Li Xiao Yun and Another v. China Gas Holdings Ltd

CACV 38/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 38 OF 2013

(ON APPEAL FROM HCCL NO. 18 OF 2011)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Lam JA (giving the Reasons for Judgment of the Court):

1.This is an urgent appeal brought by the Plaintiffs against the decision of Mimmie Chan J [“the Judge”] on 28 February 2013 refusing leave to add new defendants to this action and to amend the pleadings to advance claims against those new defendants. Her Ladyship also refused leave to adduce further expert evidence. But in this appeal, we are only concerned with joinder of new parties and amendments. The applications of the Plaintiffs were made by a summons of 25 February 2013. A reasoned judgment was given by the Judge on 6 March 2013 [“the Judgment”].

2.The appeal is urgent because the trial of the action is due to commence on 12 March 2013.  It is to be a trial which is estimated to last for 12 days.  The trial date has been fixed in March 2012.  If this court were to allow the appeal and grant the relief sought by the Plaintiffs, it is inevitable that the trial would have to be adjourned.  As observed by the Judge, the trial would at least have to be postponed to 2014.

3.The significance of the consequential delay has to be consider against the following background,

(a)  This is a Commercial List case which generally should be disposed of expeditiously;

(b)  There has been an order for speedy trial of this action made by Reyes J in September 2011 with trial dates originally scheduled in March 2012;

(c)  There were amendments to the Statement of Claim which occasioned the vacation of the original trial dates and the trial was re-scheduled to March 2013;

(d)  Expert directions were given by Reyes J on 15 December 2011 which set out deadlines for filing and exchange of expert reports, expert meeting and filing of joint report; and

(e)  Even up to the pre-trial review of 24 January 2013, there was no indication by the Plaintiffs that they were to intending to make these applications.

4.Against such background, the Defendant has a legitimate expectation that it would have its day in court in terms of a trial commencing on 12 March 2013.  There has to be very strong and exceptional circumstances to warrant further postponement of such trial date.

5.Further, the Judge also found that the Plaintiffs had knowledge of most of the matters now sought to be introduced by way of amendments since March 2011.  Investigations were undertaken by their lawyers and they were completed in August 2011.  They had sufficient materials for them to plead a case of improper motive and a deliberate decision was made to formulate the claims in this action without reference to such allegation.  As far as new facts are concerned, the Judge held that they were at the end of a string of other complaints and they are neither required nor sufficient to justify further delay, see paras 12 to 13 of the Judgment.

6.We have examined the proposed amendments and compared them with the scope of the pleaded case of the Plaintiffs as it stands.  The proposed amendments are very substantial.  It proposes to join 9 defendants to the action, describing their respective roles in the Defendant at a new para 1A.  Apart from a few tidying up paragraphs pertaining to the causes of action originally pleaded, it pleads an entirely new case to challenge the resolutions in question on account of bad faith on the part of the directors at the new paras 34 to 61.  And it also pleads new causes of action against the new defendants at the new paras 63 to 64 for procurement of breach of the Rules of the Scheme by the company Defendant and for conspiracy to use unlawful means against the Plaintiffs.

7.It is fair to say that if these amendments and joinders were allowed, the nature and character of the action will be significantly recast and many allegations, which have not been relevant to the issues raised in the pleadings so far, would become relevant.  The focus of the case would be completely shifted and no doubt the preparation of the case on the part of the Defendant would have to be substantially altered.

8.In respect of the observation of the Judge that it was the deliberate decision on the part of the Plaintiffs to withhold any reference to bad faith from the scope of this action, the following background is relevant,

(a)  The action commenced as a simple claim for the option shares under the Scheme by the Plaintiffs;

(b)  In the Defence of filed on 6 October 2011, the Defendant relied on the resolutions in question to aver that the Plaintiffs were not eligible for the option shares;

(c)  Thus, the validity of those resolutions was very much in the limelight at least since the filing of the Defence and the Plaintiffs knew full well that they had to contest these resolutions;

