The Bank of East Asia, Ltd v. Labour Builidngs Ltd and Others

HCMP 769/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 769 OF 2002

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BETWEEN

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Before : Deputy High Court Judge Gill in Court

Dates of Hearing : 19-21 September 2007

Date of Delivery of Ruling : 24 September 2007

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R U L I N G

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1.Somewhat late in the day, that is four working days before the first day of a long trial, the 1^st and 2^nd defendants applied for leave to file a rejoinder, being a pleading following the plaintiff’s Reply.  The proposed rejoinder is annexed to the application.  This is the matter now before me.

2.To put this in context, the pleadings closed on 4 August 2003. In further context however, there have since been a number of applications and hearings going to the pleadings, including one application to strike out which was granted and then confirmed in the Court of Appeal.  The most recent application before this one was heard on 7 June 2007, giving the defendants leave to re-amend their defence, which reamendments were filed and served on 14 June 2007.

3.The application is opposed on three grounds as I shall come to.

4.First however, the starting point.  O.18 r.4 of the Rules of High Court states under the heading “pleadings subsequent to reply”:

“	No pleading subsequent to a reply or a defence to counterclaim shall be served except with leave of the Court.”

Underneath that there is a short explanatory note at 18/4/1 which states:

“	Effect of rule — This rule enables the court to order the service of any pleading subsequent to a reply.  The pleadings subsequent to reply retain their old names: rejoinder (by defendant); surrejoinder (by plaintiff); rebutter (by defendant); surrebutter (by plaintiff).  None of these names for pleadings occurs in the former or present rules.  All except rejoinder are rare in Hong Kong to the point of extinction; and even rejoinder is seldom seen.  It may be necessary, for example, where the defendant raises a counterclaim for libel and the plaintiff in his reply and defence to counterclaim pleads qualified privilege to which the defendant wishes to plead express malice, which he can only do in a rejoinder, or where the plaintiff raises a counterclaim to the defendant’s counterclaim, to which the defence can only be contained in a rejoinder.
	Application for leave to serve a rejoinder or subsequent pleading is made by summons to the master or may be made on the summons for directions.
	Leave to serve a rejoinder or subsequent pleading will not be granted unless it is really required, so as to raise matters which must be specifically pleaded (see r.8).”

Rule 8, under the heading “Matters which must be particularly pleaded” states that:

“	8(1)	—	A party must in any pleading subsequent to a statement of claim plead specifically any matter, for example, performance, release, any relevant statute of limitation, fraud or any fact showing illegality,
			(a)	which he alleges makes any claim or defence of the opposite party not maintainable; or
			(b)	which if not specifically pleaded, might take the opposite party by surprise; or
			(c)	which raises issues of fact not arising out of the preceding pleading.”

5.One gleans from the note at 18/4/1 that pleadings subsequent to a reply are, except for a rejoinder, practically extinct, and that a rejoinder arises only exceptionally.  Apart from the specific example of libel, leave to file a rejoinder will not be given unless it is really required in order to allow matters that must be specifically pleaded to be pleaded.

6.With that in mind I turn to the reasons put forward by Mr Strachan leading the defence in this matter, and the grounds of opposition raised by the plaintiff led by Mr Whitehead, SC.

7.Mr Strachan deals with it in this way.

8.By its statement of claim the plaintiff bank sues a former corporate customer to recover money advanced under contract and not repaid in breach of contract.

9.The defence to this is that the contract was not properly authorized by the corporate defendant and was not binding and thus is not enforceable.

10.In its reply the plaintiff asserts the contract is binding even if there were irregularities, for it did not have to concern itself with the defendants’ indoor management, relying thus on the rule in Turquand’s case.

11.The defendant wants to answer these assertions by pleading that the plaintiff had knowledge of the irregularities or was put on enquiry that there was not proper authorisation; that in the circumstances the defendants can rely on the exceptions to the rule in Turquand’s case.

12.After due consideration it was decided that the most appropriate way in which this should be pleaded, given the sequence of assertions and responses to which I have referred, was for the responses to the Reply to be incorporated in a rejoinder; that is the document in draft form which is the subject of this application for leave.

13.It should be noted that whilst its primary function is to plead exceptions to the rule in Turquand’s case, that is the plaintiff’s knowledge of irregularity or that it was put on enquiry, there are also some clauses incorporating pleadings which are responsive to new matters raised in the Reply.  The emphasis however is on the pleadings that answer the plaintiff’s assertion that it can rely on the rule in Turquand’s case.

