Dbs Bank (Hong Kong) Ltd v. Sit Pan Jit

HCA 382/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 382 OF 2009

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BETWEEN

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REASONS FOR DECISION

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I.  INTRODUCTION

1.The trial of the present action is due to commence on 11 February 2014.  I have given various trial-related directions at the pre-trial review on 20 November 2013 (“1^st PTR”).  In view of certain outstanding matters particularly in relation to expert evidence, I have scheduled a further PTR to be held on 10 January 2014 to finalise those matters before the trial starts on 11 February 2014, and to give directions for lodging and serving trial bundles and opening submissions (“2^nd PTR”).  At that time, it was envisaged that all such outstanding matters will be resolved in advance of the intervening Chinese New Year public holidays so that both parties will have sufficient time to prepare/lodge/serve trial bundles and opening submissions and the court will be able to properly pre-read those papers in preparation for the upcoming trial. Indeed, in the written submissions for the 1^st PTR by Mr Lee, counsel for the defendant, it has been proposed that the trial bundles, the plaintiff’s written opening submissions and the defendant’s written opening submissions be lodged/ served by 14 January, 28 January and 4 February 2014. Likewise, the written submissions for the 1^st PTR by Mr Dawes, counsel for the plaintiff, have also proposed that the trial bundles, the plaintiff’s written opening submissions and the defendant’s written opening submissions be lodged/ served by 14 January, 4 February and 7 February 2014 respectively.

2.For the 1^st PTR, Mr Lee in his written and/or oral submissions has not intimated any intention to amend the defendant’s pleadings. But on 19 December 2013, the defendant’s solicitors wrote to the plaintiff’s solicitors to propose further amendments to the Re-Amended Defence and Counterclaim (“RADC”) in the manner marked in purple as set out in the enclosed draft Re-Re-Amended Defence and Counterclaim (“Draft”).  On 27 December 2013, the plaintiff’s solicitors replied to say they were taking their client’s instructions, and enquired whether the defendant intended to adduce further evidence in relation to the proposed new plea.  On 30 December 2013, the defendant’s solicitors confirmed no further evidence will be adduced.

3.On 31 December 2013, the defendant issued a summons for leave to further amend the RADC as per the Draft (“Summons”), which summons was returnable before me on 7 January 2014.  On the same day, ie 31 December 2013, the plaintiff’s solicitors wrote to the defendant’s solicitors to say the plaintiff will oppose the Summons.  So the parties applied by consent to the court to adjourn the Summons to the 2^nd PTR (which was to be a half-hour hearing).  Given the myriad trial-related matters that needed attention at the 2^nd PTR, it was not possible to hear substantive arguments on the Summons at such hearing. Further, given the state of the court’s diary up to 11 February 2014 when the upcoming trial is to start, the Summons was adjourned to 23 January 2014 for argument (“Hearing”) in lieu of any earlier suitable date.

4.It goes without saying that the Summons necessarily impacts on the envisaged timetable for the outstanding preparatory steps for the trial.  To say the least, the timetable for lodging/serving written opening submissions previously proposed by Mr Lee is no longer feasible since the plaintiff will be hard put to prepare/finalise their written opening submissions pending the determination of the Summons.  As it were, at the 2^nd PTR I directed that pending the determination of the Summons the deadline for the plaintiff to lodge written opening submissions is to be 4 February 2014, and the defendant is to lodge his by 7 February 2014.  But depending on the outcome of the Summons, such tight timeline, which already leaves little time for the parties/court to prepare for trial, may well have to be further extended should I find in favour of the defendant since the plaintiff must be allowed time to properly meet the new plea.

5.Against the aforesaid background, I have heard submissions from Mr Dawes for the plaintiff and from Mr Lee SC (and Mr Lee with him) for the defendant at the Hearing.  After hearing such submissions, I dismissed the Summons with costs to be paid by the defendant to the plaintiff (including all costs reserved if any) to be taxed if not agreed (“Hearing Order”).  I reserved my detailed reasons for decision to be handed down in due course. These are my Reasons for Decision.

6.I note that the proposed amendments in the Draft consist of firstly clerical amendments in paragraphs 25(b)(iii), 25(b)(vi), 25(b)(vii), 25(ba)(ii), 26(f)(v) and 32(b)(vi)-(xii) of the RADC (“Undisputed Amendments”), and secondly a new alternative case based on the equitable doctrine of unconscionable bargain and/or the Unconscionable Contracts Ordinance Cap 458 (“UCO”) in paragraphs 32A and 32B of the RADC (“Disputed Amendments”).  At the Hearing, Mr Dawes has informed me that the plaintiff has no objection to the Undisputed Amendments. The main bone of contention between the parties lies in the Disputed Amendments, and counsel’s submissions at the Hearing have focused almost exclusively on the Disputed Amendments. In fact, as apparent from the short reasons given at the Hearing and notwithstanding the Hearing Order, it is the Disputed Amendments rather than the Undisputed Amendments that I have rejected at the Hearing.  On more mature reflection in the course of preparing these Reasons for Decision, I am of the view there is no reason to reject the Undisputed Amendments since Mr Dawes has not raised any objection to them at all, and a true reflection of what occurred at the Hearing requires this court to allow the Undisputed Amendments.

7.Since the Hearing Order has not been perfected, I have jurisdiction to re-open and revise such order so that it properly reflects the decision of the court at the Hearing.[1] In the circumstances, the order that should have been made at the Hearing, and for the avoidance of doubt I confirm the making of such order as follows:

(a) leave be granted to the defendant to further amend the RADC as per the Draft save and except that the Disputed Amendments are disallowed;

(b) the defendant do file/serve the Re-Re-Amended Defence and Counterclaim on or before 12:00 noon on 10 February 2014;

(c) the defendant do pay costs of and occasioned by the Summons to the plaintiff (including all costs reserved if any) to be taxed if not agreed.

