximately HK$46.8 million, being the alleged outstanding consideration for the transfer of shares under an agreement dated 17 January 2012.  Subject to an argument about a 10% discount, which would reduce the claim to approximately HK$41.9 million, HWH’s defence is one of set-off. There is a corresponding counterclaim.

(b)  In A3040, Delco claims against the 1^st defendant (“CT”) alternatively Fang the undercapitalised portion of shareholders loans in the sum of approximately HK$57.8 million under a capitalisation agreement.  Subject to an argument about an adjusted figure, where Fang says the adjusted figure should be approximately HK$55.5 million, Fang’s defence is one of set-off.  There is a corresponding counterclaim.

(c)  In A2939, Delco claims, amongst other things, approximately HK$6.25 million being the first half yearly interest payment of certain convertible bonds due on 1 September 2012.  Fang’s and HWH’s defence is one of set-off.  In this action, there is no corresponding counterclaim.

8.Prior to the proposed amendments for which the application is now made, Fang and HWH relied on only two alleged debts for the purpose of set-off.  Both debts are alleged to be with no fixed term, interest-free and repayable upon demand.  They are:

(a)  Monies allegedly advanced by Fang to Delco Asia Co Ltd (“Delco Asia”), from which company Delco acquired all its assets and liabilities as of 31 December 2010.  The sums are alleged to have been advanced from 2002 to 2005 and 2010, and after taking into account partial payment are said to amount to HK$31,772,969 (“Fang Debt”); and

(b)  monies allegedly advanced by HKM Metal Ltd (“HKM”, a company wholly owned by Fang) to Delco Asia on 11 different dates between 27 September 2007 and 3 September 2008 in the total sum of US$9.275 million, equivalent to HK$72,345,000 (“HKM Debt”).

9.The total of the Fang Debt and the HKM Debt is approximately HK$104 million.

10.The proposed amendments now plead a further alleged debt as a further set-off in the sum of HK$65,730,897, said to be owed by Delco Asia to a Mr Chern (as an alleged nominee of Fang) (“Chern Debt”).  The three debts collectively total HK$169,848,866 and have together been defined in the proposed amended pleadings as the “Debts” (see below).

11.As it happens, the first reference to the sum of money which constitutes the alleged Chern Debt was made in Delco’s pleadings. Essentially, as part of Delco’s pleading to Fang/HWH’s allegations based upon the Fang Debt and the HKM Debt, Delco pleaded the existence of a Scheme, on the basis of which Delco denied that those two debts were genuine or in fact existed.  The Scheme is the explanation as to how the Debts found their way into the books of account of Delco Asia.

12.In the Re-Amended Reply in A2943, Delco’s material pleading was as follows (ignoring underlining and striking through):

“6.9 The said sum of HK$169,681,118 recorded as loans by Delco Asia to Hefast and CTHK represented the Unreported Profits reinvested into the Joint Venture on Delco Group’s behalf. In the accounts of Delco Asia, it was necessary for the purposes of the Scheme to show liabilities corresponding to the shareholder loans to the Joint Venture described in paragraph 6.8(a) above generally, and in particular prior to the audit of the Joint Venture in preparation for listing. Accordingly, Delco Asia booked a number of different payables (the “Payments”) totalling HK$169,843,599 to Fang, his wholly-owned or affiliated entities incorporated offshore, including HKM Metal, and a business associate of Fang, Chern Shyn Kang (together, “Fang’s Offshore Group”). The Payments were entered in the account of Delco Asia as follows:

(a) the sum of HK$31,772,969.19 booked in Delco Asia’s accounts as a liability owed to Fang (the “alleged HK$31m Debt”);

(b) the sum of HK$72,345,000 booked in Delco Asia’s accounts as a liability owed to HKM Metal (the “alleged HK$72m Debt”); and

(c) the sum of HK$65,730,897 booked in Delco Asia’s accounts as a liability owed to Chern Shyn Kang.

6.10 The effect of the arrangements described in paragraphs 6.8 and 6.9 above was that:

(a) Delco Asia was recorded as having received HK$169,843,599 (i.e. the Payments) from Fang’s Offshore Group (and accounted for these as liabilities) and had invested materially the same amount, HK$169,681,118 by way of shareholder loans to the Joint Venture (i.e. to Hefast and to CTHK).

6.11 By reason of the aforesaid, it is averred that:

(a1) The alleged Debts were not genuine debts with repayment obligations.

