Beijing Tong Gang Da Sheng Trade Co Ltd v. Allen & Overy (A Firm) and Another
Read the full judgment text of CACV 34/2014 on BabelCite. This Court of Appeal judgment was delivered on 22 May 2015.
1. I agree with the judgment of Kwan JA and the order she proposes.
Cites 7 cases
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CACV 34/2014 AND CACV 124/2014 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NOS. 34 OF 2014 AND 124 OF 2014 (ON APPEAL FROM HCA NO. 1491 OF 2011) ________________________
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________________________ J U D G M E N T Hon Cheung CJHC: 1.I agree with the judgment of Kwan JA and the order she proposes. Hon Lam VP: 2.I agree with the judgment of Kwan JA. Hon Kwan JA: 3.The plaintiff, Beijing Tong Gang Da Sheng Trade Co Ltd, brought these appeals against two decisions of Deputy High Court Judge Le Pichon. The action was brought against a firm of solicitors (the 1st defendant) and counsel (the 2nd defendant) for allegedly rendering negligent legal advice to Greater Beijing Region Expressways Ltd (“GBRE”) in relation to GBRE’s claim against various entities referred to as “the COSCO defendants” in about 2005 or 2006. 4.The first decision was given at the conclusion of the hearing on 28 January 2014, with reasons handed down on 12 February 2014 and reported in [2014] 2 HKLRD 86. By her first decision, the judge concluded that a Litigation Funding Agreement (“the Funding Agreement”) made between GBRE and the plaintiff on 5 July 2010 and a Deed of Assignment dated 18 January 2012 (“the Assignment”) by which a cause of action previously vested in GBRE was assigned to the plaintiff are champertous. She ordered the writ and statement of claim to be struck out and dismissed the action with costs to the defendants. 5.The second decision was given on 12 May 2014 and reported in [2014] 3 HKLRD 292. By her second decision, the judge dismissed the summons of the plaintiff and GBRE to add GBRE as a plaintiff in this action, with costs in the defendants’ favour. 6.At the hearing of the appeals, we indicated to the parties that we would hear both appeals together and would consider the strike out application and the joinder application together, for reasons which will become apparent. Background 7.The background facts are taken largely from the two decisions of the judge. 8.GBRE is a company incorporated in the British Virgin Islands. The plaintiff is a company incorporated in the PRC in December 2004. Its legal representative or person in charge is Mr Liu Bao Chun (“Mr Liu”). Neither Mr Liu nor any authorised officer of the plaintiff had made any affirmation on behalf of the plaintiff. All the affirmations filed on the plaintiff’s behalf were made by the plaintiff’s handling solicitor, Mr Leung Yan Wing (“Mr Leung”). No explanation was given to the court why Mr Liu or some other authorised officer with first-hand knowledge of the matters deposed to could not have made the affirmations for the plaintiff. 9.The key provisions of the Funding Agreement as summarised by the judge were as follows:
10.Some 14 months after the Funding Agreement, on 1 September 2011, GBRE issued the writ against the defendants in the present action (HCA 1491/2011), claiming damages and/or equitable compensation for loss and damage suffered as a result of alleged negligent advice in about 2005 or 2006 in relation to GBRE’s claim against the COSCO defendants. The writ was not served on the defendants at the time. 11.About four months after the writ was issued, on 18 January 2012, GBRE and the plaintiff executed the Assignment under which GBRE assigned to the plaintiff, inter alia, its rights, title, claims, entitlements, interests and benefits against the defendants arising out of or in respect of the claims in the action, the right to prosecute and carry on the action in the name of GBRE and the right to any proceeds arising from the action. The consideration for the assignment was HK$100,000 and 10% of the net proceeds of the action. 12.The Funding Agreement expired on 9 July 2012 and according to its terms, the loan advanced became due and payable. 13.On 16 August 2012, the plaintiff gave notice of the Assignment to the defendants. But until the plaintiff filed the 1st affidavit of Mr Leung on 3 June 2013 opposing the strike out applications, the defendants were wholly unaware of the Funding Agreement. 14.On 17 August 2012, GBRE filed an amended writ without leave (when the writ had not yet been served) under Order 20 rule 1 of the Rules of the High Court, removing itself as plaintiff and substituting the plaintiff in its place. GBRE ceased to be a party to the action thereafter. The amended writ was then served on the defendants on 30 August 2012. The 2nd defendant filed an acknowledgment of service on 5 September and the 1st defendant did so on 10 September. 15.On 14 November 2012, the plaintiff filed a statement of claim in the action. The loss and damage claimed was US$400 million, being the damages GBRE would have obtained from the COSCO defendants if the defendants had not given negligent advice, and HK$6,677,877, being wasted costs incurred by GBRE in legal proceedings. 16.On 22 January 2013, both the solicitors of the 1st and 2nd defendants wrote to the plaintiff’s solicitors seeking the latter’s response to the defendants’ view that the Assignment is champertous and intimating that applications would be made to strike out the writ and statement of claim on that basis unless the plaintiff was able to demonstrate otherwise. 17.The plaintiff’s solicitors replied on 30 January 2013 to the effect that the Assignment is not champertous for the following reasons:
