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CACV255/2002
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 255 OF 2002
(ON APPEAL FROM HCMP NO.5014 OF 1999)
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BETWEEN
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WING HANG BANK LIMITED |
Plaintiff |
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and |
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CRYSTAL JET INTERNATIONAL LIMITED |
1st Defendant |
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MAZLO TRADING LIMITED |
2nd Defendant |
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MULTI-BEST COMPANY LIMITED |
3rd Defendant |
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WONG CHEUNG SUM, KO MEE WAH
(also known as KO MEE WAH WINNIE) and
KO MI LUN |
4th Defendant |
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Before : Hon Ma CJHC, Suffiad & Lam JJ in Court
Date of Hearing: 27 April 2005
Date of Judgment: 27 April 2005
Date of Handing Down Reasons for Judgment: 12 May 2005
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REASONS FOR JUDGMENT
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Hon Ma CJHC :
1. After hearing submissions from counsel for the 1st Defendant, this Court dismissed its appeal with costs on a solicitor and own client basis (the contractually stipulated basis) without calling on the Plaintiff’s counsel. I agree with the reasons for dismissing the appeal contained in the judgment of Lam J but wish just to say a few words about the need to make clear in pleadings issues that a party wishes to advance.
2. In the present case, the Plaintiff’s claim against the 1st Defendant was put on the simple basis of liability arising under a legal charge over the 1st Defendant’s property (“ the Legal Charge”), under which the Plaintiff was the mortgagee and the 1st Defendant the mortgagor. The Charge took the form of an assignment dated 21 May 1997 in which the 1st Defendant’s property was charged to the Plaintiff as security for the whole of any indebtedness owed by the 2nd Defendant to the Plaintiff (respectively as borrower and lender under banking facilities granted to the 2nd Defendant).
3. There being no dispute that the 1st Defendant signed the Legal Charge nor as to the fact that the 2nd Defendant owed money to the Plaintiff, liability was inevitable unless the 1st Defendant was somehow able to show that its consent to the Charge was lacking or that for some other reason no liability thereunder should accrue. Here, the burden was squarely on the 1st Defendant.
4. Where a party to what otherwise is a valid contract wishes to advance a case based on lack of consent, so that what appears at first sight to be an enforceable contract is somehow not, he must make this abundantly clear in his pleadings. O.18 r.12(1)(a) of the RHC specifically requires to be pleaded any defence based on misrepresentation, fraud, breach of trust, wilful default or undue influence. In my view, this is the clearest possible indication of the importance of setting out (and doing so clearly) defences such as misrepresentation and undue influence.
5. In the present appeal, Mr Chong (who appears for the 1st Defendant) relied on misrepresentation and undue influence to escape liability under the Legal Charge, selecting here and there those parts of the evidence that purportedly supported these defences. Notwithstanding the fact that neither defence was pleaded, and even worse that undue influence was actually abandoned by counsel for the 1st Defendant in the Court below, it was thought appropriate to run these defences on appeal. The relevant parts of the 1st Defendant’s Defence and Counterclaim stated as follows : -
“The Legal Charge
7. Paragraph 13 is denied. The 1st Defendant denies that the ‘Legal Charge’ was executed pursuant to the 2nd Facility and the Plaintiff making available HK$40,000,000.00 to enable the 1st Defendant to purchase the Property. The 1st Defendant avers that on or about 20th or 21st of May 1997 the directors of the 1st Defendant were asked by Ms. M.L. Ko to go up to the solicitors firm of Messrs. Siao, Wen & Leung to sign on formal documents for the assignment of the Property and the Legal Charge. The 1st Defendant had always used the services of Messrs. Siao, Wen & Leung in respect of its property transactions. The 1st Defendant further avers that a Mr. Charles K.P. Yeung of Messrs. Siao, Wen & Leung only told the directors of the 1st Defendant i.e. Mr. Ko and Madam Mable Maxwell (‘Ms. Maxwell’) that they were to sign documents relating to the purchase and mortgage of the Property. They were not told and had no inkling that the 1st Defendant would be liable for all the 2nd Defendants’ debts to the Plaintiff and their understanding was that the Property mortgaged was for the security for repayment of the $20,000,000.00 loan advanced to the 2nd Defendant by the Plaintiff. The 1st Defendant avers that Mr. Yeung did not explain the contents of the said mortgage to them and he had never informed the 1st Defendant that Messrs. Siao, Wen & Leung also acted for the Plaintiff and asked the 1st Defendant to seek independent legal advice.