(a) Further or alternatively, the mutual intention of Delco Asia, Fang and HKM Metal was that alleged Debts would not be repayable by Delco Asia as the alleged Debts represented the Unreported Profits attributable to Delco’s Group and repayment would not reflect the equal shareholding Fang’s Group and Delco’s Group held in the Joint Venture (and, following the listing, in CT).

(b) Insofar as necessary, the Plaintiff avers that the entries of the alleged Debts as booked in Delco Asia’s accounts were a sham, in that they were created solely or predominantly for the reasons described above.

(c) Accordingly, Delco Asia was not indebted to Fang and HKM Metal (nor Chern Shyn Kang) as alleged.”

13.In the same action A2943, HWH’s proposed amendments at §7A.3 and §§7B to 7M are as follows (bold in original):

“7A. Throughout the course of the joint venture, mutual debts were incurred by Delco’s Group and Fang’s Group against each other, resulting in outstanding balances between Delco’s Group and Fang’s Group which remain unsettled to date. By reason of the matters pleaded hereinbelow, the plaintiff, which has taken up all the liabilities of Delco Asia including the Debts (as defined below), owes the following amounts to Mr. Fang:

7A.1 a sum of HK$31,772,969.19 which was owed by Delco Asia to Mr. Fang personally (the “Fang Debt”)

7A.2 a sum of HK$72,345,000 which was owed by Delco Asia to HKM Metal but subsequently assigned to Mr. Fang (the “HKM Metal Debt”); and

7A.3 a sum of HK$65,730,897.19 which was owed by Delco Asia to Mr. Chern as the nominee of Mr. Fang (the “Chern Debt”)

(collectively, the “Debts” which total HK$169,848,866.37).

(i) The Chern Debt

7B. In about 1999, Mr. Fang invited Mr. van Ooijen and Mr. de Leeuw to set up a Sino-foreign joint venture company in the PRC to carry on the scrap metal business in view of the PRC government’s policy which favoured foreign investments and allowed Sino-foreign joint venture companies to own scrap metal import licences.

7C. Pursuant to the said invitation, which was accepted by Mr. van Ooijen and Mr. de Leeuw, CT Metals was incorporated on 24 December 1999 with its initial shareholders as Taizhou Tian’an Resources Development Limited (“Tian’an Resources”), Taizhou Taian Recycling Limited (“Taian Recycling”) and Delco Recycling. The initial registered capital of CT Metals was USD840,000, contributed by each of Tian’an Resources, Taian Recycling and Delco Recycling in the sums of USD399,000, USD220,500 and USD220,500 respectively. Both Tian’an Resources and Taian Recycling were ultimately owned by Mr. Fang. The shareholding proportions were therefore as follows:

Ultimate Beneficial Owners	Shareholders	Shareholding %
Mr. Fang	Tian’an Resources	47.5%
	Taian Recycling	26.25%
Mr. van Ooijen and Mr. de Leeuw	Delco Recycling	26.25%

7D. On 18 February 2001, CT Metals resolved to increase its registered capital from USD840,000 to USD1,680,000.  Each of Tian’an Resources, Taian Recycling and Delco Recycling was therefore required to inject additional capital of USD399,000, USD220,500 and USD220,500 respectively of CT Metals.

7E. On 12 April 2001, Tian’an Resources transferred its 47.5% interest in CT Metals to Taian Recycling, after which CT Metals became owned by Taian Recycling and Delco Recycling as to 73.75% and 26.25% respectively.  On or around 22 December 2001, Taian Recycling and Delco Recycling transferred all of their interests in CT Metals to Mr. Fang and Delco Asia respectively.  At around the same time, Mr. van Ooijen and Mr. de Leeuw requested, and Mr. Fang agreed, to increase Delco Asia’s interest in CT Metals from 26.25% to 50%.

7F. Despite CT Metals was by then a joint venture company in equal shares, Delco Asia only ever paid USD440,000 as its capital investment into CT Metals.  Other than the said USD440,000, Delco Asia had not made any further capital investment into CT Metals.  On each subsequent occasion where the registered capital of CT Metals was increased, and up until the end of 2002 when the shareholdings of Mr. Fang and Delco Asia in CT Metals were transferred to Hefast, the capital injections which ought to have been made by Delco Asia into CT Metals were in fact made by Mr. Fang through his companies and/or from offshore.

