Lo Ka Chun v. Lo To and Another

HCA002015C/1980

1980, No. A2015

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Godfrey J.

Date of judgment: 22nd September 1989

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J U D G M E N T

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1. The court has before it an application for leave to amend the Statement of Claim in this action. Before turning to the substance of the application, I propose briefly to consider the principles upon which the court ought to proceed; and I propose to begin first with the "well-established principle" as it is called by Lord Justice Bowen and formulated by him in Cropper v. Smith [1883] 26 Ch. 700, at pp. 700-711, as follows:

"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. It seems to me that as soon as it appears that the way in which a party has framed his case would not lead to a decision of the real matter in controversy, it is as much a matter of right on his part to have it corrected if it can be done without injustice, as anything else in the case is a matter of right."

2. The practice of the court may have altered somewhat over the course of the last hundred years. In the most recent case cited to me, Keteman & Others v. Hansel Properties Ltd. & Others [1987]2 W.L.R. 312, there is a valuable re-statement of the principles in the speech of Lord Griffiths at pp. 339, 340. Lord Griffiths says this:

"Mr Ogden submitted that the authorities obliged a judge to allow an amendment no matter how late it was made nor for what reason provided the other party could be properly compensated by an award of costs. He relied upon the authorities set out in the Supreme Court Practice and in particular the decision of Brett M.R. in Clarapede & Co. v. Commercial Union Association, 32 W.R. 262, 263:

'The rule of conduct of the court in such a case is that, however negligent or careless may have been the first omission, and, however late the proposed amendment, the amendment should be allowed if it can be made without injustice to the other side. There is no injustice if the other side can be compensated by costs…'

This was not a case in which an application had been made to amend during the final speeches and the court was not considering the special nature of a limitation defence."

(I interpose that, in the case with which Lord Griffiths was dealing, the application had been made during the final speeches and the Court was considering the special nature of a limitation defence.)

"Furthermore, whatever may have been the rule of conduct a hundred years ago, today it is not the practice invariably to allow a defence which is wholly different from that pleaded to be raised by amendment at the end of the trial even on terms that an adjournment is granted and that the defendant pays all the costs thrown away. There is a clear difference between allowing amendments to clarify the issues in dispute and those that permit a distinct defence to be raised for the first time. Whether an amendment should be granted is a matter for the discretion of the trial judge and he should be guided in the exercise of the discretion by his assessment of where justice lies. Many and diverse factors will bear upon the exercise of this discretion. I do not think it possible to enumerate them all or wise to attempt to do so. But justice cannot always be measured in terms of money and in my view a judge is entitled to weigh in the balance the strain the litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, the anxieties occasioned by facing new issues, the raising of false hopes, and the legitimate expectation that the trial will determine the issues one way or the other. Furthermore, to allow an amendment before a trial begins is quite different from allowing it at the end of the trial to give an apparently unsuccessful defendant an opportunity to renew the fight on an entirely different defence. Another factor that a judge must weigh in the balance is the pressure on the courts caused by the great increase in litigation and the consequent necessity that, in the interests of the whole community, legal business should be conducted efficiently. We can no longer afford to show the same indulgence towards the negligent conduct of litigation as was perhaps possible in a more leisured age. There will be cases in which justice will be better served by allowing the consequences of the negligence of the lawyers to fall upon their own heads rather than by allowing an amendment at a very late stage of the proceedings."

3. Guided by these principles, I reach the conclusion that the task before me is simply to assess where the justice of the matter lies. I have to consider (although I do not propose to mention them all) the many and diverse factors which have been urged on me on both sides before exercising that discretion. I say at once that I bear in mind the strain this litigation must impose upon all the parties to it and in particular (since it is with him that I am presently concerned) the strain of this litigation upon the 2nd defendant.

4. I turn now to the substance of the matter. The action concerns a family business which was set up many years ago. Differences within the family have now unfortunately led to a lengthy and complex dispute between the plaintiff on the one hand and the two defendants on the other. The plaintiff is the son of one, Lo Sum. The two defendants are brothers of Lo Sum. They are Lo To and Lo Tsoi. I have no doubt that it would be undesirable for me to go, more fully than is necessary for the purposes of determining this application into the background of the case. On any footing, I shall have to continue with the hearing of this action to determine the issues between the parties at the end of the trial. Whatever I may say now about the substantive issues in the action is bound to cause future difficulty and I therefore propose to limit myself at this stage to the facts relevant to this application only.