(d)  At first, in the Reply filed on 27 October 2011, the Plaintiffs simply averred at para 38 that the removal of them as Chairman and Vice chairman would not have affected their eligibility. It also averred alternatively that the purported resolutions were invalid and are null and void and of no legal effect “since no notice of any such proposed resolution … had been given to them and such resolution was proposed only after the Plaintiffs had left the 3 March 2011 Board Meeting”;

(e)  On 4 November 2011, pursuant to leave granted by Reyes J, the Plaintiffs amended their Statement of Claim to add substantial pleas to challenge those resolutions at paras 25 to 33. Those challenges were based on pleas of lack of notice, lack of participation in the deliberation, lack of power to remove under the Bye-Laws of the Defendant. There was no averment to suggest that the exercise of the power of removal was motivated by bad faith or improper motive;

(f)  Because of those amendments, as mentioned above, the original trial dates scheduled in March 2012 had to be re-scheduled to March 2013;

(g)  The Defendant responded to those amendments in the Amended Defence filed on 25 November 2011. The Plaintiffs were contented with having their challenges to the resolutions being confined to those grounds as pleaded in the Amended Statement of Claim. In the Amended Reply filed on 9 December 2011, the Plaintiffs replied to the Defendant’s case on those challenges at paras 57 to 62 without raising any pleas on bad faith or improper purpose;

(h)  The Plaintiffs took such a stance notwithstanding that on their own case they had suspected improprieties on the part of the proposed 2^nd to 4^th Defendants since the 17 December Incident (see the Third Affirmation of the 2^nd Plaintiff), they had drawn the attention of the board to possible corrupt or illegal conduct of these directors and gave the relevant documents to the board to review, they had engaged PRC lawyers to investigation into the matter since July 2011 and important information pertaining to what the Plaintiffs described as the Kangleyuan Project came to light in August 2011;

(i)  Subsequent to the amendment of the Reply, there were subsequent amendments of the pleadings and the Plaintiffs did not add any plea of bad faith or improper purpose to their case until the application by the summons of 25 February 2013.

9.The 2^nd Plaintiff explained about the delay in his Third Affirmation. He said there was a possibility of another company making a general offer for the shares of the company in December 2011 and he expected there might be due diligence by that new investors which could entail investigations into the conducts of the 2^nd to 4^th proposed defendants.

10.Pausing here, we find this explanation utterly unconvincing. If the Plaintiffs were investigating for the purpose of seeing whether there could be a challenge to the resolutions based on bad faith or improper purpose in order to enable them to raise such a plea for the purpose of advancing their claims in this action, we do not see how somebody else may do a due diligence exercise can have any bearing.

11.The 2^nd Plaintiff then said they decided to adopt a different approach with their PRC lawyers in June to July 2012.  Around October 2012, the PRC lawyers begun to obtain some data and information and analysed the same.  He claimed that some new material facts were revealed and he set them out at para 49 of his Third Affirmation.  He said the PRC lawyers only completed and finalized the reports in January 2013.

12.Again we must say we find this to be a lame excuse. There was no explanation why the Plaintiffs only deemed it necessary to adopt a different approach in June or July 2012.  If the Plaintiffs were serious about the addition of the plea of bad faith and improper purpose and advancing these claims against the new defendants in this action as well, there was no explanation why the Plaintiffs did not ask for directions at any time during 2011 and 2012 for the trial of the action to be postponed pending the outcome of the investigation. It should be noted that there cannot be question about the risk of forewarning these new defendants because, on the Plaintiffs own case, they were aware of the Plaintiffs’ investigation, see para 47 of the Third Affirmation.

13.It seems to us the alleged late revelation to the Plaintiffs of so-called new facts was primarily self-induced and the Plaintiffs only had themselves to be blamed if they were ever serious about adding these challenges into the scope of this action. 

14.The Judge concluded that there were no exceptional circumstances warranting the grant of leave to amend and joinder which has the inevitable effect of derailing the trial dates.  The requirement of exceptional circumstances is to be found in Order 25 Rule 1B(3), the trial dates being a milestone date.  Reading this together with the underlying objectives in Order 1A rule 1 and the court’s duty under rule 2, the Judge was correct in asking herself whether there were exceptional circumstances.

15.Further, given the background set out above, we cannot see how the Judge can be said to be clearly wrong in coming to her conclusion that there were no exceptional circumstances.