7G.     By the end of 2002, the paid-up registered capital of CT Metals was USD10,882,000.  As Delco Asia’s 50% share was USD5,441,000 but Delco Asia only contributed USD440,000, the difference of USD 5,001,000 was lent to Delco Asia by Mr. Fang.  Despite CT Metal’s capital increases, Delco Asia deliberately under recorded its capital contributions in CT Metal’s books and accounts throughout all the material times.

7H. On 20 December 2002, Hefast was incorporated in Hong Kong to become the holding company of the joint venture in the PRC, and to establish an offshore purchasing unit to capture procurement fees in Hong Kong.

7I. Pursuant to a share transfer agreement made between Mr. Fang, Delco Asia and Hefast dated 31 December 2002, each of Mr. Fang and Delco Asia transferred their shareholdings in CT Metals to Hefast for a total consideration of USD10,882,000 (equivalent to then registered capital of CT Metals).  The said transfer was approved and became effective on 22 August 2003.

7J. Mr. Fang and Delco Asia each subscribed for 5,000 shares in Hefast for a total consideration of HKD6,552,000 (approximately USD840,000).  Therefore, of the USD10,882,000 consideration required by Hefast to pay Mr. Fang and Delco Asia for their interests in CT Metals, only USD840,000 was in fact paid.  The balance of USD10,042,000 remained owed by Hefast to Mr. Fang and Delco Asia in equal shares.  Accordingly, following the share transfer, Delco Asia continued to owe Mr. Fang the amount of USD5,021,000.

7K. On 8 December 2003, Hefast entered into a joint venture in the PRC with Takao to establish CT Foundry.  The initial registered capital of CT Foundry was USD6,000,000 with Takao holding 51% and Hefast holding 49%. The registered capital of CT Foundry was later increased to USD7,500,000 on 30 May 2005.  After various transfers between Takao and Hefast, on 14 June 2005, CT Foundry became wholly-owned by Hefast.  Accordingly, Hefast was required to invest USD7,500,000 into CT Foundry.

7L. Of the USD7,500,000 to be invested into CT Foundry, only a total of USD1,000,000 was paid by Hefast.  The remaining USD6,500,000 was paid by Mr. Fang through his nominees.  According to its shareholding in Hefast, the Plaintiff ought to have paid USD3,250,000.

7M. By end of 2005, Delco Asia owed Mr. Fang USD8,271,000 (equivalent to HK$64,513,800), being the total of USD5,021,000 (referred to in para 7J hereinabove) and USD3,250,000 (referred to in paragraph 7L hereinabove).  The said debt was recorded in Delco Asia’s audited accounts for the year ended 31 December 2008 as a debt of HK$65,730,897.18 to Mr. Chern, i.e. the Chern Debt.  Subject to discovery, the Defendant currently does not know what accounted for the discrepancy.”

14.In A3040, the equivalent pleading is to be found in §§8.1 and 8.2A to 8.2K.  In A2939, the reference to the Debts is to be found in §39.2, and in particular the reference to the Chern Debt is to be found in §39.2.3.

15.The actions also materially plead Fang/HWH’s averment as to (1) the “2010 Agreement”, and (2) the “Convention”. The 2010 Agreement is alleged to have been an agreement concluded between Fang (on behalf of himself and HKM) and Delco Asia in around late June 2010, whereby it was agreed that the Debts should be repaid by Delco Asia (a) as and when Fang demands, whatever the form of payment as long as the payment is in satisfaction of the needs of Fang and/or his wholly-owned subsidiaries, or (b) when Delco Asia has sufficient funds.  The Convention alleged to have been adopted by Fang’s Group and Delco’s Group since July/August 2011 is the alleged conventional practice that their mutual receivables and payables would not be immediately offset against each other, but would instead be recorded as receivables or payables (as the case may be) in the accounts, such that if either party were to demand payment of its debts at any time, the receivables and payables would be immediately set off against each other and only the net balance would be payable.

16.In A2943, HWH avers that pursuant to the 2010 Agreement and/or the Convention, Delco is estopped from demanding the sum claimed in the action without first setting off the amounts payable by Delco’s Group to Fang’s Group against the amounts payable in the other direction.  It is averred that after setting off, the net result is that Delco owes Fang and Fang’s Group approximately $17.25 million.  That sum is also the subject of at least one alternative form of the counterclaim.