18.On 7 February 2013, the 1st defendant’s solicitors wrote to the plaintiff’s solicitors seeking to be provided with documentary evidence and further information on the factual assertions in (a) to (c). The plaintiff’s solicitors made a substantive reply on 25 February stating that some of the information requested (such as the total indebtedness of GBRE) is “substantial and voluminous” and, to avoid “further unnecessary satellite litigation and costs and press on with the Action without further undue delay”, the plaintiff and GBRE offered to cancel the Assignment and GBRE would continue with the action. 19.The defendants issued their summonses to strike out on 12 and 18 March 2013. 20.In September 2013, a Master ordered the plaintiff to pay security for costs of the defendants and a total of HK$1,924,000 was paid into court as security on 27 September. 21.The strike out applications were scheduled to be heard by the judge on 28 January 2014. On 24 January, the plaintiff and GBRE issued a summons for leave to add GBRE as a plaintiff in the action, with a supporting affidavit from Mr Leung (his 3rd affidavit). This also came before the judge on 28 January. 22.Very shortly before the hearing, Mr Leung made a 4th affidavit on 27 January in which he exhibited a copy of a Deed of Amendment, Confirmation and Ratification dated 27 January 2014 (“the 2014 Deed”) made between GBRE and the plaintiff. It was executed by Mr Liu on behalf of GBRE and on behalf of the plaintiff. The 2014 Deed recited that the plaintiff is “the only major creditor and 51.05% controlling shareholder” of GBRE. By the 2014 Deed, GBRE and the plaintiff agreed to change the division of the proceeds in the action as provided in the Assignment from 90:10 to 50:50. 23.At the outset of the hearing on 28 January 2014, the then counsel for the plaintiff informed the judge that the plaintiff would defer argument on the joinder summons until after judgment on the strike out applications was available[1]. At the conclusion of the hearing, the judge announced her decision that both the Funding Agreement and the Assignment are champertous and ordered the writ and statement of claim be struck out. Upon the request of the plaintiff’s counsel for an opportunity to be heard on the joinder summons before the order was drawn up, directions were given for a hearing to be fixed after the reasons for the first decision had been handed down. 24.The joinder summons was heard on 25 April 2014. In the margin of the summons, the powers of the court invoked were stated as Order 15 rules 6 and 7, Order 20 rule 5 and the inherent jurisdiction of the court. At the hearing, the plaintiff’s then counsel confirmed to the judge that no reliance would be placed on Order 15 rules 6 and 7. So the application was argued only on the basis of Order 20 rule 5(1) to (3) and/or the inherent jurisdiction of the court[2]. The judge handed down the second decision on 12 May 2014 dismissing the joinder summons. First decision 25.The judge highlighted eight features of the Funding Agreement that called for comment[3]. She came to the view there was absent any credible evidence of a pre-existing commercial relationship between the plaintiff and GBRE at the date of the Funding Agreement[4]. She found it “particularly troubling” and it “made no sense” for GBRE to incur the debt in the Funding Agreement when, according to Mr Leung, it apparently had no other substantial debts and to commit to repay the loan with substantial interest two years later when GBRE would have known that chances of the professional negligence claim concluding within two years were nil and when it was in no position to issue the writ until some 14 months later[5]. In addition, the consideration for the loan (amounting to HK$625 million with interest) was vastly disproportionate to the loan of HK$3.4 million or the total indebtedness with interest in the sum of HK$5.234 million as at 24 January 2013, and necessarily called into question the genuineness of the plaintiff’s alleged commercial interest in GBRE as at the date of the Funding Agreement[6]. 26.Given all the above factors, plus the plaintiff’s reticence via its mouthpiece Mr Leung in providing relevant information, the judge came to the “ineluctable conclusion” that the Funding Agreement was conceived as a means of converting the plaintiff into a creditor of GBRE[7]. 27.As for the Assignment, the consideration was HK$2.8 billion (US$40 million) for an initial outlay of only $100,000. The judge was of the view it represents an “even more egregious and extreme example” of a vastly disproportionate potential return as to seriously call into question the genuineness of the interest asserted[8]. On the evidence before the court, the indebtedness of GBRE to the plaintiff arose from and was confined to its indebtedness under the Funding Agreement which, as at 24 January 2013, stood at no more than HK$5.234 million[9]. No documentary evidence was adduced in support of the assertion that GBRE had “no other substantial outstanding debts”, when the plaintiff could easily have caused the relevant financial statements to be exhibited as GBRE’s controlling shareholder[10]. The evidence adduced merely showed that the plaintiff owned 51.05% of the issued shares of GBRE as at 26 April 2013 but did not show the plaintiff was a majority shareholder at the critical date of 18 January 2012 which was the date of the Assignment and the plaintiff’s reticence in disclosing when it became a shareholder served to underline the point[11]. 