Burlington Air Express Ltd. v. Nuovo Collection Ltd. t/a Nuovo Collection

DCCJ008865/2001

DCCJ8865/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.8865 OF 2001

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Coram: Deputy District Judge K. Lin in Chambers

Date of hearing: 19 July 2002

Date of handing down judgment: 15 August 2002

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JUDGMENT

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Introduction

1.This is the defendant's application to amend the Defence and Counterclaim in this action. The application is opposed by the plaintiff on the ground that it amounts to a withdrawal of admission.

2.The claim brought by the plaintiff is for the sum of $477,854.02 being allegedly the unpaid freight charges owed by the defendant to the plaintiff for the period from 3rd September, 1996 to 24 February, 1997. The writ of summons was issued on 22 December, 1997. In its original defence which was filed on 24 February, 1998, the defendant admitted that the sum of $477,854.02 was the outstanding freight charges for services rendered by the plaintiff under the various invoices referred to in the Schedule annexed to the Statement of Claim and the sum remained unpaid. It then alleged that the plaintiff was in breach of its duty as freight fowarder resulting in a loss of $334,828.00 to the defendant, and, by way of a counterclaim, it claimed against the plaintiff the sum of $334,828.00. The defendant also pleaded an agreement made between the parties in late February, 1997 to the effect that the payment of the freight charges calculated up to the end of February, 1997 would be suspended while the defendant was ascertaining its loss.

3.It appears from the pleadings that even if the counterclaim is established, there would still be a net sum of $143,026.02 payable by the defendant to the plaintiff. In its reply and defence to counterclaim, the plaintiff denied the alleged breach of duty and relied upon several contractual provisions in defending the counterclaim. The Writ of Summons and the Reply and Defence to Counterclaim have subsequently been amended by the plaintiff.

4.On 17 December, 2001, the plaintiff took out an application for summary judgment against the defendant. The Order 14 application is opposed. On 9 January, 2002, the defendant issued a summons seeking leave to amend the Defence and Counterclaim. By a consent order made on 12 January, 2002, the plaintiff's application for summary judgment was ordered to be heard after the disposal of the defendant's application for amendment.

The Defendant's Application

5.As said earlier, the defendant admitted in the Defence and Counterclaim that the freight services were rendered by the plaintiff and the outstanding freight charges were in the sum of $477,854.02. In its proposed amendment, the defendant seeks to withdraw this admission. What the defendant is now alleging is that it "has engaged Burlington Air Express-S.R.L. for provision of freight services since early January 1997 and at or about 24 January, 1997, a sum of HK$65,586.66 being outstanding freight charge was due and owing by the defendant to Burlington Air Express-S.R.L." The defendant also says that the bill of ladings in respect of the freight services were provided either by LDS Italia ("LDS") or Burlington Air Express-S.R.L. ("Burlington") instead of the plaintiff as pleaded in the Defence and Counterclaim.

6.The defendant further alleges in its proposed amendment that, prior to 1997, all the freight services were provided to the defendant by LDS to the defendant, and, while the claims between the defendant and LDS were fully settled on 14 July, 1997, there remains an outstanding claim of $219,533.00 by the defendant against Burlington The defendant also seeks to amend its counterclaim. However, the proposed amendment in this respect is rather unusual. What the defendant is counterclaiming is the sum of $219,533.00 which Burlington is, says the defendant, liable to pay to the defendant for its breach of contract, and the counterclaim is made in the event that the plaintiff should succeed in convincing the court that the plaintiff does have the proper authority to act in lieu of Burlington in the present proceedings. It is not clear exactly what this nebulous proposed amendment means. Nor has this been explained to me at the hearing. It is of course not the plaintiff's case that it acts as an agent or a principal or otherwise in lieu of Burlington in the present proceedings.

7.The explanation given by the defendant for this late application for amendment is this. Prior to January, 1997, the defendant engaged LDS as its forwarder for shipping goods from Hong Kong to Italy. The defendant did not have any business dealing with Burlington before January, 1997. From January, 1997 onwards till September, 1997, the defendant engaged Burlington as its forwarder in place of LDS. Burlington was introduced to the defendant by Mr. Lawrence Li, a manager of LDS (Far East) Limited ("LDS (Far East)") which according to the proposed amendment was the agent of LDS. For some reasons unknown, since September, 1996, all the invoices for services provided by LDS and subsequently by Burlington were all issued in the name of the plaintiff. The defendant also relies on a letter of 12 July, 1997 issued by Mr. Giorgio Tescaro of LDS (Far East) in saying that the defendant had settled all outstanding account with LDS (Far East) by paying a sum of $150,000.00 to it. Pausing here, the defendant is now so adamant that the forwarders it engaged were LDS and Burlington only. No explanation has been given as to why the settlement of outstanding account was made between the plaintiff and LDS (Far East).