II.  PARTIES’ CASE

8.Before I deal with the Summons, it is useful to set out briefly the parties’ respective case to put such application in context, but it is unnecessary (and I do not propose) to set out the fullness of parties’ respective pleadings and/or evidence.

9.The plaintiff was/is a licensed bank in Hong Kong, and the defendant was/is a businessman. The present action is spawned by the financial crisis in 2008 and concerns what has been popularly known as alleged “mis-selling” of financial products by financial institution to consumer.

10.The plaintiff claims that in April 2004 the defendant opened a securities account with them (which the defendant acknowledged was governed by the DBS Private Banking Account Master Agreement as varied from time to time), and executed a “Charge on Cash Deposit(s) to Secure Liabilities of the Depositor(s)”, a “Mortgage over Stocks, Shares and Other Securities to Secure Liabilities of the Depositor”, a “General Commercial Agreement” and an “ISDA Master Agreement for DBS Bank (Hong Kong) Limited” in favour of the plaintiff. The plaintiff granted banking facilities to the defendant pursuant to such agreements, charge and mortgage as well as four banking facility letters signed and agreed by the defendant (with certain terms and conditions attached to the 3^rd and 4^th banking facility letters).

11.The plaintiff claims that from February 2007 to January 2008 they bought various investment products, including shares, notes and equity-link notes, for and on behalf of the defendant, but such investments were unsuccessful.  The plaintiff further claims they made margin calls pursuant to their contractual rights, but the defendant failed to satisfy those calls, so they commenced the present action to recover the outstanding sums.

12.The defendant raises a number of defences in his pleadings.  He claims there was an oral agreement with the plaintiff to the effect that his investments would be principal-protected, but the plaintiff’s relationship manager made a series of misrepresentations to induce him to enter into the aforesaid contractual documents, and to make investment decisions that turned out to be unsuccessful.  The defendant further contends that the contract with the plaintiff is void for uncertainty and/or illegality, and two of the facility letters have yet to come into operation because relevant conditions precedent have not been fulfilled and the equity-link notes have not been pledged to the plaintiff.  The defendant further claims the contractual terms that give the plaintiff discretion to demand further collaterals and to calculate interest are not binding. Mr Lee’s written submissions for the 1^st PTR further suggest there is an issue as to whether or not the provisions relied on by the plaintiff have been incorporated into any agreement between the plaintiff and the defendant.

13.It is also the defendant’s case that the plaintiff (a) should comply with the Securities and Futures Ordinance Cap 571 (“SFO”), its subsidiary legislation, and all relevant codes, guidelines, rules and regulations that may be issued by the Securities and Futures Commission (“SFC”), including the Code of Conduct for Persons Licensed or Registered with the SFC (“Code”), but (b) has been in breach of the Code and subsidiary legislation of the SFO.  The defendant complains that the plaintiff failed to inform him he had been trading on margin, and that the plaintiff was in breach of contractual and tortious duty of care as investment adviser and in breach of fiduciary duty to him.

14.The defendant further disputes the quantum of outstanding indebtedness as claimed by the plaintiff, and counterclaims for various declarations and damages based on the matters raised in his defence.

III.  PROPOSED AMENDMENTS

15.As explained above, the plaintiff has no objection to the Undisputed Amendments. So I shall focus my discussion on the Disputed Amendments. In a nutshell, the defendant by the Disputed Amendments avers that the alleged contractual documents,[2] the account opening form and the equity-linked notes, or alternatively the clauses therein, are unconscionable and unenforceable, or alternatively the defendant is entitled to seek relief pursuant to section 5(1)(c) of the UCO.

16.In support of such new plea, the defendant relies on various particulars of pleadings, including:

(a) the plaintiff knew or they were put on notice that the defendant was in a distinct and special disadvantage in dealing with them in that (i) he lacked full and correct understanding of and was unable to understand the full effect or legal significance of the terms, (ii) he lacked the opportunity to and did not obtain any independent financial and/or legal advice, and (iii) many of the terms in question were “unusual and onerous”;

(b) the plaintiff was in a superior or stronger bargaining position than the defendant in that the contractual documents were in standard form and the defendant had no real choice over such terms when applying for the services of the plaintiff;

(c) the transactions in relation to the subject equity-linked notes were oppressive and unconscionable having regard to inter alia their true nature as already pleaded;

(d) the contractual documents were unconscionable in view of the plaintiff’s conduct in relation to the performance of such agreements as already pleaded.

IV.  LATENESS OF THE APPLICATION

17.The Summons was made (a) 13 months after leave was granted by Registrar K W Lung on 9 November 2012 to set the case down for trial, (b) a month after the 1^st PTR and (c) mere 1½ months before the first day of trial.  There is no doubt (and sensibly Mr Lee SC has not tried to argue otherwise) the application was prodigiously late, which lateness plainly cries out for an explanation, especially when after the Civil Justice Reform (“CJR”) it should be expected that the opposing party will complain of such late attempt to move litigation goalposts.

18.But no explanation has been given for such last minute interlocutory application by way of the Summons. Indeed, no affidavit has been filed to account for the lateness, and no reason was offered in the written submissions by Mr Lee SC.

19.After the implementation of the CJR and in view of the underlying objectives which emphasise not only substantive but also procedural fairness, if there is any last minute application (which necessarily must be a rare occurrence), the court expects a full account for the lateness of the application and full justification as to why the application should be entertained at all at such a late stage.  The court expects litigants to give careful and conscientious consideration and attention to the completion of the listing questionnaires before the case is set down for trial to minimise if not totally eradicate late interlocutory applications.  Here, the defendant’s third listing questionnaire filed on 5 September 2012 confirms there would be no further interlocutory application, and the oral/written submissions by Mr Lee at the third case management conference on 12 September 2012 and at the 1^st PTR on 20 November 2013 have not forewarned any potential application to further amend the RADC, which pleading I note has been prepared and/or settled by the same legal team as the one now representing the defendant, ie Mr Lee SC leading Mr Lee and Mr Chau.