14.One of the pleaded clauses in the proposed rejoinder is particularly controversial; it is clause 12.5.  Clause 12 concerns a meeting of the Board of Directors of the 1^st defendant said to have taken place in Taipei on 17 September 1999 because there have been disclosed signed minutes of such a meeting held in Taipei on such date.  The content of the proposed paras. 12.1 to 12.4 asserts that the meeting could not have been held as the minutes disclosed.  Then at 12.5:

“	In the premises the plaintiff was aware (or was at least put on enquiry) that no actual Board Meeting of the 1st defendant ever took place on 17 September 1999 and that the purported minutes dated 17 September 1999 were false in that they purported to be that which they were not”.

Thus in clause 12 and in particular 12.5 not only is the issue of knowledge or being put on enquiry being asserted but for the first time fraud.

15.The plaintiff does not object to the proposed rejoinder as to its later paras. 30 to 34 (where it becomes a Reply to Amended Defence to Counterclaim) and paras. 35 to 41 (a Defence to Counterclaim to Counterclaim), save however that paras. 30 to 36 are bare denials and are thus otiose; see O.18 r.14(2), RHC.

16.Those grounds put forward by Mr Whitehead in opposition to the rejoinder’s previous paragraphs are as follows:

The first, that a rejoinder that follows a reply is seldom seen and for exceptional or specific types of cases only; it is inappropriate in this case.

There is prejudice; the plaintiff will have no opportunity to answer the new matters raised, save in a document that is said to be so rare that it is virtually extinct.

There is particular prejudice concerning the need to answer an allegation of forgery made at this late stage for the first time, if this part of the rejoinder is allowed in.

The action is already overburdened with multiple pleadings and a further round could render it unmanageable.

The primary matters sought to be pleaded being the plaintiff’s knowledge or that it was put on enquiry about irregularities going to the contracts could conveniently have been slotted into a re-amendment of the Defence.  That would allow the plaintiff to respond in an amended reply.  Other matters raised in the Reply would be in issue in any event under O.18 r.14(2), without further pleading.

There is delay.  No explanation has been given as to why it has taken four years to seek leave to respond positively to the reply in this way.

17.Mr Whitehead took me to the case Norris v Beazley (1877) 35 LT 845.  In that case an application for leave to file a rejoinder was rejected by the judge at first instance, Baron Pollock, because it amounted to a repeat of what was already pleaded in the defence though amplified.  He offered the defendants the opportunity of amending its defence on payment of costs; this was not accepted.

On appeal the judge’s ruling was upheld.  Grove J said at p.846:
	“	It would give rise to very great confusion if, under the new system of pleading, a rejoinder were permitted which was, in effect, only the matter contained in a statement of defence stated in a more detailed way.”
Further:
	“	If this application were allowed the defendant would have the advantage of double pleading.”
Denman J said on the same page:
	“	I hold it would be objectionable as a repetition …
		I now think that the statement of defence and counterclaim between them included all the matter now sought to be amplified by means of the rejoinder.”
And further:
	“	Pleadings should be as short as they reasonably can be, provided they raise the points in issue between the parties, and matters of evidence are not to be introduced into them.”

18.Interestingly the note below O.18 r.4 in the current White Book, taken from the English White Book, had until about 1993 cited this case, that is Norris v Beazley, noting that the application for rejoinder had been refused because it was a mere repetition of the defence in a different form.

19.Mr Whitehead contended that with knowledge or enquiry referred to already, a repetition in the proposed rejoinder would amount to a double pleading and be objectionable applying Norris v Beazley.

20.This is, in short, not a necessary pleading.

21.The second ground of objection is that the proposed rejoinder ignores the basic rules of pleading, on three counts.

22.First, that there is a repetition of facts already incorporated in the defence and counterclaim.  Secondly, there is evidence incorporated into the pleading. Thirdly, it includes legal submissions.

23.Mr Whitehead took me to examples of all three of what he said were defects and I have noted these examples.

24.The third ground is that the new plea of fraud that I have reproduced above is deficient.

25.The circumstances giving rise to the allegation were known as early as shortly after 2 July 2004.  This date features because it is the date of a letter from the Immigration Department to the defendants’ solicitors which contained information concerning the travel arrangements of Pang Chun Hoi and Liew Nan Kiem.  These were both directors of the 1^st defendant at the material time, stated in the purported minutes of the 1^st defendant to have been present at the board meeting said to have taken place on 17 September 1999.  The letter from the Immigration Department indicates by virtue of their travel records that they could not have been present in Taipei on that date.

26.No adequate reason has been given as to why disclosure of this was delayed for more than three years.  This offends a rule of pleading which is that fraud has to be pleaded as soon as possible.  Unjustified delay will warrant an enquiry, and prospectively a ruling that the plea should not be allowed in.

27.Mr Whitehead quoted from Lord Denning’s judgment in Associated Leisure v Associated Newspapers [1970] 2 QB 450.  This was a case dealing with a plea of justification.  But a plea of fraud falls into the same category.