8.Mr. Lee Kwok Keung, the managing director of the defendant, says that, because of his work overload and the inexperience of the accountant of the defendant, the admission was made simply on the basis of the invoices received and on the understanding that mistakes and errors in the pleading could be amended at any time. He further says that until 18 May, 2001 when the plaintiff applied to have the case transferred to the District Court, the plaintiff took little step in prosecuting the case, and the mistake was discovered after he personally checked the invoices against the corresponding bills of lading. According to him, in June, 2001, instruction was given to the defendant's then solicitors to amend the Defence and Counterclaim, but, as the defendant was not satisfied with the draft amendment, the defendant did not proceed with the amendment in order to save costs.

9.The relationship of LDS, LDS (Far East), Burlington, and the plaintiff is, according to the plaintiff, this. LDS (Far East) was the local representative of LDS, whereas the plaintiff was the local representative of Burlington. On 1 July, 1996, the freight forwarding business of LDS (Far East) was transferred to the plaintiff. The transfer of business is evidenced by 2 notices of transfer published in 2 local newspapers. This, I think, explains why invoices had been issued by the plaintiff since September, 1996. As to the alleged settlement in July, 1997, the plaintiff says that this relates to the account between the defendant and LDS (Far East) for the period before 1 July, 1996. The plaintiff also complains that if the application for amendment is allowed it will suffer prejudice as it cannot now procure Mr. Lawrence Li to swear any affidavit on its behalf as he is no longer employed by the plaintiff. Nor can it locate Mr. Giorgio Tescaro any more.

The Law

10.Now I turn to the principle governing applications for leave to amend. The starting point must be the well known statement in the dissenting judgment of Bowen LJ in Cropper v. Smith [1883] 26 Ch.D.700, 710-711 where he said:

"It is a well-established principle that the object of the court is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights ....... I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversy, and I do not regard such amendment as a matter of favour or grace."

11.Under this principle, an amendment to correct a mistake should be allowed provided that it is not fraudulent or intended to overreach and there is no injustice to the other party. The question here is whether this principle fits in with the situations where the effect of the amendment is to withdraw an admission. Mr. Lee, counsel for the plaintiff, refers me to the judgment of Hunter J (as he then was) in Tse Yuk Kin v. Chee Cheung Hing [1984] HKLR 391 and submits that a cogent explanation is a must, and the explanation given by the defendant here is an incredible one. Mr. Mayne, counsel for the defendant, on the other hand, disagrees with this and relies on the case of Gale v. Superdrug Stores PLC [1996] 1 WLR 1089. In his submission, an application for amendment should not be rejected simply because it lacks credible explanation. In any event, a good explanation, submits Mr. Mayne, has been given.

12.In Tse Yuk Kin v. Chee Cheung Hing [1984] HKLR 391, Hunter J (as he then was) said:

"Conversely it seems to me equally wrong to say that the court never allows a party second thoughts: never allows a fundamental change of direction even after a conscious decision. My understanding of the practice is and always has been, that the court allows a party to withdraw an admission deliberately made or to resile from a conscious choice for good reason, and if good reason is shown. In particular it expects the party to put before it a convincing credible explanation of the circumstances in which the admission was in fact made, which is sought to be said to have been made under a mistake. A typical sort of case is where a party is able to say "yes, when I said this, or when I admitted this, I believed that to be the case, I have now got some totally fresh evidence in my possession which if true suggests that it was not the case, and I want to advance that proposition"."

13.On the other hand, Mr. Mayne relies heavily on the case of Gale v. Superdrug Stores PLC [1996] 1 WLR 1089, and, in particular, the judgment of Millett LJ (as he the was) who said (at p.1100):

"It is not normally necessary for a party to justify his decision to amend his pleadings or withdraw an admission. It is enough that he wishes to do so. The judge's insistence that the defendants should give an adequate explanation of their change of front was, in my view, based on a misreading of the decision in Bird v. Birds Eye Walls Ltd. In that case the circumstances were unusual. The admission was made by the defendants' insurers, who took a considered commercial decision not to dispute liability on the ground that this would not be cost-effective but to contest quantum so that they should not be held to ransom. When more cases emerged than had been expected when the policy was formulated, they attempted to withdraw the admission. There was no reason why they should not dispute liability in future cases, but, once they had deliberately chosen to admit liability in a particular case even though they knew that they might be able to contest it successfully, it could hardly be unjust to hold them to their election."