5. One of the allegations made by the plaintiff in the Statement of Claim, as presently framed, is an allegation that Lo Tsoi has "intermeddled" with property held by Lo To either upon trust for the plaintiff or for the estate of Lo Sum. So much appears from para. 42 (a) of the Statement of Claim. The allegation that Lo Tsoi has "intermeddled" with such property is, on analysis, an allegation that the defendant by his conduct has constituted himself a constructive trustee of the that property. However, the mere allegation of "intermeddling" is not enough to support the claim that Lo Tsoi has become a constructive trustee of the property. One (the recipient) becomes a constructive trustee, in the circumstances mentioned, only if he has received trust property with actual or constructive notice that it was trust property, and that the transfer to him was a breach of trust; or if, although he received it without notice of the trust, he was not a bona fide purchaser for value without notice of the trust and, after he has subsequently acquired notice of the trust, he dealt with the property in a manner inconsistent with the trust. (I take all this from Snell's Equity, 28th Edn. at p.194.)

6. It has been recently pointed out by two judges at first instance, sitting in the Chancery Division, that the bounds of this category of constructive trusteeship might be drawn too narrowly in Snell. Mr Justice Peter Gibson asked this question in Baden, Delvaux and Lecuit v. Societe Generale [1983] B. C. L. C. 325 at p.405:

"For example, why should a person who, having received trust property knowing it to be such but without notice of a breach of trust because there was none, subsequently deals with the property in a manner inconsistent with the trust, not be a constructive trustee within the knowing receipt or dealing category?"

Clearly, Peter Gibson J. thought that such a person would be a constructive trustee.

7. Millett J., although in other immaterial respects critical of the judgment of Peter Gibson J. to which I have referred, has stated that on this point he "respectfully agreed" with Peter Gibson J. (see his judgment, delivered on 19th may 1989, in Agip (Africa) Limited v. Jacks [unreported], "The Times" 5th June 1989).

8. The position, as it seems to me, is that, subject to that one qualification, the statement in Snell remains an accurate, or sufficiently accurate statement, of the nature of a constructive trusteeship. I would add that, as is pointed out there, it is not sufficient merely to show that the recipient was not a purchaser without notice of the trust. Liability as a constructive trustee would not be imposed on him unless he had knowledge that a trust existed; though this knowledge may be imputed to him from the circumstances, mere knowledge that a claim is being made to the property in question is not enough (for the last proposition, Snell cites Carl Zeiss Stifung v. Herbert Smith & Co. (No. 2) [1969] 2 Ch. 276).

9. In order to remedy the defects which, the plaintiff accepts, exist in the Statement of Claim as at present framed, he now seeks leave to amend by pleading that Lo Tsoi was at all material times well aware of Lo Sum's interests in the said businesses and that Lo To held Lo Sum's interests in trust for the plaintiff or for Lo Sum's estate. I am not, at the moment, satisfied that I ought to give leave to amend in the form in which this amendment is sought to be introduced, prefaced as it is by the words "further or alternatively". As at present advised, I am of the opinion that the word "further" is appropriate; but that the words "or alternatively" are not. Those latter words suggest (in my judgment, impermissibly) the introduction of a new and different allegation, as distinct from a mere clarifying of the existing issue.

10. Returning to the proposed amendment, the plaintiff seeks to particularize it. Having made the allegation that Lo Tsoi was at all material times "well aware" of Lo Sum's interests, he introduces five separate items by use of the words "in particular". It is accepted by the plaintiff that these words are appropriate to introduce particulars of the allegation of knowledge constituted by the words "The 2nd defendant was at all material times well aware", etc. Insofar as these are the particulars of knowledge which the plaintiff proposes to adduce, I have, I think, to review them to see whether they can amount to proof of such knowledge. If they do not amount to such proof, then as it seems to me, they are immaterial or useless amendments and ought, on familiar grounds, to be disallowed. There is no point in allowing an amendment which is immaterial or useless, and if these particulars (to which the plaintiff will be limited) cannot amount to particulars of knowledge, then the amendment must fail altogether.

11. If one takes these five items seriatim, one after the other, it is, I think, arguable (and indeed Lo Tsoi's counsel argued it) that four, at any rate, of them do not amount to an allegation of knowledge of the trust sufficient to satisfy one of the essential elements in the constitution of a constructive trusteeship.

12. I will take these five items in turn; but for the reasons I have already endeavoured to state, I shall not endeavour to evaluate them at this stage of the case. I shall leave that, if I allow an amendment to raise them, to my judgment after the trial of the action.