28.The judge rejected the plaintiff’s submissions that the funding obtained via the Funding Agreement was necessary to give GBRE access to justice and that the court should not reach any conclusion in weighing the public policy against intermeddling in litigation against the countervailing public policy of ensuring access to justice where disputed issues had yet to be resolved in a full trial. It was not necessary to consider whether the 50:50 split under the new arrangement in the 2014 Deed would make any difference on the issue of champerty[12]. In concluding that both the Funding Agreement and the Assignment are champertous, the judge said at §43:
29.Accordingly, the judge ordered the writ and statement of claim be struck out but at the plaintiff’s request deferred the drawing up of the order until after the joinder application was heard. Second decision 30.The judge first focused on the question of the effect of GBRE dropping out of the action and whether it could be resuscitated at the whim of GBRE without time constraints[13]. When the writ was amended by GBRE removing itself as plaintiff and substituting the plaintiff in its place, GBRE ceased to be a party altogether. As a result of the holding of champerty in the first decision, the Assignment was void and had no effect and did not operate to transfer anything to the plaintiff who had neither title nor locus to be a party to the action. It was held that what GBRE had done was no different from abandoning the action[14]. 31.The judge took the view time constraints did apply and that the proceedings could only be resuscitated if the joinder application was made within the original limitation period because the reality was that the proceedings had been abandoned by the only party with locus to sue. As the limitation period expired in 2011 or 2012, it was now too late. She rejected the plaintiff’s primary argument that adding back GBRE as a party would not give rise to any limitation issue[15]. 32.If, contrary to the above ruling, no time constraints should apply to GBRE’s resuscitation of the abandoned proceedings, the judge then considered how the powers conferred by Order 20 rule 5(1) should be exercised. She held that neither the plaintiff nor GBRE can invoke this provision. The plaintiff never had any locus in these proceedings as the Assignment was held to be champertous by the first decision. It was neither a “party” nor “the plaintiff” for the purposes of rule 5(1). It made no difference that the order in the first decision was not drawn up as it had been decided that the plaintiff does not have locus as a matter of law. GBRE was a stranger and not a party under the rule as it had ceased to be a party when the writ was amended[16]. 33.The judge next considered how the discretion under Order 20 rule 5(2) should be exercised, assuming that the court retained a discretion to add GBRE as a party, contrary to what she had ruled. She concluded that it would not be just to exercise her discretion in favour of GBRE, taking into consideration the conduct of GBRE and the plaintiff: the unsatisfactory features of the Funding Agreement and the Assignment; the plaintiff’s reluctance in providing documentary evidence to substantiate its reasons for maintaining that the Assignment was not champertous; the absence of any pre-existing commercial relationship between the plaintiff and GBRE leading to the conclusion that the Funding Agreement was made to convert the plaintiff into a creditor of GBRE; the litigation strategy of GBRE in entering into the 2014 Deed to improve its share of the proceeds of litigation from 10% to 50% so as to give the Assignment as amended a veneer of reasonableness; the dilatoriness of GBRE and the plaintiff in prosecuting this action against professionals whose reputation and livelihood are at stake; that it would hardly be conducive to a fair trial or in the interests of justice to pursue the very stale claims against the defendants[17]. 34.The judge held that the present case does not fall within Order 20 rule 5(3). A mistake as to the name of the party may be corrected under that provision. There was no mistake of the name of the plaintiff or the identity of the party intending to sue in the present case, just a mistake as to the rights of the plaintiff that the Assignment was valid[18]. In any event, it would not be just to allow the amendment in the circumstances here[19]. 35.The judge also rejected the fallback position that the court should exercise its inherent jurisdiction to reinstate GBRE as plaintiff[20]. If the Funding Agreement and Assignment are champertous 36.The law of maintenance and champerty has been reviewed by the Court of Final Appeal in Unruh v Seeberger (2007) 10 HKCFAR 31 at §§77 to 104. In Remedy Asia Limited v Yick Shing Contractors Ltd, HCCT 4/2012, 26 June 2014, Au J helpfully summarised the relevant principles and observations as stated by Ribeiro PJ in Unruh v Seeberger as follows:
37.It was contended before the judge and on appeal that the Funding Agreement and the Assignment should fall within one or both of these established categories excluded from maintenance and champerty, namely, the “common interest” category (that the plaintiff has a legitimate common interest in the outcome of litigation to justify its supporting the litigation commenced by GBRE) and the “access to justice” category (that the funding obtained via the Funding Agreement and the Assignment was necessary to give GBRE access to justice). 38.In gist, the submissions of Mr Carolan, who appeared for the plaintiff and GBRE on appeal, are as follows. He acknowledged in his written submission that the transactions might have been champertous on their face but contended it was by no means plain and obvious that the totality of the evidence showed a genuine risk to the integrity of the court’s processes. He submitted on the contrary it was clear that the “access to justice” exemption should apply to both the Funding Agreement and the Assignment and that the Assignment was supported by the plaintiff’s existing commercial interest. 39.Mr Carolan criticised the “evidentiary approach” of the judge. The judge was critical of the plaintiff in failing or declining to adduce relevant evidence when this was well within its power to do so, and did not consider that the court is required to resolve such “self-induced” disputed issues at trial before reaching a conclusion on the issue of champerty. She agreed with the submission of Mr Dawes, who appeared for the defendants, that the usual rule in a striking out application – that the court would normally take the opposing party’s affidavits to be true – does not apply if that party is not prepared to make good its factual assertions when plainly it is in a position to do so[21]. 40.Mr Carolan pointed out that in striking out applications, the defendants would have the burden of establishing it is plain and obvious the Funding Agreement and the Assignment are champertous. The judge’s criticism meant that the plaintiff was to be punished because it could have but did not adduce further evidence which would have resolved the disputes. Should there be doubt about factual disputes, then the defendants would not have satisfied their burden as the doubt should not be resolved against the plaintiff in the strike out applications. He also complained it was wrong for the judge to have disregarded the plaintiff’s evidence entirely because it was offered by its solicitor and/or ‘could have been better’. He submitted that the judge should have adopted the approach in Lam Hei Shing Joseph v Kwok Tat Biu (transliteration), HCA 697/2007, 11 June 2008, in which Sakhrani J declined to resolve factual disputes in an application for summary judgment alternatively for determination under Order 14A regarding an issue that four deeds were agreements of maintenance and/or champerty. In that case, the circumstances surrounding the execution of the deeds as well as the events which transpired after the execution of the same were disputed. 41.It is trite law there should be no trial on affidavit in a strike out application and disputed facts are generally taken in favour of the party sought to be struck out. That does not mean disputed facts cannot be gone into in an appropriate situation. Where it is shown to be plain and obvious that the disputed assertion was made without evidence or any solid basis, a spurious action may be struck out (Hong Kong Civil Procedure 2015, vol 1, §§18/19/14 and 18/19/21). In this case, the judge had regard to the correspondence exchanged before the summonses were issued, in which the plaintiff’s solicitors were asked to provide documentary evidence and further information on the assertions that the plaintiff is a major creditor of GBRE, that it is the controlling shareholder of GBRE and that GBRE has been relying on it to finance the action. These are straightforward requests well within the plaintiff’s power to comply with and it is difficult to see how they would involve “substantial and voluminous” information. As noted by the judge, the plaintiff’s solicitors refused to supply information and offered to cancel the Assignment and GBRE would continue with the action instead. 42.The plaintiff chose to resist the strike out applications only with the affidavits made by its solicitor. It is incorrect to say that the judge disregarded the plaintiff’s evidence entirely just because it came from the solicitor. The judge had assessed the quality of Mr Leung’s affidavits, and noted that the material assertions repeated therein were once again not supported by the necessary documentary evidence. The judge also noted there was ample opportunity for the plaintiff to provide further evidence before the hearing. 