China Shanshui Cement Group Ltd and Others v. Zhang Caikui and Others

HCA 2880/2015

[2021] HKCFI 962

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2880 OF 2015

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BETWEEN

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

Dates of Hearing:  9 April 2021

Date of Decision:  14 April 2021

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D E C I S I O N

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A.  Introduction

1.As the action number identifies, these proceedings were commenced in 2015.  After what might be described as ‘active’ interlocutory skirmishing, the matter is finally due to reach trial commencing 19 April 2021, with 43 days reserved.

2.In accordance with previous directions, the extensive trial bundle has been prepared and filed (mostly in soft copy form), and the exchange of written opening submissions has commenced.  Materially, written opening submissions were filed by the plaintiffs (“Ps”) and the 1^st and 2^nd defendants (“Ds”) on 8 and 22 March 2021 respectively.  It can be expected that all parties, and the court, are likely heavily engaged in pre-trial preparation.

3.However, by summons dated 1 April 2021, Ds seek leave to amend their Re-Amended Defence (“RAD”).  This is so, notwithstanding that the ‘green’ re-amendments were made only as recently as 4 March 2021. In that context, it is unsurprising that the proposed amendments are opposed by Ps.  None of the other defendants to the action opposed the amendments, and none of them took part in the hearing.

4.The summons was fixed for a 15-minute hearing at 9.30am on 9 April 2021, but I dealt with the substantive argument which lasted in excess of one hour.  At the hearing, Ds were represented by Mr Jean-Paul Wou and Ps were represented by Mr David Chen.  Against other calls on court time, it was necessary to reserve the decision.  This is my Decision.

B.  The Proposed Amendments

5.The proposed amendments relate to (1) adding the defence of contributory negligence based upon vicarious liability, and (2) clarifying or explaining D’s defence to Ps’ misappropriation claim, and providing particulars.

6.The first proposed amendment is to be found in §61(1L) in the following terms (where the part in italics identifies the ‘green’ pleading, and the remainder shows the proposed ‘violet’ amendments):

(1L)  Paragraph 44D(1G) and (1H) are denied and the Plaintiffs are put to strict proof thereof. Without prejudice to the foregoing and insofar as it may be necessary, the alleged loss (which is denied) was caused or contributed to by the negligence (if so found by the Court) on the parts of the Qilu DD Accountants and the Qilu Valuer and/or of the officers of Shandong Cement who were involved in the Qilu Acquisition, for which Shandong Cement is vicariously liable;

7.The second proposed amendment is to be found in §61(1N)(5) and (5A) in the following terms (where here the part in italics identifies the original ‘black’ pleading, and the striking out and remainder show the proposed ‘violet’ amendments):

(5)  Paragraphs 44D(5) is denied.  The payment of staff bonuses was approved by the board of Shandong Cement.  The bonuses were determined by reference to the performance of Shandong Cement overall and of the individual staff for the financial year of 2014.  Out of the alleged payment of RMB 18.76 million, RMB 13.72 million represented prepayments to 48 grantees of the 2015 employee share options (‘2015 ESOs’), the grant of which was and still is subject to challenge by the 7 minority shareholders of CSI (‘CSI MIs’) in HCMP 593/2015 (‘Hcmp593’).  By a Consent Summons dated 6 January 2016, CSC gave an undertaking to the Court that it would not take steps to implement the 2015 ESOs Scheme until 28 days from the handing down of the judgment on the petitioner’s Summons dated 17 August 2015 in Hcmp593 or until further order of the Court.  The 2015 ESOs were granted in lieu of staff cash bonuses for 2014 (‘2014 SCBs’) which was payable in or around January 2015.  The 2014 SCBs were approved by the board of CSC and management of the Group.  The bonuses were determined by reference to the performance of the Group overall and of the individual staff for the financial year of 2014.

(5A)  The balance of RMB 5.04 million represented purported payment (which is not admitted) of 2014 remuneration for – (1) Zhang Caikui (after withholding of PRC tax) in the sum of RMB 2.62 million; (2) Zhang Bin (after withholding of PRC tax) in the sum of RMB 1.42 million and (3) Li Cheung Hung in the sum of RMB 1 million, all of which were approved by the Board of CSC.