14.In effect, what Mr. Mayne submits is that it is unnecessary for the defendant to justify this application for amendment, and its wish to do so is good enough. In my view, there is not necessarily any conflict between Tse Yuk Kin's case and the case of Gale v. Superdrug Stores PLC. As quite rightly said by Roger JA (as he then was) in Re Chung Wong Kit (A Bankrupt) [1999] 1 HKLRD 410, "[the need for proper explanation] is not a rule of law in itself but just an example of the proposition that a party should not be permitted to resile from an admission unless it was just to allow it to do so having regard to the interests of both sides." I think that the modern approach of the court to granting leave to withdraw an admission is the one formulated by Millett LJ in Gale v. Superdrug Stores PLC in which he said (at pp.1099-1100):

"In the High Court the plaintiff may be able to crystallise the position by applying under R.S.C., Ord. 27, r. 3 for judgment on admissions. But the defendant can resist the application by seeking leave to withdraw the admission and, if necessary, amending his defence. In my judgment leave should normally be granted if the application is made in good faith, raises a triable issue with a reasonable prospect of success, and will not prejudice the plaintiff in a manner which cannot be adequately compensated." (emphasis added)

15.It follows that, in considering whether to grant leave to withdraw an admission, it should be sufficient for the court to consider the following questions:

(a) Is the application made in good faith?

(b) Does it raise a triable issue with a reasonable prospect of success? And

(c) Will the plaintiff suffer a prejudice which cannot be adequately compensated by costs?

16.The question whether there is a proper explanation or not goes to the issue of good faith. If good faith is not in issue, as Millet LJ put it, "it is not normally necessary for a party to justify his decision to amend his pleadings or withdraw an admission". The importance of a proper explanation varies from case to case and also depends on the extent of the withdrawal of admission. A withdrawal of an admission concerning collateral issues would be very much different from resiling from an admission which goes to the heart of the case. There are certainly circumstances in which it behoves a party seeking to amend to provide a good explanation: see Tang Shun Hay v Jetline Co Ltd [2000] 1 HKC 417.

The Ruling

17.Can I be satisfied that the application is made in good faith? I do not think so. As said earlier, the admission was made in as early as February, 1997 and in respect of matters which are central to the plaintiff's claim, namely, the identity of the contracting party and the amount due and owing. The defendant has not alluded to the mistake until after the plaintiff made an application for summary judgment. I think that, in circumstances such as these, the court can hardly be satisfied that the application is made in good faith without some sort of explanation from the defendant as to why the original defence did contain such a glaring mistake now complained of. Here the defendant does provide me an explanation. However, it does not even begin to explain how the mistake as to the identity of the contracting party was made, let alone the mistake as to the outstanding amount. The explanation given is not credible at all. I think that the proposed amendment is entirely a matter of afterthought and an unfair and belated attempt to cash in on the fact that different names appear on the bills of lading.

18.Nor can I be satisfied that the application raises a triable issue with a reasonable prospect of success. The defendant accepts that it received all the relevant invoices which were issued in the name of the plaintiff. There is no evidence of any protest by the defendant about the invoices. In Hayton International Ltd v. Massoni Treasures (Mandarin) Ltd Civil Appeal No.125 of 1990 (unrep. 23 Oct, 1990), Sir Derek Cons VP (as he then was) said

"[The Judge] concluded, as I have just quoted, that there was no contradictory evidence to that of Mr. Chan and Mr. Yong. In so doing he must have overlooked the invoice. Contemporary documents from their very nature inevitably have great evidential value. They are drawn at a time when there is no dispute in existence." (emphasis added)

19.The observation in Hayton's case is equally applicable here. I also do not think that the defendant has any answer to the plaintiff's transfer of business point.

20.Moreover, if the application is allowed, the evidence of Mr. Lawrence Li and Mr. Giorgio Tescaro will become important to the plaintiff's case. The plaintiff complains that their assistance is now not available. It may not be the case that they can never be located, but it is good enough for the present purpose that it is now more difficult to solicit their assistance in advancing the plaintiff's case. I am satisfied on a balance of probabilities that if the amendment is allowed, the plaintiff will suffer a prejudice which cannot be compensated by costs.

21.Notwithstanding Mr. Mayne's very able submission, I disallow the proposed amendment to the Defence and Counterclaim in its entirety, and dismiss the defendant's application for amendment. I further add that, as mentioned above, the proposed claim under the draft amendment to the counterclaim is unsustainable in law and should be disallowed in any event. There be an order nisi that the costs of the application including the costs of the hearing be to the plaintiff to be taxed if not agreed with a certificate for counsel.

Representation:

Mr. Clement Lee instructed by Messrs. W K To & Co. Solicitors for the Plaintiff.

Mr. Ronald E. Mayne instructed by Messrs. Stephen Lo & P Y Tse. Solicitors for the Defendant.