13. The first item refers to the fact that Lo Tsbi himself, in an earlier action against Lo To, raised allegations which were substantially the same as those made in the earlier part of the present Statement of Claim. I agree with the submission advanced to me on behalf of Lo Tsoi that this in itself comes nowhere near establishing the existence of the trust of which the plaintiff must prove Lo Tsoi was "well aware". The plaintiff, I think, accepts this; and invites me to treat this item, and indeed all the five items, as a continuous history from which "knowledge" can be seen to emerge although no one item might, in itself, establish knowledge of the trust on which the plaintiff relies.

14. The second item is an allegation that Lo Tsoi was well aware of certain deeds, and transfers of securities, which have been referred to in the Statement of Claim. As to the deeds, it appears on the face of them that Lo Tsoi executed them himself and it must be taken (unless Lo Tsoi succeeds in establishing otherwise in the course of the trial) that he was aware of their contents.

15. So far as the transfers are concerned, it is not, I think, suggested that Lo Tsoi necessarily knew of them at the moment that they were executed, but it is said that he learned about them sufficiently long ago to have taken the property the subject of those transfers (if he has taken it at all) with knowledge of the trusts affecting it.

16. I do not accept that knowledge of these deeds and transfers is enough to establish knowledge of the trust on which the plaintiff relies.

17. The third item arises as follows. In the action, to which I have already referred, between Lo Tsoi and Lo To, a compromise was arrived at embodied in an agreement of settlement and indemnity. I shall call this "the compromise agreement". Before the compromise agreement was arrived at, the hearing of the action had already commenced. At an early stage, in that hearing, the plaintiff informally intervened; and he participated in meetings with Lo To and Lo Tsoi which did not in the end result in any settlement as between the plaintiff and the other two. It is not, however, suggested that during the curse of those meetings Lo Tsoi was given such information of the alleged trust as was sufficient to fix him with knowledge of it and this item, I think, would not be sufficient had it stood on its own.

18. The fourth item is another matter. In this, reference is made to an undertaking in writing given by Lo To to Lo Tsoi on or about 18th August 1970 (see para. 24 of the Statement of Claim). The allegation made against Lo Tsoi is that he knew of this undertaking, at any rate before the compromise agreement was made. The compromise agreement was made on 28th September 1978 and notice of its contents was given, by a letter dated 24th September 1978, from Messrs. Johnson Stokes & Master (representing Lo To) to Messrs. Denton Hall Burgin & Warrens (representing Lo Tsoi).

19. The letter dated 24th September 1978 did not forward to the recipients a copy of the undertaking, because no such copy was available for them to send. It did, however, attempt a reconstruction, from the memory of Lo To, of what the undertaking had contained. I will not say anything at this stage of the action about the content of the undertaking save that I am satisfied that it is at any rate arguable that the undertaking indicates or may indicate the existence of a trust. I am not to be taken as expressing any concluded view on the question whether it did or did not, since as I understand it, that matter will be very seriously disputed in the course of the trial. I repeat, however, that I am satisfied that the point is, at least, arguble and therefore, it follows, as it seems to me, that leave to amend to refer to it ought to be permitted if leave to amend is permitted at all; and that, once that decision is taken, it must follow that there is, among these five items, at least one which relates directly to the knowledge of the trust which the plaintiff must prove to establish Lo Tsoi's alleged contructive trusteeship.

20. I turn lastly to the fifth item. The plaintiff says that before the compromise agreement was entered into, the plaintiff, by his legal representatives, in effect warned the defendants that if they entered into it without giving effect to the plaintiff's rights, they did so at their own risk. This again, seems to me on its own to go nowhere near establishing an allegation that Lo Tsoi knew of the alleged trust. The mere fact that you warn somebody that you may have a claim against him, even if you put on your claim on the basis of trust, does not seem to me to be in itself sufficient to prove that he had knowledge of the trust : See the Carl Zeiss case to which I have already referred.

21. However, my duty, I think, is to take all five items together. Relying, as I do, in particular upon the fourth item, buttressed by the material contained in the other items, I conclude there is sufficient material here to justify a plea (not necessarily to prove it, but to justify a plea) that the Lo Tsoi was indeed "well aware" of some trust which affected the property. I will not at this stage embark upon the question whether that is sufficient, or whether it is necessary for a plaintiff to be able to spell out precisely the nature and terms of the trust; because that is another matter which may fall to be canvassed in argument at the conclusion of the trial.