8.Each proposed amendment can be considered in turn.  But it is convenient first to consider the principles applicable to applications for amendment of pleadings, and in particular late applications.

C.  Applicable Principles

9.The applicable principles are well-established. RHC Order 20 rule 8 provides that for the purpose of determining the real question in controversy between the parties to any proceedings, or of correcting any defect or error in any proceedings, the court may, at any stage of the proceedings, order a pleading to be amended.  Such an amendment may be ordered on such terms as to costs or otherwise as maybe just and in such a manner as the court may direct.  However, the court shall not order a pleading to be amended unless it is of the opinion that the order is necessary either for disposing fairly of the causal matter or for saving costs.

10.Ordinarily, 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.  The court is entitled to have regard to the merits of the case, but should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigations.

11.However, where the application to amend is only shortly before a trial, the delay comes into play.  It is well known that, post-CJR, a late interlocutory application may be dismissed on the basis of delay alone.  Therefore, late applications to amend pleadings and file late witness statements will be closely scrutinised by the court.  The applicant must establish, by way of affirmation, what might be described as exceptional circumstances to explain and justify the delay.  The delay itself might ground justifying refusal of leave, especially if a milestone date will likely be affected.  Further, even if the trial date might be maintained, it is recognised that last-minute pre-trial applications disrupt the preparation for the trial on the part of the parties and the trial judge.  Attention and time and effort may have to be diverted to deal with such an application, instead of trial preparation proper.

12.If the delay is the applicant’s own fault, for example as a result of inactivity when the need for amendment was or should have been evident at an earlier stage of proceedings, the court will unlikely grant indulgence to allow the late application.  This is in part because the Court expects parties conscientiously to consider the pleadings before filling out the listing questionnaire and setting the matter down for trial. Disobeying rules of court and court imposed timetables without good reason makes a mockery of the case management system envisaged by the CJR.

13.But, it must also be recognised that those principles are tempered to some extent by the ‘primary aim’ of the court when exercising case management powers, namely to secure the just resolution of disputes in accordance with the substantive rights of the parties.

D.  Defence of Contributory Negligence

14.This new defence is proposed to be added in response to the Qilu claim, as now formulated with my leave granted by my Decision dated 11 January 2021, [2020] HKCFI 2560.  That claim is set out in §44D of the now Re-Re-Amended Statement of Claim (“RRASOC”).

15.In essence, the claim relates to the acquisition by P4 of a 30% equity interest in Qilu at an excessive price.  Where it is now common ground that at the material time in 2015, P4’s management engaged accountants and property valuers to produce various a Financial Due Diligence Report (“FDD Report”) and Asset Valuation Reports (“AVRs”), Ps allege that (1) the FDD Report and AVRs were deficient, (2) Ds as directors of P4 had failed to make proper enquiry of the reports, and (3) Ds had caused P4 to enter into the transaction at the overprice.

16.As it identifies, the proposed amendment is to plead to §§44D(1G) and (1H), which deal with causation and loss respectively. Mr Wou submits that contributory negligence is a point of law, but it must be specifically pleaded: see the Hong Kong Civil Procedure 2021 at Note 18/8/6. He says the pleading, if permitted, would permit the court to consider the matter and potentially reduce liability of Ds, when seeing who was the cause of loss to Ps.  In that regard, a supplemental witness statement already filed speaks to the background of the Qilu Acquisition and the involvement of the professional expertise and other directors, agents of P4 for whom P4 would be vicariously liable.

17.Mr Chen’s objections are threefold.  First he complains about the delay, secondly the want of proper parties, and thirdly that the point on vicarious liability is bound to fail.

18.As to the delay, Mr Chen points out that the application is made very late without an explanation for the delay.  In addition, if the amendment were to be permitted, potentially expert evidence on PRC law relating to both (a) contributory negligence and (b) vicarious liability might have to be adduced.  This is not least so when Ds have been at pains to emphasise that PRC law governs the relationship between P4 and themselves, and the relationship between P4 and its PRC agents.

19.Mr Wou responds by saying that the pleading proposed does not raise a question of PRC law, and proceeds instead on the assumption that Hong Kong law is applicable.  He points to the distinction between the proposed amendment and previous paragraphs already pleaded which do plead PRC law.  In other words, Ds are content for the question of contributory negligence/vicarious liability to be determined by reference to Hong Kong law.