17.In A3040 and A2939, Fang and HWH also plead reliance on the 2010 Agreement.

Applicable Principles – Amendment

18.The principles applicable on applications for amendment of pleadings are well-known and need not be rehearsed at any great length.  It is often said that it is a guiding principle of cardinal importance 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.  Absent any real prejudice, applications will be decided on that general principle.

19.Where prejudice is claimed, the burden is on the party opposing the amendment to show prejudice.  But there is no injustice to the opposing party, if he can be compensated by appropriate orders as to costs.

20.After all, the Court will always bear in mind the underlying objectives of the Rules of the High Court, including that it is a primary aim to exercise Court powers so as to secure the just resolution of disputes in accordance with the substantive rights of the parties.

21.Ordinarily, it is unnecessary for the Court to come to any definitive view on the merits of the proposed amendments, the question being whether the proposed amendments are ones which are not susceptible to being struck out either because they do not disclose a reasonable cause of action or because they are bound to fail or are otherwise an abuse of process.

22.I do not think the ordinary rules on applications to strike out pleadings on grounds of limitation apply when what is sought is an amendment.  In such ordinary case, the proper course is to require the limitation defence to be pleaded and for there to be a trial of a preliminary issue, or a strike out application on the ground that the claim is frivolous, vexatious or an abuse of the process of the court (the no reasonable cause of action then being inapplicable).

23.But in a case where issues of limitation are involved in an application to amend a pleading, different rules apply.  Where an amendment to plead an arguably time-barred claim would bring the “relation back rule” into operation, the amendment could deprive a party of an arguable limitation defence and so prejudice it: see, for example, Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd [2012] 4 HKLRD 474 at §21, where it was held that the correct approach is to refuse leave to amend, unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation, or that the new claim arises out of the same or substantially the same facts as a cause of action in respect of which relief has already been claimed in the existing action.  The injustice to the defendant as otherwise would occur by depriving him of an arguable limitation defence is not the kind of prejudice of the sort ordinarily capable of being compensated by an appropriate order as to costs.

24.As to the level of particularity of proposed amendments, see Vigers Hong Kong Ltd v Michael Andrew Barclay Binney (unreported, HCA 744/2013, 21 February 2019, DHCJ Keith Yeung) at §§15-28.  When deciding whether the application may be granted the Court should take into account all relevant facts and circumstances which include the underlying objectives, the degree of particularity that has been provided, whether the point sought to be raised is a new one, whether embarrassment may be caused, and the stage at which the application is made.  The required degree of particularity is determined by the need to provide a fair and sufficient indication of the case that is being brought and that the opposing party has to meet.  If that degree of particularity is not met, the application may be refused, irrespective of the stage of proceedings at which the application is made.  In that context, it is not an answer to say that further and better particulars may later be sought.  But if that degree of particularity has been met, the fact that there may be room for a post-amendment request for further and better particulars is not in itself a ground for exercising the discretion against the application.

25.Of course, when the application is made late, it is of particular importance that the proposed amendment be clearly drawn and with full particulars to enable the court and the other parties to understand the nature of the case that the applicant wishes to make.  The underlying objectives, the constraints of time, and the high risk of disruption of the orderly conduct of trials by the courts and of prejudice to the other party must demand strongly that that be done.

Applicable Principles – Section 35 of the LO

26.The effect of section 35(1)(b) of the LO is that any new claim made in the course of any action shall be deemed to be a separate action and in the case of a new claim (which is one not made in or by way of third-party proceedings) to have been commenced on the same date as the original action.  This is the “relation back rule”.

27.Section 35(2) of the LO defines a new claim as meaning “any claim by way of set-off or counterclaim, and any claim involving either (a) the addition or substitution of a new cause of action; or (b) the additional substitution of a new party”.

28.In this context “set-off” means legal set-off, as opposed to equitable set-off: see Westdeutsche Landesbank v Islington BC [1994] 4 All ER 890, at 943-946.  There, Hobhouse J stated that “any claim” as a matter of language contemplates something which is, or can be expressed as, a “claim”, not something which has a mere status as a defence.  If a plaintiff, in equity, is not entitled to assert his cause of action without at the same time giving credit to the defendant for the relevant matters, no question of any claim being made by a defendant against the plaintiff arises, and the sole question is what is the proper claim that the plaintiff should make against the defendant.

29.Section 35(3) of the LO provides that:

“Except as provided by section 30 or by rules of court, the court shall not allow a 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.”