43.It was against this backdrop that the judge scrutinised the Funding Agreement and the Assignment and found troubling features in them. I agree with the judge that the present situation is totally different and readily distinguishable from Lam Hei Shing Joseph v Kwok Tat Biu. She is entitled to come to the view that gaps in the plaintiff’s evidence are “intentionally unfilled, creating self-induced disputed issues”, and, in other words, inferring that there is no solid basis for the assertions made by Mr Leung. Given the troubling features, and in the absence of “any credible evidence of a pre-existing commercial relationship between the plaintiff and GBRE at the date of the Funding Agreement”, she came to the “ineluctable conclusion … that the Funding Agreement was conceived as a means of converting the plaintiff into a creditor of GBRE”[22]. 44.I reject Mr Carolan’s submission there is error in her “evidentiary approach”. 45.Mr Carolan submitted the judge had not carried out a proper analysis how she came to the view in §41 that it is “plain and obvious from the totality of the evidence before the court that the transactions in question pose a genuine risk to the integrity of the court’s processes”. He referred to Remedy Asia Limited v Yick Shing Contractors Ltd at §§27 to 30, in which Au J considered the questions in two stages: firstly, whether the arrangement would fall into one of the established exceptions not prohibited by the law of maintenance and champerty; and, secondly, whether it would result in such officious intermeddling of litigation or trafficking of litigation that oppresses the defendant in the litigation or endangers the integrity of the judicial process. Mr Carolan contended that the judge had only done the first stage analysis when she considered the Funding Agreement and the Assignment but did not analyse properly how she had arrived at the conclusion which should be the second stage of the analysis. In any event, there is nothing to show that the integrity of the judicial process is endangered by reason of the Funding Agreement and the Assignment. He made the point there is no evidence of abuses of the kind mentioned by Lord Phillips MR in R (Factortame) Ltd v Transport Secretary (No 8) [2003] QB 381 at §36, that “the agreement in question might tempt the allegedly champertous maintainer for his personal gain to inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice”. He said the judge had merely assumed, without reasons being given, that the form of champerty found was of the requisite egregiousness. 46.It is not imperative that the analysis should be carried out in two stages. What is important is that “all the aspects of the transaction should be taken together for the purpose of considering the single question” whether there is, in the words of Fletcher Moulton J in British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 at 1014, “wanton and officious intermeddling with the disputes of others in which the [maintainer] has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse” (Giles v Thompson [1994] 1 AC 142 at 164B). 47.It is apparent from a fair reading of the judgment that the judge had examined the totality of the facts in coming to the view that the transactions would pose “a genuine risk to the integrity of the court’s processes” (Unruh v Seeberger at §102). Nor do I accept she had not given sufficient consideration to the abuses mentioned in Factortame as she had quoted in §38 the relevant passage in the judgment of Lord Phillips. Abuse of the court’s process can take many forms. It would be a rare situation where there is direct evidence of the kinds of possible abuse as mentioned in Factortame. The judge had clearly recognised this and said in §43 it is open to draw the “appropriate inferences” in this case. I do not think this approach can be faulted. In taking this course, the judge referred to the troubling features of the transactions “as noted earlier”. In particular, there was the vastly disproportionate potential return for the outlay in the Funding Agreement and the Assignment that seriously called into question the genuineness of the interest asserted by the plaintiff. 48.As noted by Morritt LJ in Re Latreefers Inc [2001] BCC 174 at §49: “There remained a public interest in preventing the development of an unlicensed and unregulated market in litigation for fear of the abuses to which that might lead in the hands of the unscrupulous. It was a legitimate potential ground of concern if the funder’s interest in the litigation was tenuous by comparison with his prospective share of the spoils.” And at §61, he said: “A large mathematical disproportion between any pre-existing financial interest and the potential profit of funders may in particular cases contribute to a finding of abuse but is not bound to do so.” 49.I do not agree with Mr Carolan that the judge had wrongly focused on the vastly disproportionate consideration for the transactions. He cited Eurocall Ltd v Energis Communications Ltd [2010] EWHC 1730 (QB) at §35 for the proposition that in Giles v Thompson and Factortame, there is “no statement of a condition precedent of the existence of a legitimate commercial interest in the enforcement of a claim immediately prior to the transaction, which purports to assign a cause of action or which purports to grant the right to sue in the name of a company.” That seems to me beside the point, as the court is concerned here with the genuineness of the impugned transaction, and a massively disproportionate consideration may, in appropriate circumstances, be relevant and significant. The House of Lords in Norglen Ltd (In Liquidation) v Reeds Rains Prudential Ltd & Ors [1999] 2 AC 1 at 16E did not overrule Advanced Technology Structures Ltd v Cray Valley Products Ltd [1986] BCLC 723 (referred to by the judge at §30) on this point, as rightly submitted by Mr Dawes for the defendants. 