28.Lord Denning said that such a plea should not be made unless there is clear and sufficient evidence to support it.  And when, having acquired such evidence, the plea is not made in a timely manner, the defendant’s conduct will be closely enquired into.  His application to introduce the plea may well be refused if he has been guilty of delay.

29.A further complaint under this head is that the pleading alleging fraud, or a forgery, is inadequate.

30.As is often cited, Bokhary JA in ADS v Wheelock Marden [1994] 2 HKC 264 at 270 said:

“	An allegation of fraud must be pleaded distinctly and with the utmost particularity.”

31.Mr Whithead submitted that the plea presupposes that there was no meeting at all; thus, that the minutes were forged.  But he put up three alternatives that would provide an innocent explanation:

the first that there was a meeting held on another date; that the date inserted was a mistake;

the second that someone had chosen to backdate the date of the minutes;

the third that the directors said to have been absent could have been present by telephone.

He quoted a short extract from a very long judgment in the House of Lords case Three Rivers District Council v Bank of England (No. 3) [2003] 2 AC 1 given by Lord Millet at p.291:

“	Having read and re-read the pleadings, I remain of the opinion that they are demurrable and could be struck out on this ground.  The rules which govern both pleading and proving a case of fraud are very strict.”

And further:

“	It is well established that fraud or dishonesty must be distinctly alleged and as distinctly proved, that it must be sufficiently particularized; and that it is not sufficiently particularized if the facts pleaded are consistent with innocence.”

And further:

“	This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.
	It is important to appreciate that there are two principles in play.  The first is a matter of pleading.  The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him.  If the pleader means ‘dishonestly’ or ‘fraudulently’, it may not be enough to say ‘wilfully’ or recklessly’.  Such language is equivocal.  A similar requirement applies, in my opinion, in a case like the present, but the requirement is satisfied by the present pleadings.  It is perfectly clear that the depositors are alleging an intentional tort.
	The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient.  This is only partly a matter of pleading.  It is also a matter of substance.  As I have said, the defendant is entitled to know the case he has to meet.  But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary fact which will be relied upon at trial to justify the inference.  At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud.  It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty.  There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.”

32.Mr Whitehead went on to submit that there has not been pleaded in this case the necessary particularity as these judgments say is a vital ingredient of a plea of fraud.

33.I shall deal with these objections now in turn.  First as to the suitability or otherwise of a rejoinder as being the means by which the matters raised therein should be pleaded.

34.In answer to the proposition that all matters raised in the Reply are in issue in any event; that is as may be so.  But the primary thrust of the defendants’ pleading in response is to plead exceptions to the rule in Turquand’s case. This means establishing knowledge or being put on enquiry.  And this has to be expressly pleaded.

35.Could this have been pursued by a further amendment to the defence?

36.Perhaps.  Mr Strachan conceded as such in his submission.

37.But this would in my view have amounted to an unnatural situation, raising in a pleading preceding the Reply a matter not raised substantively until the Reply.  This is like answering a question not yet asked.

38.The same goes for those matters raised in the proposed rejoinder which do not go to knowledge or enquiry.  They are direct responses to matters raised for the first time in the Reply.  There is, realistically, no other proper place for such responses to come in than in a subsequent pleading.

39.The pleaded facts make this an unusual case.  Some may say an exceptional one.

40.A straightforward claim to recover moneys not repaid in breach of contract is met by the defence that the contract is irregular and unenforceable.  The reply to that is that the claimant is not bound to look into the debtor company’s indoor management, so that even if there is irregularity it is entitled to enforce its claim. 

41.The defence wishes to respond to that reply by positive assertions; that the claimant cannot invoke the rule of indoor management because it knew of or should have enquired about those irregularities.  So, how should this be pleaded, if not by rejoinder? 

42.Mr Whitehead submits that cannot be right, for such a course would give the defence the last word. But as the note below O.18 r.4 reveals, there is a further pleading available to give the plaintiff the last word if it wants it; the surrejoinder.

43.I have re-read the rule and the note below the rule.  I have noted of course the reference to the need for necessity, to the rarity, to the specific sort of case for which the procedure is appropriate.

44.But I read of no express or implied prohibition to the granting of leave in a given case which calls in the order of things for further pleadings beyond the Reply, where positive assertions are necessary.

45.I am sufficiently familiar with this case and its pleadings that are currently in and are proposed to know what is going on.  But if a judge or other interested party were to read for the first time the pleadings with those going to the exceptions to the rule in Turquand’s case incorporated into the defence it would I suggest require several readings to understand how these pleadings had come into play.

46.And there would remain the poser as to where, sensibly, to put pleas in response to those that have been raised in the Reply for the first time.