20.However, it seems to me that where Ds have been pointing consistently to PRC law as the governing law of the various relevant relationships, it must at least be open to Ps to investigate and consider whether themselves to raise PRC law (notwithstanding any prior stance that it is Hong Kong law which is ordinarily applicable, or that there is no significant material distinction between PRC and Hong Kong law).  For example, it is not known whether PRC law recognises even the concept of contributory negligence and vicarious liability.

21.It may even be that PRC law, if applicable, removes any question of the proposed defence which might otherwise be available under Hong Kong law, if applicable.  Looking at any relevant PRC law would both take time when the trial is due to begin in the few days, and probably divert attention from pre-trial preparation.  Therefore, I think there is real prejudice – in addition to, or exacerbated by, the delay – caused to Ps by this proposed amendment.

22.This point is sufficient to refuse the proposed amendment, in the exercise of my discretion.  But in any event, whilst I am not sure there is much in the ‘want of proper parties’ point, there is something in the argument that the argument of vicarious liability is bound to fail. Reference can be made to the case of Bilta (UK) Ltd (in liquidation) v Nazir (No 2) [2016] AC 1 at §§7-9 and §§87-89.

23.Further, whilst I note the distinction drawn by Mr Wou between (a) contributory negligence and (b) seeking a contribution under the Civil Liability (Contribution) Ordinance Cap 377, I do not think that point actually helps Ds.  Indeed, if that Ordinance is applicable at all, it might mean that Ds could claim over against other alleged joint tortfeasors, without any timing issue.

24.For the sake of completeness, I do not think the fact that P4 has apparently chosen not to pursue the accountants or valuers in the PRC makes any difference to the analysis.

E.  Defence to Misappropriation Claim

25.Mr Wou submits that Ds merely seek to clarify their defence to the misappropriation claim about RMB18 million, as pleaded in the RRASOC at §44D(5).

26.As he frankly admitted, with much of the interlocutory focus on the Qilu Claim, that particular misappropriation claim has not itself been the subject of much prior focus.  However, in Ps’ written opening submissions, there did not seem to be a pursuit of the RMB18 million claim, it being subsumed under the heading of ‘2015 Trading Loss’.  When clarification was sought by Ds, Ps maintained that they were still making the claim, but without explaining the stance taken in the opening submissions.  Mr Wou says that in so far as the claim is genuinely being pursued, Ds simply seek leave to clarify the answer already given in the pleading.  The clarified answer should be of no surprise as the supplemental witness statement has already spoken to the same facts, by reference to the documents already in the trial bundle, and which are Ps’ documents (such as P1’s annual reports for 2015 and 2016).

27.Mr Chen’s only objection to this amendment is that there is unexplained delay in putting it forward.  Indeed, I note that the proposed amendment could been put forward almost any time in the last few years.  I also accept that the proper order of events is for there to be a pleading before any witness statement might cover the ground/issues raised by the pleading, and it is ordinarily not permissible to seek to amend to plead matters previously canvassed in a witness statement (which matters might properly have been ignored as being irrelevant).

28.Nevertheless, this particular amendment seems to me essentially to give advance notice of the precise argument and points (for which there is already documentary evidence) that Ds will seek to put forward in support of their denial of this aspect of the misappropriation claim.  Further, I do not think this aspect will significantly disrupt anyone’s pre-trial preparation.

29.Therefore, balancing matters overall in the exercise of my discretion, I would allow this amendment.

F.  Result

30.The proposed amendment relating to the contributory negligence/vicarious liability defences refused.  The proposed amendment relating to the RMB18 million claim is permitted.

31.I do not think it likely to be necessary to make any consequential amendment to the already Re-Amended Reply.  Nevertheless, in case I am wrong and Ps wish to make such a consequential amendment, I will give them leave to do so.

32.The costs of and occasioned by that amendment will be to Ps in any event.  As there is roughly ‘honours even’ on the application, there will be no order as to the costs of the argument.

Mr David Chen, instructed by Haldanes, for the plaintiffs

Mr Jean-Paul Wou, instructed by Deacons, for the 1^st and 2^nd defendants

All other defendants excused from attendance