20.The irresistible inference is that there is no good reason for the delay, and it is particularly telling that Mr Lee SC submits that the Disputed Amendments raise a point of law “based on matters already pleaded”. If that were so, there is no justifiable excuse not to raise the Disputed Amendments at a much earlier stage.  At the Hearing, Mr Lee SC has half-heartedly tried to explain that the late application was a matter for the defendant’s legal advisers, but reticence in putting forward the fullness of the defendant’s case until the last moment due to legal advice cannot amount to any justifiable excuse.  On the contrary, such reticence under legal representation and advice gives further pause for concern.  In the end, Mr Lee SC has conceded at the Hearing that no reason (let alone any good reason) for the delay has been placed before the court.  I therefore find the lateness of the present application unjustified and unsatisfactory.  The plaintiff is certainly not to be blamed (and Mr Lee SC does not seek to say so) for the unfortunate state of affairs.

V.  PROPER APPROACH

21.Whether the court in the exercise of its case management discretion should allow a late application to amend pleadings requires a balancing exercise to be undertaken upon consideration of all relevant circumstances.

22.Mr Lee SC submits that the court is not to punish a party for his error or mistake, and a party has a right to amend and frame his case (and the court should allow all amendments to pleadings) for the purpose of determining the real question in controversy between the parties to the proceedings [3] or for correcting any defect/error in any proceedings “if it can be done without injustice to the other party”, but he accepts that the court should not order a pleading to be amended unless it is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.[4]  He says there is no injustice if the opposing party can be compensated by costs, and the burden falls on such party to show prejudice.[5]

23.Mr Lee SC submits that such principles are reflected in the judgment of DHCJ Lok in Li Shiu To v Li Shiu Tsang & anor, a case cited by Mr Dawes.  In that case, the learned judge confirmed that the principles under which the court exercises it discretion to allow or refuse amendments of pleadings in Ketteman v Hansel Properties Ltd [6] “remain good law after the CJR”.[7] The principles in Ketteman have been summarised by DHCJ Lok as follows:

“(i) first, all such amendments should be made as are necessary to enable the real questions between the parties to be decided;

(ii) second, amendments should not be refused solely because they have been made by the honest fault or mistake of the party applying for leave to make them: it is not the function of the court to punish parties for mistakes which they have made in the conduct of their cases by deciding otherwise than in accordance with their rights;

(iii) third, however blameworthy (short of bad faith) may have been a party’s failure to plead the subject-matter of a proposed amendment earlier, and however late the application for leave to make such amendment may have been, the application should, in general, be allowed, provided that allowing it will not prejudice the other party; and

(iv) fourth, there is no injustice to the other party if he can be compensated by appropriate orders as to costs.”

However, the learned judge said he “must put a caveat here”:

“16. …… First, the new O 1A of the RHC makes it clear that the court shall give effect to the underlying objectives when it exercises its power or interprets the RHC, including increasing cost-effectiveness of litigation, ensuring that a case is dealt with as expeditiously as is reasonably practicable, promoting a sense of reasonable proportion and procedural economy in the conduct of proceedings, facilitating the settlement of disputes and ensuring that the resources of the court are distributed fairly. If the amendment application is made in circumstances offending these underlying objectives, the court may have to balance all the factors in the case in determining whether to grant the application.

17. Second, there is a heightened concern to guard against late applications after the implementation of the CJR. For case management purposes, there are now certain milestone dates in the course of litigation, and one of which would be the trial date. If a party makes a late application to amend the pleading with the effect that the trial date may have to be adjourned, the court would be very reluctant in allowing the application unless there are exceptional circumstances. Indeed, adjournment of the trial is now considered as a serious prejudice to the parties involved in litigations. Hence, one should not assume that, once the Ketteman principles are satisfied, the court would automatically grant an application for amendment of pleading in particular at a very late stage of the proceedings.” (my emphasis)

24.I respectfully agree with the learned judge. In my view, whilst the broad considerations in paragraph 22 above put forward by Mr Lee SC may well be relevant to applications to amend pleadings at an earlier stage of legal proceedings, they must be viewed through the prism of delay (especially when it is unexplained and/or unjustified) in the case of a late application made at the eleventh hour before trial.  This brings into focus the underlying objectives in Order 1A rule 1 of the Rules of the High Court (“RHC”), including the need to increase costs-effectiveness, ensure expeditiousness, promote reasonable proportion, and ensure fairness between the parties.

25.Mr Lee SC reminds that in giving effect to the underlying objectives the court must bear in mind Order 1A rule 2 of the RHC which provides that the primary aim in exercising the powers of the court is to secure the just resolution of disputes in accordance with the substantive rights of the parties, so one must avoid dogmatic or misguided reliance on the underlying objectives to override any proper exercise of case management to give effect to the aforesaid primary aim.[8]

26.But in my view, the just resolution of disputes requires consideration of the question of potential procedural as well as substantive prejudice to the other party, which in the present case necessarily becomes more acute given the extreme lateness of the Summons.  Post-CJR case management recognises that the closer to trial an application to amend pleadings is made the more likely it is to cause real prejudice to the other party, especially when the trial (which is an immovable milestone event unless there are exceptional circumstances)[9] may be compromised by insufficient remaining time until the commencement of trial to accommodate the other party’s reaction to the new pleas if the application is granted, or by the even greater danger of putting the milestone trial at risk.