30.Section 35(4) of the LO provides that:

“For the purposes of subsection (3), a claim is an original set-off or an original counterclaim if it is made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action.”

31.The effect of section 35(3) is that, subject to the exceptions it mentions, a party is always entitled to make one claim by way of set-off or counterclaim, even if a new action to enforce that claim would be out of time.  But, thereafter, any further claim is subject to section 35(3), because a party who has already made one original counterclaim or set-off is a party who has previously made a claim in the action and so falls within the section.  Hence, in the case of a set-off or counterclaim which is not an original set-off or counterclaim, the section bites and limitation is determined by reference to the date when leave to amend is sought so as to include that set-off or counterclaim.

32.Section 35(5) and (6) together permit rules of court to be enacted to provide for allowing a new claim to which section 35(3) applies, but materially only 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. RHC Order 20 rule 5 is the rule of court which has been made accordingly.

33.The words in that rule 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 court should not be over technical or restrictive.  This is because the policy behind the section and the rule 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.  Thus, the exception to the application of section 35 identified and put into effect by Order 20 rule 5 is 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 matters already in issue, already have had to investigate those matters or substantially the same facts.

34.Of course, whether one factual basis is “substantially the same” as another factual basis involves a value judgment. Nevertheless, the concept must involve something going no further than minor differences likely to be the subject of enquiry, 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 to its success.  Each case will require consideration of its own particular facts, and there will be no hard and fast rule.  A common sense approach should be adopted.

Applicable Principles – Set-Off

35.Because the matters of “set-off” on which section 35 of the LO bites are matters of legal set-off (as opposed to equitable set-off), it is necessary to consider the distinction between the types of set-off.

36.In Goode & Gullifer on Legal Problems of Credit and Security, 6^th Ed, at §§7-03 to 7-08, the authors suggest that there are five main types of set-off, but for present purposes focus can be on just three of them.

37.One is legal set-off, or independent set-off, which is a purely procedural defence and which does not operate to reduce or extinguish the creditor’s claim except at the point where judgment is given for the balance.  Although both the claim and cross-claim must be liquidated, it is not necessary that the claim and cross-claim should be connected to each other.

38.Equitable set-off, or transaction set-off, arises where the claim and cross-claim, even if not arising from the same transaction, are so closely connected that it would be inequitable for one claim to be enforced without credit being given for the other.  It is capable of operating as a substantive defence.

39.Contractual set-off is that for which provision is made by express agreement of the parties.  It operates as a substantive defence, taking effect upon the occurrence of the act or event agreed between the parties, and, depending on the wording of the agreement, may have the effect of extinguishing or reducing the claim.

40.It is common ground that a legal set-off is the type of set-off that would be caught by section 35 of the LO, whereas an equitable set-off would not.  That is because an equitable set-off is a substantive defence which does not require an order of the court for its enforcement; it is a true defence and not a “claim” for the purposes of section 35.

Analysis – Whether Section 35 Engaged

41.There is an issue between the parties as to when limitation expired.  However, it is not necessary to determine that issue where Mr Nip accepts that even on the later date he says time expired, time had nevertheless expired by the time the amendment summonses were issued on 11 October 2019.  The focus of the analysis is therefore on whether Delco has a reasonably arguable case on limitation, and whether the new claim (if it is a “claim”) arises out of the same or substantially the same facts as a cause of action in respect of which relief has already been claimed in the existing action.

42.Mr Dawes submits, and I agree, that the 2010 Agreement is not a set-off agreement.  It does not provide that one party can use the sums owed to it by the other to set-off against any sums it owes to the other, but merely provides for repayment as and when demanded or when Delco Asia has funds.  There also seems to be force in Mr Dawes’ submission that HWH cannot now invoke the 2010 Agreement as against Delco when neither it nor Delco are parties to the agreement.

43.As to the Convention, it is pleaded only as an estoppel, and so does not confer any positive contractual right to HWH to effect a set-off.  In any event, on its own pleading, not least by reference to the assignment said to have been taken by HWH in March 2017, no set-off has been effected on the mutual receivables and payables either pursuant to any contractual right or otherwise.

44.So, says Mr Dawes, the true nature of HWH’s and Fang’s set-off plea is as to a legal set-off, being one that operates only at the time when judgment is given, which is why the set-off is framed so that the claim brought against HWH by Delco “ought to be” set-off by the particular amount HWH asserts.  Such a set-off is caught by section 35.