50.Mr Carolan argued that in coming to the view the consideration was vastly disproportionate, the judge had overlooked relevant parts of Mr Leung’s 1st affidavit that GBRE was unable to otherwise finance its claims despite not owing other debts and that the “access to justice” exception should apply to both the Funding Agreement and the Assignment. But Mr Leung had merely deposed to matters not within his personal knowledge and chose not to support bare factual assertions with documentary evidence notwithstanding it was well within the power of the plaintiff and there was ample opportunity to do so. 51.It was no part of the judge’s reasoning that the transactions simply savour of champerty. Among other matters, she had regard to the absence of credible evidence of a pre-existing commercial relationship between the plaintiff and GBRE at the date of the Funding Agreement, that the purpose of the loan was for litigation against the defendants and the plaintiff was given the right to supervise how the monies were to be used. She took the view in §43 the “totality of the facts” made it “plain and obvious that the transaction relied on makes no or little commercial sense”. This is a view she is entitled to arrive at. Apart from the vastly disproportionate potential return, the loan period of two years with substantial interest of 25% “made no sense whatsoever” for GBRE when it was in no position to issue a writ until 14 months after the date of the loan. The fact that the loan period may be extended with the plaintiff’s consent does not diminish the force of this point. 52.Mr Carolan contended that the judge had failed to consider whether the underlying claims against the defendants were so clearly without merit as to be oppressive or an abuse of process, citing Remedy Asia Limited v Yick Shing Contractors Ltd at §28(2). I do not think the merits of the underlying claim must always be taken into account in concluding that a transaction is champertous. 53.Ultimately, the prohibition of maintenance and champerty involves a value judgment that certain conduct should be considered “officious intermeddling” or “trafficking in litigation” which deserves to be made unlawful, as noted in Unruh v Seeberger at §86. I am not persuaded that the judge had erred in law or had taken irrelevant matters into consideration or had failed to consider relevant matters in reaching that value judgment the Funding Agreement and the Assignment are champertous. I would uphold her finding in this respect. If the claims should be struck out 54.At the hearing of the defendants’ striking out summonses, there was also before the judge the joinder summons of the plaintiff and GBRE to add GBRE as a plaintiff and that the amended writ and statement of claim be amended accordingly. The joinder summons was taken out on the premise that if the defendants should succeed in their challenge, the plaintiff would have no locus to sue by reason of champerty and the causes of action asserted should revert to or remain in GBRE so that it is necessary and proper for GBRE to be added as a plaintiff in the action for the claims asserted to be determined and adjudicated upon[23]. 55.Under Order 18 rule 19(1), the court may order “to be struck out or amended any pleading … or anything in any pleading”. In dealing with the strike out application, the judge did not consider the alternative of amending the writ and statement of claim to add GBRE as a plaintiff. She granted the reliefs as sought in the defendants’ summonses, making a declaration that the Assignment is void and unenforceable and ordering the amended writ and statement of claim to be struck out and the plaintiff’s action against the defendants dismissed. That could well be because the former counsel of the plaintiff had informed the judge at the outset of the hearing he would defer his argument on the joinder summons until after judgment on the strike out application was available[24]. And although the plaintiff’s former counsel had suggested in the course of argument that the court could exercise its powers under Order 15 rule 7(2) to join GBRE as a party if the Assignment should be struck down as champertous[25] (this was rejected in the first decision and making the application via this rule was not pursued on appeal), counsel did not develop his arguments on the joinder application in full and merely asked the judge when she announced her decision at the end of the hearing not to draw up the order on the strike out applications until after the joinder summons was heard[26]. 56.Mr Carolan took a very different position on appeal. At the forefront of his argument, he submitted that having found the Assignment champertous, instead of ordering the writ and statement of claim to be struck out and dismissing the action, the judge should have exercised the power to amend the writ and statement of claim by adding GBRE as a plaintiff, alternatively, she should have adopted a course similar to that taken by the lower court in Simpson v Norfolk and Norwich University Hospital NHS Trust [2012] QB 640. The court in that case made a declaration that an assignment of a claim was void for champerty and instead of ordering the action to be struck out right away, made an unless order that the action would be struck out if the claimant did not apply to proceed with the action in his own name within a specified period. Here, as there was already before the court the joinder application to add GBRE as a plaintiff so that GBRE could bring the claim in its own name, the judge should have proceeded to deal with that application instead of just ordering the writ and statement of claim to be struck out and the action dismissed. 