27.The above sentiments have been reflected in a number of authorities cited by Mr Dawes.[10]  In particular, the Court of Appeal in Li Xiao Yun & anor v China Gas Holdings Limited [11]warned that a party has a legitimate expectation that he would have his day in court upon the scheduled trial dates, and “[there] has to be very strong and exceptional circumstances to warrant further postponement of such trial date”.

VI.  DISCUSSION

28.Mr Dawes says that the plaintiff has legitimate complaints about the ambush tactics by the defendant to move litigation goalposts at the eleventh hour, but very fairly he has advised his client to adopt a pragmatic approach by focusing not on how and when a proper application to further amend the RADC should have been made but on the effect of the Summons on the plaintiff and the upcoming trial.

29.Mr Lee SC submits that the Disputed Amendments ought to be allowed because they are necessary for disposing fairly of the cause or matter and for determining the real question in controversy between the parties.

30.As a start, Mr Lee SC points out that the plaintiff has taken the initiative in paragraph 58A(a) of the Re-Re-Re-Amended Reply and Defence to Counterclaim to aver that the contractual terms were “reasonable” for the purpose of the Control of Exemption Clauses Ordinance Cap 71 (“CECO”) and they have pleaded that “[there] were a good number of banks in Hong Kong offering the same types of service offered by the Plaintiff on similar terms, with which the Defendant could choose to open his account”. In paragraphs 7(g), 8(fa), 8.1, 9(c), 10(b), 11(d), 12(d), 33(d), 35A and 37 of the Re-Amended Rejoinder, the defendant has responded by averring that the terms relied on by the plaintiff were unreasonable. In particular, in paragraph 35A(a), the defendant has pleaded that “the issue of whether or not there were other banks offering similar type of services of the Plaintiff and that of the Defendant would choose to open an account with those banks are irrelevant” (my emphasis).

31.In the circumstances, Mr Lee SC argues that the issue as to whether certain terms in the contractual documents are exemption clauses, and if so, whether they should be struck down for failing to satisfy the requirement of “reasonableness” is already a subject matter of controversy at the upcoming trial even without the proposed Disputed Amendments.

32.Section 3 of the CECO provides as follows:

“(1) In relation to a contract term, the requirement of reasonableness for the purpose of this Ordinance and section 4 of the Misrepresentation Ordinance (Cap 284) is satisfied only if the court …… determines that the terms was a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.

(2) in determining for the purposes of section 11 or 12 whether a contract terms satisfies the requirement of reasonableness, the court …… shall have regard in particular to the matters specified in Schedule 2; ……

……

(6) It is for the person claiming that a contract term or notice satisfies the requirement of reasonableness to prove that it does.”

33.Schedule 2 of the CECO provides that:

“The matters to which the court …… shall have regard in particular for the purposes of sections 11(3) and 12(3) and 3 are any of the following which appear to be relevant:

(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer's requirements could have been met;

(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;

(c) whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);

(d) where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;

(e) whether the goods were manufactured, processed or adapted to the special order of the customer.” (my emphasis)

34.Mr Lee SC submits that clearly the plaintiff bears the burden of calling the necessary evidence to establish their case on “reasonableness”, including the relevance and correctness of their averments in paragraph 58A of the Re-Re-Re-Amended Reply.  But so far the plaintiff has only adduced a few sets of documents containing “terms and conditions” of other banks.[12]  Mr Lee SC says that the plaintiff must have made a conscious decision not to adduce any witness or other evidence in this respect, which perhaps implicitly acknowledges that such evidence is irrelevant to the issue of “unreasonableness”.

35.Mr Lee SC submits in respect of the proposed alternative plea based on the equitable doctrine of unconscionable bargain and the UCO under the Disputed Amendments, the defendant essentially relies on various clauses in the contractual documents which have already been set out in the existing pleadings, and he will not adduce further witness or documentary evidence, so the plaintiff suffers no surprise, prejudice or injustice.  Mr Lee SC further argues that the Disputed Amendments premised on unconscionability are also closely related to the defendant’s existing plea that some of the terms of the contractual documents which the plaintiff relies are exemption clauses, and that they do not satisfy the requirement of “reasonableness” imposed by the CECO.  Since the proposed new issue of unconsionability is based on the same underlying facts that go to support the existing issue of “reasonableness” under the CECO, Mr Lee SC says fairness dictates that the Disputed Amendments should be allowed.

36.Section 6(1) of the UCO provides that:

“In determining whether a contract or part of a contract was unconscionable in the circumstances relating to the contract at the time it was made, the court may have regard to (among other things)-

(a) the relative strengths of the bargaining positions of the consumer and the other party;

(b) whether, as a result of conduct engaged in by the other party, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the other party;

(c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services;

(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the other party or a person acting on behalf of the other party in relation to the supply or possible supply of the goods or services; and

(e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the other party.” (my emphasis)

37.Mr Lee SC submits that the factors in (a), (c) and (b) in Schedule 2 of the CECO on the issue of “reasonableness” are closely related and similar to the factors in (a), (c) and (e) under section 6(1) of the UCO on the issue of unconscionability.  In his oral submissions at the Hearing, Mr Lee SC has confirmed that the defendant will only rely on factors (a) and (c) under section 6(1) of the UCO for the Undisputed Amendments, which he says has two consequences.

38.First, section 5(3) of the UCO provides that it is for the person claiming that a contract or part of a contract is unconscionable to prove that it is. Mr Lee SC argues that since the plaintiff (who carries the burden to prove “reasonableness” for the purpose of the CECO) has chosen to put forward only a few sets of documents containing terms and conditions from other banks and not any witness evidence on the issue of “reasonableness”, the proposed Disputed Amendments should not trigger (for the first time) any need on their part to call further evidence of a similar nature as would affect the trial dates when the burden of proof on the issue of unconscionability falls on the defendant.