45.Mr Nip says the analysis of the Debts as a legal set-off is misconceived.  He says the Debts do not only operate to reduce or extinguish Delco’s claims at the point of judgment, which would pre-suppose that both Delco and Fang/HWH are entitled to judgment for their “claims”, but this is not how the defence of set-off is pleaded or operates.  Rather, he says, the true nature of the defence pleaded is a plea of set-off that Delco’s right to recover is qualified by the effect of the Convention estoppel.  Further or alternatively, the defence of set-off is a substantive defence which satisfies the requirements of an equitable set-off, because the mutual debts arose out of the joint venture pursued by the parties, with their close connection evidenced and fortified by the 2010 Agreement and/or the Convention, which renders it inequitable for Delco’s claims to be enforced without giving credit to the Debts which it owes to Fang/HWH.

46.But I agree with Mr Dawes that estoppel by convention concerns the assumption of a factual or legal state of affairs, and does not apply to promises, representation of intention or representation of future conduct.  In this case, the “conventional practice” said to constitute the Convention is in essence a promise or representation of future conduct.  It is also right to point out that the Convention is not relied upon in A3040 and A2939.

47.Further, I do not think that the fact that the mutual debts are said to have arisen out of the joint venture pursued by the parties, with their close connection evidenced and fortified by the 2010 Agreement and/or the Convention, provides the necessary “close connection” which would make it manifestly unjust to allow the plaintiff to enforce its own claim without taking into account the cross-claims.  Of course, there was a joint venture which gave rise to various debts between various differing parties in differing directions from time to time.  But the claims and cross-claims or set-offs now identified differ significantly in parties, nature and timing. The Chern Debt is said to have been incurred by Delco Asia to Fang prior to 2005, in the course of the capital injection in relation to CT Metals and Hefast (see the proposed amendment set out at §12 above).  However, Delco’s claim in A2943 arose in 2012 between Delco (not Delco Asia) and HWH (not Fang) on the sale of CT shares (not CT Metals/Hefast).  In A3040, whilst Delco claims as assignee of Delco Asia, the claim arose in 2010 and originated from the shareholders’ loans that Delco Asia had against the joint venture (not Fang).  In A2939, Delco’s claim accrued in 2012 because it (not Delco Asia) subscribed to the convertible bond issued by CT (not CT Metals/Hefast).

48.It is also right that Mr Chern is not part of Delco’s Group or Fang’s Group, so it is difficult to see why he could take advantage of the conventional practice relating to mutual receivables and payables said to have arisen between those two groups.  (Indeed, that might explain why Fang’s and HWH’s original reliance was only on the Fang Debt and the HKM Debt, and might lend support to the suggestion that the belated attempted reliance on the Chern Debt is an opportunistic one.)

49.Insofar as Mr Nip relies upon the Westdeutsche case, in part in support of his submission that the present case involves a similar “running account” kept between certain parties, Westdeutsche was a case which on its facts specifically involved contractual rights under the interest swap agreements; the very nature of the swap agreements presuppose that at differing points in the contractual process the parties alternately owed monies one to the other, until the final swap arrangement had been completed.  I have already accepted the principle from that case that what is contemplated by section 35 is something which can be expressed as a “claim”, not something that has a mere status as a defence, such as equitable set-off.  But that principle merely identifies the necessary analysis of the particular set-off asserted in any given case, so as to see whether it is a legal or equitable set-off.

50.In the further alternative, Mr Nip suggests the Convention “can expand upon rights under” the 2010 Agreement, so that the “combined legal effect” of the 2010 Agreement and the Convention is that the parties have a contractual right of set-off once the other party demands payment of the amounts due to it.  I disagree.  I do not think the 2010 Agreement is a contractual set-off agreement, and there is no pleading that the Convention in some way varied the terms of that agreement to make it one.  Obviously, chronologically the 2010 Agreement was not entered into in reliance on the Convention, which is said to have arisen only subsequently.  There is no “combined legal effect” on the face of the pleadings of the sort for which Mr Nip now argues, nor am I even sure how that would operate if pleaded.

51.Therefore, it seems to me that the proposed pleading of the Chern Debt is the making of a “claim” and section 35 of the LO is engaged, and Delco does have a reasonably arguable case on limitation, of which it would be deprived if the opposed amendments are permitted.  On the application of the relevant principles, those amendments should not be allowed (unless the pleading in relation to the Chern Debt arises out of the same or substantially the same facts as the existing claims in respect of the Fang Debt and the HKM Debt).