16.In addition, the Judge held that the proposed amendments were neither necessary for disposing fairly of the cause or matter nor for saving costs.  As such, the requirement of Order 20 Rule 8(1A) is not satisfied. Her Ladyship identified the real issue in dispute at paras 16 to 18 of the Judgment and explained why the amendments were unnecessary.

17.It is trite that the decision of the Judge was an exercise of case management discretion. Our Court of Appeal will not normally interfere with such exercise of discretion. As recently said by the Chief Judge in厦門新景地集團有限公司v Eton Properties HCMP 13 of 2012, 14 Feb 2012, para 9,

“No leave to appeal should be granted unless the threshold test of reasonable prospect of success is satisfied, or (which is not relevant to the present case) there is some other reason in the interests of justice why the appeal should be heard : section 14AA(4), the High Court Ordinance (Cap 4). But the court still retains a discretion whether to grant leave even if the threshold test is satisfied. This is particularly so in relation to an intended appeal against a case management decision. In relation to such an intended appeal, this court rarely intervenes save in exceptional circumstances. As Kwan JA reiterated in the recent case of Mimi Kar Kee Wong Hung v Severn Villa Limited, HCMP 2192/2011, 12 January 2012, para 31, it need hardly be emphasized that generally, an appellate court will not interfere with a judge’s exercise of discretion unless the judge has misunderstood the law or the evidence or the exercise of his discretion was plainly wrong such that it was outside the generous ambit within which a reasonable disagreement is possible. In relation to case management decisions, the intended appellant must show that the judge “has gone clearly wrong and made orders which will clearly involve an injustice or an inability for the trial court to carry out its task”, or if the judge “erred in principle or the order was irrational having regard to the issues that had to be resolved”. It is of great importance that this court does not descend to micro‑managing cases pending before the court below.”

18.Unmeritorious appeals against case management decisions, at least last minute urgent appeals, are to be deplored since not only are they satellite litigation increasing the costs of the judicial process, they also tend to disrupt the preparation for trial on the part of those representing the opposing party.  It is wholly inconsistent with the spirit of the underlying objectives in Order 1A Rule 1 and the duties of the parties and their lawyers under Order 1A Rule 3.  Last minute pre-trial applications also disrupt the preparation for the trial on the part of a trial judge in terms of reading into the case.  Instead of getting himself or herself familiar with the issues that have to be tackled at the trial, the judge would have to divert attention and spend time and efforts on such applications. Thus, such practice has to be discouraged and, unless there are good justifications, the unsuccessful appellant should normally be expected to face an order for indemnity costs.

19.To justify an interference with the Judge’s case management discretion, it is not enough that members of the appellate court may make a different decision had they been the primary judge who exercised the discretion.  This is particularly so when the Judge was the trial judge presiding over the trial and she had been handling the case since the Pre-trial review.  The Plaintiffs have to show that the Judge has gone clearly wrong and made orders which will clearly involve an injustice or an inability for the trial court to carry out its task, or alternatively the Judge erred in principle or the order was irrational having regard to the issues that had to be resolved.   

20.Mr Chan SC (appearing together with Mr Liu for the Plaintiffs) tried to persuade us that the Judge’s decision can be met with these criticisms because she had been wrong in the following respects,

(a)  She was plainly wrong in holding that the amendments were unnecessary for the determination of the real question in dispute;

(b)  She was clearly wrong in concluding that the original cause of action could compensate the Plaintiffs adequately;

(c)  She was wrong in thinking that the Plaintiffs had sufficient materials to plead a case on bad faith by November 2011;

(d)  She was wrong in not appreciating the full significance of the Plaintiffs’ case in terms of the drawing of inference of the board removing them in order to conceal the misconducts of the proposed new defendants and the reinforcement of such inference in terms of the serious nature of the misconduct in question which were only discovered by the Plaintiffs’ lawyers after November 2011 and made know to the Plaintiffs in January 2013.

21.In a nutshell, Mr Chan summed up his challenge at para 12 of his skeleton submissions in this way: the Judge was clearly wrong in that she had failed to appreciate the salient facts and their relevance.  