39.But it must be remembered that the CECO focuses on exemption clauses, which is narrower in scope than the UCO which focuses on part or even the whole contract or bargain. Viewed in such light, the fact that the plaintiff chooses to rely on documentary rather than witness evidence for establishing “reasonableness” in relation to exemption clauses for the purpose of the CECO does not, in my view, mean they should be restricted to such documentary evidence when the defendant chooses to raise a new alternative plea based on an equitable doctrine and a different statute (ie the UCO).  I see nothing opportunitistic in the plaintiff wishing to put forward what they consider to be relevant and necessary evidence in response to such a late plea.

40.Now that Mr Lee SC has made clear that the defendant relies on factors (a) and (c) in the Second Schedule of the CECO, and given such reliance on factor (a), I can see the force of Mr Dawes’ doubt as to how the defendant can still maintain the plea in paragraph 35A(a) of the Re-Amended Rejoinder that the issue of whether or not there are other banks offering similar type of services as that offered by the plaintiff and that of the defendant could choose to open an account with those banks is irrelevant. But this is a matter for trial.

41.Secondly, Mr Lee SC submits that since the defendant carries the burden of proof on the issue of unconscionability but does not rely on the factors under section 6(1) of the UCO other than factors (a) and (c), there is no need for the plaintiff to adduce evidence on the other factors to rebut the defendant’s case.  Mr Lee SC says that either the defendant is able to make out his case on the basis of the factors under section 6(1)(a) and (c) of the UCO or his new alternative plea will collapse.

42.Notwithstanding the beguiling simplicity of Mr Lee SC’s submissions, I am unable to agree with it.  Although the defendant carries the legal burden of proof in establish unconscionability, the standard of proof (as in any civil proceedings) is the balance of probabilities.  The plaintiff has the evidential burden to rebut any prima facie evidence raised by the defendant.  The fact that the defendant voluntarily chooses to restrict the evidence he will adduce to establish unconscionability does not mean that the plaintiff is similarly required to restrict the scope of the evidence they are entitled to or may adduce to oppose the new claim. After all, section 6(1) of the UCO clearly states that in determining unconscionability, the court may have regard to the five factors specified therein among other things.  Plainly, the list of factors is not exhaustive. This means a party can adduce evidence on any or all of the five factors and indeed “other things” as well to either establish or rebut unconscionability.  Further, the defendant also relies on the equitable doctrine of unconscionable bargain, which is not constrained by the statutory factors set out in section 6(1) of the UCO. There is no merit to this argument.

43.Mr Dawes emphasises that the fact the defendant will not be adducing further evidence in support of the proposed new plea does not mean that the plaintiff does not have to do the same.  If the Disputed Amendments were allowed, Mr Dawes says the plaintiff would want to adduce further evidence on the non-exhaustive factors set out in section 6(1) of the UCO on the issue of whether or not the contracts in question are unconscionable. Since the thrust of the defendant’s argument is that the contractual terms in question are “unusual and onerous”, the plaintiff in order to rebut this allegation would want to demonstrate that such terms are common in the transactions in question not only between the plaintiff and their private banking customers but also common in such banking relationship locally and worldwide.  This will involve further discovery and possibly witness statement(s).

44.Mr Lee SC fails to see any such need, and suggests that all that the plaintiff needs to do is to make consequential amendments to their pleadings in response to the Disputed Amendments (if allowed), which can be done fairly quickly, without any need to adduce further evidence. Mr Lee SC refers to PermaForm Plastics Ltd v London & Midland General Insurance Co,[13]which case will be discussed in greater detail below. I adopt but will not repeat such discussion here, and it suffices to say I am not persuaded that it aids the defendant’s contentions.

45.In his oral submissions, Mr Dawes refers to section 6(1)(e) of the UCO which provides that a relevant statutory factor on the issue of unconscionability is “the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the other party” (my emphasis), which is not exactly the same as factor (b) under Schedule 2 of the CECO, ie “…… whether in accepting [the term] it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term” and/or factor (a) under the same Schedule, ie “…… taking into account (among other things) alternative means by which the customer's requirements could have been met”.

46.Mr Dawes says that for the plaintiff to demonstrate there is no unconscionability in respect of this factor, a comparison needs to be made with “identical or equivalent” services offered by other service providers, so it is not enough to simply rely on a few sets of documents containing terms and conditions from other banks.  Private banking businesses offer myriad financial products both locally and/or overseas under terms and conditions that may well be substantially different even though they come under the generic umbrellas of various types of financial products (eg equity-linked notes). Mr Dawes submits that careful investigation into the product features of such financial products offered by other banks is required to identify matching or closely matching comparable products for comparison under section 6(1)(e) of the UCO. Such approach of “comparing an apple with an apple”, Mr Dawes says, also requires witness evidence from bank officers from other banks who are responsible for private banking financial products to clarify and explain what their financial product(s) had to offer and how much they would charge (eg by annual fee or otherwise) to bring the considerations of “amount” and “circumstances” under which the customer could have acquired “identical or equivalent …… services” from another under section 6(1)(e) of the UCO into the basket of factors for determining the issue of unconscionability.

47.Mr Lee SC would have me brush aside such documentary and/or witness evidence as suggested by Mr Dawes as irrelevant. Upon careful consideration, given the non-exhaustive nature of the factors under section 6(1) of the UCO, the express terms of the factor under section 6(1)(a) in the UCO, and the need to consider all circumstances under the equitable doctrine of unconscionable bargain, I cannot say such evidence is necessarily immaterial.