22. Having then come to the view that the proposed amendments are not useless or immaterial, but on the contrary are essential if the plea of constructive trust is to be maintained, I am thrown back upon the matters to which Lord Griffiths referred. I have to weigh in the balance the various factors for and against allowing leave to amend at this stage to see what is the justice of the matter. The stage at which this action has reached is that the plaintiff has opened his case and will, I suppose (if he chooses to do so at all) shortly be calling his oral evidence. However, his evidence has not been embarked upon and the trial will riot be hindered or aborted in any way if I allow this amendment now. The situation is not comparable to an amendment which is sought to be made at the end of the trial (or even, I think, during the course of the evidence).

23. An amendment which is sought to be made during the course of counsel's opening for the plaintiff is really no different from an amendment sought to be made before the trial begins, at any rate, so long as notice of the intention to ask for leave to make the amendment has been given to the other side in plenty of time to avoid a contention that it is being caught by surprise. Leave to amend is often asked for on behalf of the plaintiff during the course of or at the end of his counsel's opening address and is commonly granted.

24. I do not, therefore, think that the stage at which this amendment is sought to be made is one which prejudices Lo Tsoi. Notice was given by the plaintiff to the defendants some two months ago of the intention to apply at the trial for leave to make this amendment. There is no substance in the suggestion that I ought to refuse leave to amend because of the late stage at which the amendment is sought to be made. I do not overlook the long and chequered history this litigation has had; but that seems to me to be only a minor factor to be weighed in the balance. My primary objective, must be, at this stage, to get the pleadings right before the evidence is called; and if I can succeed in achieving that object then I think the interests of justice will be better served by doing so than by allowing the action go forward in a state in which one party is unable to advance a case which he wishes to advance.

25. There is really no serious suggestion that Lo Tsoi will be prejudiced or disadvantaged if I allow this amendment. Certainly, no such suggestion was made in response to the letter to which I have referred, sent some two months ago by the representatives of the plaintiff to the representatives of Lo Tsoi, giving notice of the plaintiff's intention.

26. There are no doubt other factors which can be and indeed, have been urged on me, to warrant a conclusion that this application for leave to amend ought to be rejected. But none of them, in my judgment, outweigh the importance of trying to get the pleadings in order before the evidence is called, so long as that can be done without any prejudice or disadvantage to Lo Tsoi. I accept that the introduction of this point now will prolong Lo Tsoi's agony in that now he will have to fade a properly formulated claim against him based on constructive trust, whereas he might otherwise have expected to have been able to invite the court to dismiss that claim out of hand for want of completeness (particularly so since, as is the case, at one stage the relevant knowledge was originally pleaded but the plea was later dropped).

27. Furthermore, I accept that Lo Tsoi would be prejudiced if he has dropped a defence of his own based on the dropping of the allegations of knowledge originally pleaded. He says he dropped a defence of estoppel on this basis. I find it difficult to be entirely sure that that is what Lo Tsoi in fact did. But the plaintiff is in mercy in asking for this amendment at this stage. And I have come to the conclusion that, if Lo Tsoi wishes to advance now a plea which he can satisfy me he dropped simply because the plaintiff, having originally pleaded knowledge, later dropped it, I think I should consider that application favourably. I will not prejudge it; because I am not yet sure that it is necessary or appropriate for Lo Tsoi to link his dropping of the estoppel plea with the dropping by the plaintiff of the plea of knowledge. But I will not shut Lo Tsol out from applying to me, if he wishes to do so, for an amendment to his defence on this footing.

Subject to that point, I propose to give leave to amend in the ordinary way. I do not propose to make any special order as to costs but only the usual one, that the costs of and occassioned by the amendment should be paid by the plaintiff to the defendants in any event. I do not think this is the sort of case in which the clarification of the issue now sought to be made, and indeed the addition of the essential element which the plaintiff now wants to plead, changes the nature of the case in the sort of way which would justify an order that all the costs thrown away, or even some of them, should be paid by the plaintiff to the defendants. If, and it is a possibility, this case succeeds on the ground only of constructive trusteeship and only because therefore these allegations to make that plea complete were advanced at this stage of the action, then at the end of the trial I should be able to meet the justice of the case by making a special order for costs in favour of the defendants which I would not, otherwise, have made. This, however, is in my judgment, not the time to do it. I propose, therefore, simply to give leave to amend upon the usual terms.

Representation:

Mr Francis Ferris, Q.C. Mr Anthony F. Neoh & Mr Johnson Lam instructed by S.K. Wong & Co. for plaintiff.

Mr Neville Thomas, Q.C. & Mr Ronny F.H. Wong instructed by T.S. Tong & Co. for 1st defendant.

Mr Alan Leong instructed by Denton Hall Burgin & Warrens.