22.With respect, putting aside the question whether the amendments were necessary as required by Order 20 Rule 8(1A) for the time being, we do not think the other points raised by Mr Chan can take this appeal within the threshold stated in para 19 above.  Whether the original action could compensate the Plaintiffs adequately is neither here nor there as regards whether the Plaintiffs should be allowed to recast their case so significantly at this late stage by these amendments.  As regards (c) and (d), the Plaintiffs did not say they did not have sufficient material to advance a claim based on bad faith in the Third Affirmation of the 2^nd Plaintiff.  Looking the matter objectively, we do not think the Judge was wrong in finding that a case of bad faith could have been pleaded if the Plaintiffs had deemed it fit to include that in the scope of this action.  In our view, whether the Judge should have perceived the significance of the so-called new facts differently cannot alter the final outcome as to how the discretion should be exercised.

23.With the greatest respect, much of what Mr Chan submitted were simply forensic afterthoughts which were not borne out by the evidence.  We have already explained why the explanations for the lateness of the application set out in the Third Affirmation of the 2^nd Plaintiff are wholly inadequate. [Some of the points now argued by counsel were apparently not even argued before Her Ladyship. Though one can understand that different counsel (as Mr Chan did not appear at the court below) might approach a case differently and the Court of Appeal often have to hear submissions which have not been advanced below, in the circumstances of this appeal when the Plaintiffs are seeking to challenge a case management decision of the lower court on an urgent basis, this court will be slow to interfere on a ground which has not even been canvassed below.] 

24.Mr Chan relied on the decision of the Chief Judge in厦門新景地集團有限公司v Eton Properties HCMP 13 of 2012, 14 Feb 2012.  In our view, that decision was actually against him. What happened there was that the Court of Appeal considered it right to interfere with the exercise of discretion of Reyes J in granting leave for a late amendment because,

(a)  The judge below failed to consider the impact of granting leave to amend on the overall impact on the trial, see paras 26 to 29. The Chief Judge emphasized that late application should be considered cautiously because,

“such a late application for amendment also went contrary to the letter and spirit of the civil justice reform and made a mockery of the requirement for filing information checklist before a case management conference.”

(b)  On the facts of that case, due to the self-contained nature of the new claim, it was possible for to have that claim hived off without impacting on the original trial date for the old claims.

25.Therefore, had the split trial option been inappropriate, it was likely that because of (a), the Court of Appeal would have reversed the decision of granting leave to amend at such late stage.  In the present action, unlike Eton Properties, we are not dealing with a situation where the judge below had already exercised the case management discretion by granting leave to amend.  We are dealing with the opposite situation.  On the facts the present case, we do not believe there can be any hiving off of the new claims.  Split trial is not the solution. In any event, as this was not an option advanced before the Judge, we do not deem it appropriate to consider it on appeal on the facts of the present case.  Indeed, if hiving off were possible, the obvious question is why shouldn’t the Plaintiffs be left with the option of starting a new action altogether on the new claims?    

26.Therefore, we do not think there is any ground for this court to interfere with the Judge’s exercise of discretion in refusing to grant leave. Given our conclusion on the exercise of discretion, the question of whether the amendment is necessary within the meaning of Order 20 Rule 8(1A) is academic.  In that regard, it may be crucial to consider in the reference in that sub-paragraph to “disposing fairly of the cause or matter”, whether it is referring to the disposal of the claims already pleaded in the existing pleadings or a wider concept of “cause or matter”.  Due to the limited arguments before us, we do not wish to decide on that issue in this appeal as it is not necessary for us to do so.

27.For these reasons, the appeal was dismissed at the hearing. As it is obvious from what we said, the appeal is utterly without merits and for reasons already stated above, we ordered the Plaintiffs to pay the Defendant’s costs of this appeal on indemnity basis, such costs is to be taxed and payable forthwith. 

Mr Edward Chan, SC and Mr Michael K W Liu instructed by P C Woo & Co, for the 1^st & 2^nd Plaintiffs (Appellants).

Mr Simon Westbrook, SC and Mr John Hui instructed by Baker & McKenzie, for the Defendant (Respondent).