48.Mr Dawes submits that the plaintiff will need time to put together such evidence and it is simply not possible to complete this task satisfactorily in the limited time until the commencement of the trial, particularly in view of the intervening Chinese New Year public holidays. Mr Dawes frankly admits that after being notified in December 2013 of the defendant’s wish to further amend the RADC, the plaintiff has already started to look into potential evidence to answer the defendant’s alternative new plea.  They have done so because of the imminence of the trial and uncertainty as to the outcome of the Summons. But Mr Dawes informs the court that as at the Hearing such efforts are far from complete. In the circumstances, if the Disputed Amendments were allowed, the plaintiff will require leave to consequentially amend their Re-Re-Re-Amended Reply and Defence to Counterclaim, and leave to adduce documentary and witness evidence.  As Mr Dawes has indicated (and I agree), there is a very real likelihood such evidence will not be finalised before 11 February 2014 when the trial is due to start.  One cannot forget the time pressure posed by intervening Chinese New Year public holidays and the practical reality that it may not be easy on short notice to identify and persuade competitors in the banking/financial world to explain how they do business and their business terms.  Bearing in mind that the plaintiff is at the receiving end of the Disputed Amendments (if allowed) at the last minute, they cannot be blamed if they require time to deal with this properly.  To proceed to trial with no evidence or with half-baked evidence on the new alternative plea on the part of the plaintiff (if the Disputed Amendments were allowed) is not only unsatisfactory but unfair to them.  To derail the plaintiff’s efforts from preparing for trial in the run up to 11 February 2014 with efforts to look for evidence is itself a prejudice. I cannot see how this can lead to a just determination of the dispute as between the parties.

49.Mr Lee SC suggests that the court should allow the Disputed Amendments and leave the plaintiff, if they so wish, to make an application to adjourn the trial if they are unable to gather the evidence they desire in time.  I find such approach which burdens the plaintiff with the unenviable responsibility of revising pleadings and searching for evidence upon the eve of the trial as well as either proceeding with the trial on half-baked evidence or applying for an adjournment to be wholly unsatisfactory and even unfair when the plaintiff is innocent of any delay or default. It also flies in the face of the immovable nature of the trial as a milestone event, and in my view no “exceptional circumstances” have been shown to put such milestone date at risk.

50.As it is, I am persuaded that if the Disputed Amendments were allowed, inevitably the trial will be derailed or delayed.  This is because adequate time must be given to the plaintiff to put in consequential amendments to their pleadings and to adduce evidence in support of such averments, and there is no realistic hope of this being achieved before trial, and certainly not before 4 February 2014 (a mere five working days after the Hearing) when the written opening submissions by the plaintiff will have to be lodged/served.

51.In the circumstances, for all the above reasons, I decline to allow the Disputed Amendments, and henceforth the parties should focus on the preparations for the forthcoming trial.

VIII.  POINT OF LAW?

52.Mr Lee SC submits that in any event, the defendant is entitled to take a point of law, particularly when it is based on matters already pleaded. He refers to Order 18 rule 11 of the RHC which provides that a party is entitled to plead any point of law, and to Independent Automatic Sales Ltd v Knowles [14] for the proposition that if a party intends to raise a point of law on the facts as pleaded, it is a convenient course to do so in the pleadings, but nevertheless he may, at the trial, raise a point of law open to him even though not pleaded.

53.Mr Lee SC claims that at pp 980-981 of the judgment in Independent Automatic Sales Ltd Buckley J drew a distinction between pleading a point of law which is not allowed, and raising a point of law which is not only allowed but encouraged.  But whilst Buckley J said a party is not bound, and indeed normally ought not, to plead points of law but to plead the facts upon which he relies, the distinction that he drew was in fact between determination of a point of law as a preliminary point (not at trial) which must be raised on the pleadings, and the trial itself when a party may raise a point of law open to him even though not pleaded. But he went on to say in respect of the latter course as follows:

“…… it does not seem to me to be a convenient course normally to be followed, where there is a substantial point of law which may dispose of the whole action, not to make any mention of it in the pleading, because if no mention of it is made in the pleading, the other side may be lulled into a sense of false security in that particular respect, and may appear to the court to be less ready and able to argue what may be a difficult matter. ……”

54.Mr Lee SC submits that “[in] a proper case, the court will allow a party to amend his pleading so as to raise a point of law for argument before the trial, ……; or keep the point open for argument in the final appellate court; ……”[15] In this respect, he cites China Merchants Kin Swiss Transportation Co Ltd v Treasure Wise Ltd (No 2)[16] and PermaForm Plastics Ltd in support.

55.In China Merchants Kin Swiss Transportation Co Ltd, the co-owners of a property divided it amongst themselves leaving a strip of land in co-ownership.  Under the deed of partition, they granted each other a right of way over the strip of land. There was subsequent alienation of parts of the partitioned property, and dispute arose over the right of access by container trucks over the strip of land by one of the subsequent co-owners.  The defendant’s defence was that the purported right of way was invalid because a land owner could not grant such a right to himself over his own land. Chung J dealt with the issue whether any amendment was needed to raise a case of “quasi-easement” in the contractual sense.

56.The learned judge held that a “quasi-easement” in the contractual sense only involves a construction of the terms of a contract (eg a deed of mutual covenant or other conveyancing document) and it can be founded on the same facts needed to found a cause of action in easement as pleaded by the plaintiffs, and hence an amendment to the pleading was unnecessary.  Chung J pointed out “[the] only other matter of importance is to make sure the parties have a reasonable opportunity to meet the alternative case. [He is] also satisfied that [the 1^st defendant] has a reasonable opportunity to address the issue (because the arguments which can be raised are the same as those raised in relation to the original case of easement)”.[17]

57.In my view, the present situation is wholly different.  Unlike the case of “quasi-easement” which only involves construction of contractual terms, the alternative new plea by way of the Disputed Amendments partly premised on section 6(1) of the UCO (which refers to various factual matters as relevant considerations) is plainly not a pure point of law.  For the equitable doctrine of unconscionable bargain, the bargain must be shown to be oppressive to the complainant in overall terms, it may only apply when the complainant was suffering from certain types of bargaining weakness, and the other party must have acted unconscionably in the sense of having knowingly taken advantage of the complainant.[18]  These are, again, plainly fact-sensitive matters. Unlike China Merchants Kin Swiss Transportation Co Ltd in which Chung J found that the facts as pleaded by the plaintiffs were sufficient and that “no irreparable prejudice was caused to [the 1^st defendant]” in that “[the] facts and arguments in support of the alternative case should remain unchanged”,[19] here I have found the plaintiff would be prejudiced by having insufficient time to gather the necessary and/or relevant evidence that they desire to adduce to oppose the new plea.