47.The inclusion instead of a rejoinder removes the fog of that.  Indeed I have to say I think it is an entirely sensible course.  It is in effect to put everything in the right order.  It smacks of logic and common sense.

48.Along with this clarity there is as I see it no downside.  The plaintiff can have the last word, if it wants it.  There is no prejudice to the plaintiff that I have been told about or can find.  On the contrary, it goes towards achieving what is required of pleadings in any case; of ensuring that the real issues in dispute between the parties are defined in advance of the trial.

49.Norris v Beazley, I am satisfied, was decided on its facts.  The proposed rejoinder was a repetition and amplification of pleadings already raised.  That assuredly did amount to double pleading and it is not surprising that it was rejected, especially as the defendant was given the opportunity of enhancing his defence.

50.Mr Whitehead pointed to examples in the proposed rejoinder where facts have been repeated; so that the authors he said have committed the same wrong as those who represented the defendant in Norris v Beazley.  But on examination it is to be noted that those facts that are repeated are included so as to give a platform to the pleas that the plaintiff knew or was put on enquiry as to irregularities in the 1^st defendant’s contracts.  This was not double pleading so as to confuse or embarrass or otherwise be prejudicial.  On the contrary it was to clarify just what it was the plaintiff knew about or about which it was put on enquiry.

51.So as I find there is nothing to the point that there is or will be repetition if the rejoinder comes in.

52.As to the objection that the rejoinder contains evidence and/or legal submissions:

the rules do disallow the pleading of evidence; this for obvious reasons.

I do not need to repeat them.  Mr Strachan alluded to a document that all lawyers and judges have come to know and dread; that is, the statement of claim or defence written by a litigant in person, by which means he feels bound to unburden his soul in a masterpiece that seems to go on for ever.

53.There is nothing in the proposed rejoinder which warrants criticism let alone exclusion under this head.  And I find no legal submissions therein which warrant striking out because they are prejudicial and/or embarrassing.

54.I come now to the third objection which is that the plea at clause 12.5 of the proposed rejoinder is deficient and should not be allowed in.

55.The first point is that the plea as phrased is a plea of forgery.  There can be no ambiguity or doubt about that.  Mr Strachan whom I suspect played a part in how it was to be worded has submitted that it was modelled on a long-established definition of forgery as propounded by Blackburn J in R v Windsor (1865) 10 Cox CC 118 at 123:

“	Forgery is the false making of an instrument purporting to be that which it is not; it is not the making of an instrument which purports to be what it really is, but which contains false statements.  Telling a lie does not become a forgery, because it is reduced into writing.”

I accept that to be so.

56.It will of course be for the defence to prove that the minutes are a lie unto themselves and thus a forgery.  But the assertion that they are, is foursquare and incontrovertible.

57.Second is that the Immigration Department letter lately produced (and I note there has been no explanation for that delay) is important, but not primary evidence in support of the contention that two people said to be present could not have been.  This was already put forward in the witness statement of Lee Kwok Keung who is a current director of the 1^st defendant and who will be giving evidence for the defence, no doubt to affirm the truth of that and why. 

58.The letter provides forensic support for that evidence.

59.Third, the matter of the presence or absence of the directors in question is only one of five matters raised by the defence to support the proposition that the meeting of 17 September 1999 could not have taken place.

60.Fourth, the allegation of fraud is not made against the plaintiff.  It is incorporated as part of the factual matrix that the plaintiff knew or was put on enquiry that the 17 September 1999 meeting did not take place.

61.In essence in deciding whether this lately made plea should be allowed in I do of course as I am bound pay heed to the pronouncement of the higher courts on the topic.  But the overriding feature in the exercise of my discretion is to consider the question “Is there prejudice?”

62.I can find or think of none.  I do not believe that any has been proffered.

63.The plea remains.  It is of forgery.  Now it will be for the defence to prove that, if it can.

64.I conclude by giving the defendants leave to file and serve forthwith the proposed rejoinder in the form annexed.

65.I shall now invite submissions on costs and consequential directions.

(After Discussion)

66.The plaintiff has leave to file and serve a surrejoinder in response to the rejoinder on or by 2 October 2007.

67.Costs of and occasioned by the defendants’ summons to the plaintiff in any event, with certificate for two counsel (Messrs Whitehead SC & Kwan).

68.Costs of the argument of 3 days to the defendants in any event, with certificate for two counsel (Messrs Strachan & Chow).

Mr Robert Whitehead, SC leading Mr Steven Kwan & Ms Joey Yuen, instructed by Messrs Wilkinson & Grist, for the Plaintiff

Mr Mark Strachan, leading Mr Kenneth Chow, Ms Anny Chak and Mr William Liu, instructed by Messrs David W T Chan & Co., for the 1^st and 2^nd Defendants