57.The primary submission of Mr Carolan is that Order 20 rule 5(1) applies and this rule is sufficient to enable the court to allow the reinstatement of GBRE as a plaintiff, and such power is not in any way restricted or barred by any of the restrictions contained in Order 15 rules 6 or the other provisions of Order 20 rule 5. His alternative submission is that Order 20 rule 5(3) should apply so that the name of the plaintiff can be changed to GBRE in that there was a “mistake as to name”. 58.Order 20 rule 5 provides as follows:
59.In an ordinary situation where an assignment of a cause of action is declared void for champerty, and where the assignor has remained as a plaintiff in the action with the assignee added as another plaintiff, as Baroness Hale had observed in Massai Aviation Services & Aerostar Ltd v AG & Bahamasair Holding Ltd [2007] UKPC 12 at §1, “the assignor could simply continue the action, which had already begun before the assignment took place.” And even if the assignor had dropped out of the action after the assignment, if he should apply to be reinstated as the plaintiff after the assignment is declared void, provided his application is made within the original limitation period, there ought to be no difficulty. 60.The complications here arose from the fact that after the Assignment was made, and before the writ was served on the defendants, GBRE had amended the writ in August 2012 by removing itself as the plaintiff and substituting the plaintiff in its place. Thereafter, GBRE ceased to be a party to the action. When GBRE eventually applied by the joinder summons in January 2014 to be reinstated as a plaintiff, the limitation period in respect of the claims asserted in the action had expired in 2011/2012. 61.The judge held that by removing GBRE from the action and substituting the plaintiff in its place, the reality is that GBRE had abandoned the action[27]. She distinguished Asia-Pac Infrastructure Development Ltd v Shearman & Sterling (a firm) [2012] 3 HKLRD 321 on the basis there was no abandonment in that case and no new party was sought to be introduced as the assignee was already a party to the existing proceedings[28]. She came to the view that time constraints should apply and the proceedings could only be resuscitated if the joinder application were made within the original limitation period because the reality is that the proceedings had been abandoned by GBRE which was the only party with locus to sue[29]. 62.I do not agree with the judge that GBRE had abandoned the proceedings or that the application to reinstate GBRE as a plaintiff should be regarded as time-barred. 63.GBRE dropped out of the action by substituting the plaintiff in its place because it had assigned (or purported to assign) all its rights and claims in the action to the plaintiff. By substituting the plaintiff in its place, the claims of GBRE that had been asserted in the action continued to be asserted by the plaintiff against the defendants. The assignee that was substituted was not asserting different causes of action against the defendants. Even though GBRE ceased to be a party to the action, the claims of GBRE against the defendants, which have been assigned or purportedly assigned to the plaintiff, were not abandoned in reality. Far from abandoning the action, it is clear that one way or other, either the assignor or the assignee would want to proceed with the action. This is different from the situation in which a plaintiff discontinues proceedings without more. There was at all times an ongoing action against the defendants. They were not lulled into a false sense of security. 64.Once it is recognized that the Assignment did not give the plaintiff new causes of action against the defendants but were the same causes of action which GBRE sued on when the action was commenced within time, no issue of limitation would arise. These statements of the English Court of Appeal in Yorkshire Regional Health Authority v Fairclough Building Ltd [1996] 1 WLR 210, cited by Cheung CJHC in Asia-Pac Infrastructure at §§9 and 10, are particularly apposite, even though they were made in the context of an application under Order 15 rule 7:
65.As stated by Cheung CJHC in Asia-Pac Infrastructure at §§13 and 14, the English cases on Order 15 rule 7 (The Choko Star [1996] 1 WLR 774; Yorkshire Regional Health Authority) cannot be distinguished on the footing that they dealt with the situation of a substitution of parties under Order 15 rule 7. Nor would it matter that in Asia-Pac Infrastructure no new party was sought to be introduced to the action by the amendments by substituting the first plaintiff for the second to fourth plaintiffs in relation to the causes of action of the latter already pleaded in the statement of claim. It is immaterial that these cases did not involve an assignment void for champerty. The central reasoning in these cases – that the same cause of action is asserted notwithstanding the change in the identity of the plaintiff and hence no question of limitation arises – applies to the present situation. 66.There being no issue of limitation, once it is declared that the Assignment is void for champerty so that the causes of action should remain with GBRE, the only party with locus to sue, is there any reason why the court should not exercise its power of amendment under Order 20 rule 5(1) to reinstate GBRE as the plaintiff in the same causes of action? 67.The judge took the view that Order 20 rule 5(1) may not be invoked by the plaintiff or GBRE. She ruled out the plaintiff because even though the order on the first decision had not been drawn up as a matter of formality, by holding that the Assignment is champertous, the legal effect is that the plaintiff never had locus to sue and is neither a “party” nor “the plaintiff” for the purpose of Order 20 rule 5(1). GBRE is also not a “party” for this purpose as it ceased to be a party when the writ was amended[30]. 68.I would seek to avoid such a lacuna and harsh result to GBRE by allowing the defendants to walk away without an adjudication of the action. A plaintiff seeking to amend the writ under this provision must be attempting to correct or rectify an error, otherwise there is no point to substitute a new party as the plaintiff. There is no reason why “the plaintiff” in this rule should be construed restrictively as the correct party vested with the locus to sue at law. In this instance, the plaintiff has complied with all the procedural requirements and formalities required of a plaintiff in the bringing of proceedings. That should suffice to allow the plaintiff to apply under Order 20 rule 5(1). 69.For the above reasons, I agree with Mr Carolan’s primary submission that Order 20 rule 5(1) applies and that it is sufficient to enable the court to allow the plaintiff’s application to reinstate GBRE as the plaintiff in the action. That GBRE had not taken the safeguard of remaining as a plaintiff in the action in case its claims were not validly assigned is not a reason to refuse its application to be restored as the rightful party to sue and allow the defendants to have a fortunate escape. 70.As I am of the view there is no issue of limitation arising, Order 20 rules 5(2) to (5) do not apply and it is not necessary to deal with the alternative submission of Mr Carolan under Order 20 rule 5(3). Conclusion and orders 71.To recap, I would uphold the holding that the Funding Agreement and the Assignment are champertous. But that is not to say the appeal against the first decision should fail completely, as I am of the view that the joinder application should be dealt with before the judge ordered the writ and statement of claim to be struck out. I would allow the appeal against the second decision. These are the orders I propose to make in respect of the appeals against the first and second decisions:
72.I would make these orders nisi on costs. For the costs of the strike out applications and joinder application, I do not propose to disturb the judge’s orders that costs of these applications be in favour of the defendants as I agree with the judge’s finding of champerty and the judge was asked by the plaintiff and GBRE to defer considering the joinder application until judgment was available on the strike out application. For the costs of the appeals, I am inclined to make a global order and award costs to the plaintiff and GBRE, but reduced by one-third, to take into account points not taken below and the course the plaintiff’s former counsel had invited the judge to take. 73.Mr Dawes indicated to the court at the conclusion of the hearing if this court is minded to grant leave to amend the writ and statement of claim, it should be on terms, not just in relation to costs. If this is pursued by the defendants, I would give leave to the defendants to file a written submission within 14 days hereof, with leave to GBRE to respond within 14 days thereafter. Hon Cheung CJHC: 74.Accordingly, we make the orders indicated in paragraphs 71 to 73 above.
Mr Paul Carolan, instructed by Cheng, Yeung & Co., for the Plaintiff (Appellant) Mr Victor Dawes, instructed by Deacons for the 1st Defendant (1st Respondent) Mr Victor Dawes, instructed by Kennedys for the 2nd Defendant (2nd Respondent) [1] 2nd Decision, §2 [2] 2nd Decision, §8 [3] 1st Decision, §25 [4] 1st Decision, §§25(3), 26, 31 [5] 1st Decision, §§28, 29 [6] 1st Decision, §§25(8), 30 [7] 1st Decision, §31 [8] 1st Decision, §32 [9] 1st Decision, §33 [10] 1st Decision, §34 [11] 1st Decision, §36 [12] 1st Decision, §50 [13] 2nd Decision, §§22, 23 [14] 2nd Decision, §§13, 14 [15] 2nd Decision, §§24, 25 [16] 2nd Decision, §§28, 29 [17] 2nd Decision, §§31 to 38 [18] 2nd Decision, §§41 to 45 [19] 2nd Decision, §46 [20] 2nd Decision, §§47 to 49 [21] 1st Decision, §§41, 42 [22] 1st Decision, §31 [23] Mr Leung’s 3rd affidavit, §8 [24] 2nd Decision, §2 [25] 1st Decision, §47 [26] 1st Decision, §49; 2nd Decision, §4 [27] 2nd Decision, §14 [28] 2nd Decision, §17 [29] 2nd Decision, §24 [30] 2nd Decision, §§28, 29 |
Cases cited in this judgment
Further hearings and rulings under CACV 34/2014