58.In PermaForm Plastics Ltd, an explosion and fire occurred in the plaintiff’s business premises.  It was suspected that the plaintiff’s owner had set fire due to the poor financial condition of his business.  There were problems in proving it because the alarm system had not been working and because the owner could account for his whereabouts at all times before the explosion.  After discussion, the owner signed a release in favour of the insurance company to the effect that he would make no claim for insurance if all criminal investigation ceased. He denied having set the fire, which denial was accepted.  It was held that all the indicia of an unconscionable bargain were present, including inequality of the parties, folly of the agreement, perceived authority the insurers, grossly inadequate consideration, the dual prejudicial effect of the release and giving evidence of guilt, which allowed the owner to repudiate the agreement.

59.Towards the end of the trial, De Graves J allowed the plaintiff to amend the statement of claim to plead unconscionable transaction.  It was said that generally pleadings should reflect the reality of the material facts and issues before the court in order to determine fully all of the issues in controversy between the parties.  The dominant issue in the case, as it developed, was the validity of the release.  The learned judge held that one of the plaintiff’s causes of action was the unenforceability and invalidity of the release, and they already claimed the remedies of a declaration and rescission arising out of misrepresentation and duress. “In the evolution of the plaintiffs’ evidence to prove duress it became clear that a concomitant to the plea of duress was a plea of unconscionable transaction”, and “[the] factual underpinning discloses facts and issues upon which the remedies of duress, misrepresentation and unconscionable transaction are interstitially related. In other words, the facts upon which the various remedies can be based are the same.  It is for these reasons that [De Graves J confirms] the amendment.”[20]

60.In my view, why the amendments were allowed even at the end of trial in PermaForm Plastics Ltd is not so much as the case of an unconscionable transaction was closely related to the plea of duress as the factual underpinning for such causes of action in the particular circumstances of that case is the same, and hence the defendant suffers no irreparable prejudice by the late amendment.  This is borne out by the description of the indicia set out in paragraph 58 above, which essentially deal with matters as between the owner and the insurance company, which is quite unlike the present case when the plaintiff has to turn to extraneous parties and matters in order to meet the defendant’s new alternative plea.

61.In my view, it is not particularly helpful to refer to other cases for each case turns on its own evidence and facts.  The factual context that permits the raising of a late point of law in one case does not mean it is equally permissible in other cases where the factual and/or evidential matrix is necessarily different.  It is of better assistance to turn to broad guidelines and apply the broad principles on a case-sensitive basis to each case.

62.As I have indicated to counsel at the Hearing, guidance has recently fallen from the Court of Final Appeal on the importance of pleadings.  I refer to Sinoearn International Limited v Hyundai-CCECC Joint Venture (a firm)[21] and Kwok Chin Wing v 21 Holdings Limited (formerly known as GFT Holdings Limited, Capital Prosper Limited and Rockapetta Holdings Limited) & anor,[22] neither of which cases have been cited by either Mr Dawes or Mr Lee SC.

63.In the former case, Ribeiro PJ noted the final appellate court was faced with the extraordinary situation of a plaintiff being allowed at trial to run two alternative unpleaded cases without being required even to formulate a proposed amendment setting out what exactly those alternatives are, and the even more extraordinary situation of the plaintiff proceeding on appeal on the basis of the alternatives still not pleaded by way of amendment – and succeeding on one of those alternatives.  The position remained the same in the Court of Final Appeal.

64.The learned judge (with whom Chan Acting CJ, Tang PJ, Mortimer NPJ and Gault NPJ agreed) said:

“27. …… This has given rise to confusion and a real likelihood of procedural unfairness”.

……

30. …… A party must raise all the issues he wishes to raise to be dealt with at the trial. Parties are not entitled to have issues recently thought up dealt with separately and piecemeal. The other party is entitled to know from a clear pleading what is the entire case he has to meet so that he can decide whether particulars should be sought; how he should plead in response; what discovery he is entitled to; what evidence he should adduce to meet it; and what points of law should be taken. ……

31. Where a late attempt is made to introduce a new case, it is doubly important that the other side should have a clearly pleaded draft amendment so that proper consideration can be given as to whether objections should properly be made to such amendment and whether an adjournment should be sought.

32.  Au J stated that counsel for the defendant had not “clearly identified any specific prejudice that would have [been] caused to the defendant if [the alternative cases] are so allowed to be run” or shown “what evidence the defendant would have adduced had these alternative cases ... been specifically pleaded...”  With respect, without having seen even a draft amendment such inability is not surprising.  Indeed, the inability to be specific as to those matters itself constitutes prejudice.

33. When the case came on appeal before this Court, argument was frequently bedevilled by confusion as to the nature of the alternative cases contended for.  There were times when the plaintiff’s argument drifted uncertainly, oscillating between what the Court had endeavoured to understand the two alternatives to be.  There were gaps in the evidence that would no doubt have been considered if the case had been properly constituted.  The response of counsel for the plaintiff that such gaps could be approached on the basis that “the point was not disputed” could not be accepted:  How could one expect the other side to dispute, or to come ready with evidence to refute, a point that has not been pleaded or even formulated in draft? 