8. The 1st Defendant also avers that before the signing of the said assignment of the Property and the Legal Charge they were not approached by any staff of the Plaintiff to explain the details and arrangement of the Legal Charge to them. The 1st Defendant further avers that it was the ‘duty’ of the Plaintiff to disclose such information to them. In the circumstances the 1st Defendant denied that they are liable under the Legal Charge or at all for the matters as pleaded hereinabove.
9. The 1st Defendant also avers that the Plaintiff has made a report to the Commercial Crime Bureau that the 2nd Defendant has obtained money by deception from the Plaintiff through the use of its banking facilities, and it is averred that even if the 1st Defendant is to be held liable for the 2nd Defendant’s borrowing which is denied, the 1st Defendant should only be liable for legitimate and legal borrowing by the Plaintiff to the 2nd Defendant and the 1st Defendant should not be held liable for any crimes committed by the 2nd Defendant or its Directors.”
This was not a proper pleading if what was sought to be raised was either misrepresentation or undue influence.
6. If I may, I take this opportunity to reiterate some basic principles : -
(1) The purpose of pleadings is fairly and precisely to inform the other side of the stance of the pleading party so that proper preparation is made possible, and time and effort are not expended unnecessarily on other issues. The passage at paragraph 18/12/1 of Hong Kong Civil Procedure 2004 Volume I sets out the rationale for proper pleadings.
(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. Much testimony given in the course of a trial may in truth relate to a number of possible aspects or may simply be background information. Obviously, counsel must be astute to object when necessary but the primary responsibility of ensuring that any issue is properly before the Court is on the party seeking to advance that issue. He must do so clearly and not ambiguously, and the usual way of doing so is through the pleadings. Care must be taken to plead issues clearly, and not draft pleadings either vaguely or ambiguously perhaps in the hope that the other side might not readily or easily understand a party’s real case. While vaguely or ambiguously drawn pleadings may enable a party to escape a strike out application (since striking out is only for plain and obvious cases), this is not to say that where a court has to decide whether or not an issue is to be permitted to be run, it will smile kindly on such types of pleading.
(3) On appeal, it will be extremely rare for the Court of Appeal to allow unpleaded issues of fact to be run for the first time. Save in exceptional circumstances (such as where documents can safely be assumed to speak for themselves), the Court will often not be in a position to take the view confidently that the other side has not been prejudiced.
7. What has just been set out is not to be construed as an encouragement to take ‘pleading points’ by which I mean pedantic, small or quite insignificant points of pleadings. Nor will objections as to pleadings have much force where the parties have chosen to disregard the pleadings and conduct the hearing on some unpleaded basis. As Isaacs and Rich JJ said in Gould v Mount Oxide Mines Limited (1916) 22 CLR 490, at 517 : -
“But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly thought out, it is impossible for them to hark back to the pleadings and treat them as governing the area of contest.”
Ultimately, a court is to be guided by what is fair and just in the circumstances, not just to the party seeking to rely on the unpleaded case but to all the parties before it. The Court ought also to bear in mind the following passage at paragraph 18/12/1 of Hong Kong Civil Procedure 2004 Volume 1 : -
“The purpose of pleadings is not to play a game at the expense of the litigants but to enable the opposing party to know the case against him”.
8. What is set out above as representing acceptable practice will be all the more emphasized when the Civil Justice Reforms in Hong Kong take shape. The object is not to invite prolixity in pleadings but to achieve what has always been the position : to fairly inform the other side and the Court of a party’s case, identifying the issues and the true extent of the...
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