Analysis – Whether Same or Substantially the Same Facts

52.Mr Nip says there should be no dispute that the Chern Debt forms part of the pre-existing issues in dispute between the parties.  The first reference to that debt in the pleadings was made by Delco, when it pleaded the Scheme for the purpose of explaining certain accounting entries in Delco Ager’s accounts and audit confirmations that are relied on by HWH and Fang as a defence.  Mr Nip relies on observations made by G Lam J and DHCJ Hall-Jones in their respective Decisions (see above), including as to the absence of explicit reference to the Scheme in contemporaneous documents, the apparent strength in the defence of set-off, and that part of the factual matrix from which Delco will invite an inference to be drawn includes the lack of actual evidence showing how the alleged loans giving rise to the Debts came to be made.

53.Mr Nip says that because Delco itself has in fact pleaded the Chern Debt and alleged that it was not genuine, the Court will in any event have to investigate why the Debts (of which the Chern Debt is part) were booked into Delco Asia’s accounts and whether the Debts were genuine.  Hence, there is no prejudice to Delco as it has already had to investigate the same or substantially the same facts for those matters already in issue.  So, says Mr Nip, the policy of section 35 will not be undermined, and to grant leave to amend would rather be consistent with the policy of the section.

54.Mr Dawes submits the opposite.  First, he points out that the statute requires the new cause of action to arise 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”.  In other words, the relevant facts for comparison should be the facts pleaded by Fang and HWH to substantiate the Fang Debt and the HKM Debt.  I agree.  Hence, it is irrelevant that in defending those claims Delco pleaded the Scheme referring to the book entries of which the Chern Debt is one.

55.Mr Dawes also says Fang and HWH now attempt to introduce “a chunk of new facts” (as he put it) to establish how the Chern Debt arose in the first place, which matters are outside the ambit of the facts which Delco could reasonably be assumed to have investigated for the purpose of the original pleading.

56.Indeed, it seems obvious to me – in part from the length of the proposed pleading in §§7A-7M in A2943 (see §12 above) – that the facts necessary to establish the genuine existence and amount of the Chern Debt must be quite different from, and so not the same or substantially the same as, the facts necessary to establish the genuine existence and amount of the Fang Debt and the HKM Debt, which are wholly different debts arising in wholly different circumstances.

57.Also, I think it fair that Delco would have proceeded on the basis that it would not have needed for the purposes of the original pleading of the Scheme to investigate the Chern Debt to the same extent that would be appropriate if the Chern Debt is to be elevated from an additional or supporting role to something closer to centre stage.

58.Therefore, whilst I accept that certain features of the Chern Debt might be regarded as being already “in play”, I do not think that the point of Fang’s and HWH’s pleading of and reliance on the facts said to give rise to the Chern Debt arise 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 actions by Fang and HWH.

Analysis – Whether Insufficient Particulars and/or Unarguable

59.On the basis of my above findings, I do not strictly need deal with the sufficiency of particularisation or sufficient arguability of the proposed amendments.

60.There seems to me to be some force in Mr Dawes’ argument that there is a problem in how the pleas in §§7J and 7L lead logically to the conclusion as to the Chern Debt as alleged in §7M (and the equivalent pleadings in the other action).  However, I am not sure I would have disallowed the amendments on this ground alone, as careful consideration of the context may well provide the relevant link in logic necessary to make a proper plea, even if it is one which (had it been permitted) might fruitfully have been further particularised.

Result

61.Other than those proposed amendments to which no objections are taken, I disallow the amendment application.

62.It seems to me the cost should follow the event.  Therefore, I order Fang and HWH to pay Delco’s costs of the three summonses, to be taxed if not agreed, with certificate for two Counsel. However, as I have not heard any argument on costs I shall initially make that order on a nisi basis.  The order will become absolute unless either party seeks variation of it, which can be done by letter to the Court, within 14 days.

Mr Victor Dawes, SC, and Mr James Man, instructed by Clifford Chance,  for the plaintiff in all cases

Mr Norman Nip and Mr Roger Phang, instructed by Stephenson Harwood for the defendant in HCA 2943/2015, the 2^nd defendant in HCA 3040/2015 and the 3^rd, 4^th defendants in HCA 2939/2016