34. Pleadings are not mere formalities.  They impose a necessary discipline and are fundamental to enabling every procedural facet of the adversarial system to operate fairly.”

65.Mortimer NPJ at paragraph 84 of the judgment summed it all in saying that “[claims] must be made and answered in pleadings or injustice may be the result”.

66.In the latter case, the plaintiff raised a case of joint and several liability as a point of law without pleading it, but the Court of Final Appeal held that an agreement to establish a case on the basis of joint and several liability must be properly pleaded.  Ma CJ in the Reasons for Judgment said as follows:

“21. It should by now really be quite unnecessary to issue yet another reminder on the rationale behind pleadings. The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues:- Wing Hang Bank Limited v Crystal Jet International Limited. It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced. As the Court of Appeal remarked in Wing Hang Bank Limited v Crystal Jet International Limited:-

“(2) In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained. It will simply not do for unpleaded issues to be ‘slipped in’ when evidence is being given in the hope that the other side is not sufficiently alert to object.”

In the present case, much reliance was placed on the Plaintiff’s testimony given in cross examination to evidence the assertion made before us to the effect that the Rockapetta Group companies accepted a joint and several liability in respect of the Plaintiff’s loans. It is simply not permissible for an issue to be raised in this way: one does not sift through the evidence adduced in a trial in the hope that something was said that can conceivably found a cause of action. Issues, I would reiterate, must be properly pleaded unless for some reason the pleadings have assumed a less significant role in the proceedings. I would perhaps also observe here that in any event the said passage from the Plaintiff’s testimony at best indicates only a subjective intention on his part. This is not admissible to establish the terms (or even the existence) of an agreement.

The purpose of pleadings, in clearly and unambiguously setting out the true extent and nature of a dispute not just for the benefit of the parties but also for the Court in managing and trying cases, remains important under our system of civil justice. The retention of the old rules as to pleading as well as the introduction of new provisions over four years ago under the Civil Justice Reform, reinforce this.

One of the new provisions introduced under the Reform was RHC o.18 r.12A which reads:

“ A party may in any pleading make an allegation of fact which is inconsistent with another allegation of fact in the same pleading if–

(a) the party has reasonable grounds for so doing; and

(b) the allegations are made in the alternative.”

If the Plaintiff had, as he ought to have done, sought leave to plead a case on joint and several liability, questions would inevitably have been raised as to whether the Plaintiff could in the first place properly plead such a cause of action, which would have been (at least at first blush) quite inconsistent with his pleaded case based on the Initial Agreement and the Subsequent Agreement. The cause of action based on these Agreements assumed that there was no pre-existing liability as far as RHL was concerned, hence the need to enter into agreements which made RHL liable for the repayment of the loans to the Plaintiff.  In these circumstances, it would therefore have been quite difficult to see how a pre-existing liability jointly and severally assumed with others, fitted in.  Before us, the Plaintiff did not provide any enlightenment on this.  To me, this only served to highlight even more the insuperable weaknesses in the Plaintiff’s case made on this new basis.

Another new provision is the important RHC o 41A dealing with statements of truth.  If, in the present case, that provision had applied to any amendment which the Plaintiff might have sought to make in order to plead a case of joint and several liability, he would have been required to verify the amendment by a statement of truth. Given this requirement, the rule would have posed yet another difficulty for the Plaintiff alongside o 18 r12A.  Both these new provisions emphasise the continuing important role of pleadings in any modern system of civil justice.

This appeal is the second case in which this Court has recently had occasion to comment on pleadings (or rather, the lack thereof).  In Sinoearn International Limited v Hyundai-CCECC Joint Venture, Ribeiro PJ referred to the “extraordinary” position of a party being permitted to run at trial an unpleaded case.  I associate myself with the sentiments expressed in that judgment.  As stated by Ribeiro PJ:-

“34. Pleadings are not mere formalities. They impose a necessary discipline and are fundamental to enabling every procedural facet of the adversarial system to operate fairly.”

22.  The failure properly to raise a cause of action based on joint and several liability would have been enough to dispose of this appeal. ……”

67.For all the above reasons, I hold that it is not open to the defendant to raise again at trial the alternative plea based on unconscionability being the subject matter of the Disputed Amendments upon the dismissal of the application for leave to deploy the Disputed Amendments by way of amendment of pleadings.  In my view, it is not a pure point of law, and I have found that the plaintiff has been forensically prejudiced in not being able to gather and/or adduce the evidence they require to the meet such plea in time or at all.

VIII.  CONCLUSION

68.There are no exceptional circumstances warranting the grant of leave to amend the RADC to add the Disputed Amendments that would very likely put the milestone trial at risk.  There is no good reason for the delay, and the defendant only has himself to blame if he was ever serious about adding such defence into the scope of this action.  Whilst the plaintiff would suffer forensic prejudice if the new alternative plea were allowed, given the wealth of defence contentions raised in the RADC, I am of the view that the proposed Disputed Amendments (which on the defendant’s case are premised on the same factual underpinning as the other defences) are not necessary for disposing fairly of the cause or matter.  I should add that for the purpose of Order 20 rule 8(1A) of the RHC, “fair disposal of the cause or matter” involves consideration not only of whether it is necessary for the defendant, but also the consideration of fairness to the plaintiff, in the balancing of the effect of the amendments to both parties.[23]  At this late stage before the trial, it cannot be fair to the plaintiff to derail their efforts to prepare for trial, to search for evidence to rebut a new alternative plea and to put the trial at risk.

69.Hence, I have dismissed the application for leave to amend the RADC to introduce the Disputed Amendments.

Mr Victor Dawes, instructed by Wilkinson & Grist, for the plaintiff

Mr Martin Lee SC and Mr Lee Siu Him, instructed by Yam & Co., for the defendant