Case Detail

HCA 329/2015

[2022] HKCFI 3597

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 329 OF 2015

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BETWEEN

	Yinggao Resources Limited	1st Plaintiff
	Winbest Resources Limited	2nd Plaintiff
and
	The Hongkong and Shanghai Banking Corporation Limited	Defendant

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Before: Hon Ng J in Chambers

Date of Hearing: 28 July 2022

Date of Judgment: 7 December 2022

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JUDGMENT

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Introduction

1. This is the Defendant’s appeal against the Order of Master Alexander Tang dated 31 January 2022 whereby leave was granted to the 1^st and 2^nd Plaintiffs to amend the Amended Statement of Claim (“ASoC”) dated 24 February 2015 by adding a new para 49 to the ASoC (“Para 49”)[1].

2. In gist, the Defendant’s position is that leave should be refused to add the new Para 49, as it is bound to fail by reason of (i) time-bar; (ii) lack of causation and (iii) remoteness; and (iv) the plea is defective as no loss to the Plaintiffs can be shown.

3. At the hearing, Ms Sit SC advisedly invites this court to focus on the 2 grounds of lack of causation and remoteness, as they will be dispositive of this appeal should this court agree with her. Ms Sit SC accepts that the time bar point only relates to the tortious aspect of the claim[2] and so will not be dispositive of the appeal. As such, this court is not minded to dwell on the differences between Ms Sit SC’s and Mr Ng’s arguments on the application of the law relating to limitation which is academic. Towards the end of her reply, Ms Sit SC also advisedly indicates to this court that she is not going to rely on the point about whether or not the losses allegedly suffered are those of the Plaintiffs or those of Winko Foundation Limited (“Winko”) which wholly owned the 2^nd Plaintiff at the material time.

4. With respect, the pleas in Para 49 are convoluted and difficult to understand. This is not just the view of this court but also that of Master Tang.[3] But more importantly, some of the pleas in Para 49 are at odds with the Plaintiffs’ own evidence in Ms Jessica Chun’s affirmation (“Ms Chun” and “Chun 1” respectively). While this court will give a summary of the pleas later in this Judgment, for ease of reference, this court shall set out the entire paragraph in full below.

“IIIA. Unlawful Deprivation of a mine owner's rights in respect of his ownership title in accordance with the law
49. By an agreement (開採黃金礦產協議) dated 23 February 2011 (“Gold Mining Agreement”) between Winko (representing the first plaintiff^{^[4]}) and one 徐基川 (“Mr Xu”), the owner of mining and ownership rights of certain mines in Qie Mo County (“且末縣”) in the Mainland China (“Mines”), Winko and Mr Xu agreed to invest in and set up a joint venture (“JV”) in furtherance of a gold mining project in respect of the Mines (“Gold Mining Project”).
49.1. Letter from Mr. Xu Jichuan to Winko on February 18, 2011:
‘I have received the ‘Declaration of Trust’ signed between Yinggao Resources Limited and Winko Foundation Limited, which authorizes Winko to enter the agreement of the ‘Mining and Operation of the Gold Mining Area in Qie Mo County Project’. Winko and Yinggao have to perform the corresponding obligations underlying in the agreement. After the obtain of PRC legal advice, I believe the above ‘Declaration of Trust’ complies with the Human Trust Authorization Act. However, we will require Yinggao to confirm its fulfillment and legal responsibility of the corresponding obligation of the agreement of the ‘Mining and Operation of the Gold Mining Area in Qie Mo County Project’.
49.2 Pursuant to Clauses 2(2) and 3(4) of the Gold Mining Agreement, Winko had, inter alia, the following obligations:
1). Within 12 months of the execution of the Gold Mining Agreement (i.e. by 23 February 2012), Winko should, on behalf of the JV, make payment in 3 tranches (the first in the amount of RMB 40,000,000, the second in the amount of RMB 30,000,000 and the third in the amount of RMB 30,000,000) (the “1^st Tranche”, “2^nd Tranche” and the “3^rd Tranche” respectively; collectively, the “3 Tranches”) to Mr Xu for the purposes of settling all fees and expenses associated with and in furtherance of (a) the requisite due diligence in order to obtain the “exploration reports” (勘探報告) for the Mines (“Exploration Reports”); (b) the expansion and construction of the sites of the Mines as well as (c) the application and obtaining of the ‘mining permit’ (採礦許可証).
2). Upon Mr Xu’s notification that the Exploration Reports are completed and issued, Winko shall send representatives to the 新疆維吾爾自治區工商局 (“Bureau”) to deal with the business registration procedures in respect of the JV (“Registration”), and appoint 4 persons to be directors of the JV.
3). Within 30 days of the Registration of the JV and the obtaining of business registration licence (營業執照) for the JV (“JV BR License”), Winko should make payment of the first instalment of RMB400,000,000 into the bank account of the JV (“1^st JV Instalment”).
4). Within 120 days of the Registration of the JV and the obtaining of JV BR License, Winko should make payment of the second instalment of RMB400,000,000 into the bank account of the JV (“2^nd JV Instalment”).
49.3. In performance of the Gold Mining Agreement as supplemented by the Gold Mining Supplemental Agreement (collectively, “Gold Mining Agreements”), Winko made payment of the 1^st Tranche on or about 12 April 2011, the 2^nd Tranche on or about 18 August 2011 and partial payment of the 3^rd Tranche (in the amount of RMB 10,000,000) on or about 10 November 2011, with RMB 20,000,000 remaining outstanding under the 3 Tranches (“Outstanding Amount under 3 Tranches”).
49.4. On 9 December 2011, Mr Xu informed Winko in advance about the (then) imminent completion of the Exploration Reports by 31 December 2011. The Exploration Reports were eventually completed and issued on 31 December 2011.
49.5 On 25 January 2012, Winko informed Mr Xu that there had been a raid by the C & E relating to the unproven and unwarranted allegations of, inter alia, money laundering, and that these circumstances required Winko to cancel the trip to the Bureau originally scheduled on 9 February 2012 to handle the Registration of the JV.
49.6 By 23 February 2012, Winko had not made payment of the Outstanding Amount under 3 Tranches pursuant to Clause 3(4)(1) of the Gold Mining Agreement due to the fact that the source of payment, being funds in the 1^st Plaintiff’s Accounts, cannot be utilised due to the said actions and freezing of the accounts by the C & E.
49.7 On 28 February 2012, Mr Xu wrote to Winko informing that there were, and Mr Xu accepted, the allegedly repudiatory breaches of the Gold Mining Agreements insofar as Winko had failed to (a) make payment of the Outstanding Amount under 3 Tranches by the stipulated deadline, and (b) send representatives to the Bureau to deal with the Registration in respect of the JV (collectively, “Relevant Failures”).
49.8. On 6 March 2012, Winko responded by explaining that the Relevant Failures was attributable to the unlawful acts of the C & E as aforesaid. Winko sought an extension of 12 months for Winko’s performance of the various obligations under the Gold Mining Agreements, and requested Mr Xu to apply to the relevant regulatory authorities in Mainland China for an exceptional extension of 12 months the validity period and retention period of the exploration rights in respect of the Mines (探礦權有效期和保留期) (“Exploration Rights”).
49.9. Subsequent correspondence between Winko and Mr Xu followed. On 26 March 2013, Mr Xu replied and confirmed that the validity of 3 of the 10 exploration permits (探礦權證) have been extended until 25 January 2014, whereas the applications for extension of validity of the remaining 7 were pending payment of application fees, which Mr Xu requested Winko to settle. By Mr Xu’s conduct, Mr Xu is also taken to have agreed to an extension of time for Winko’s performance of the various obligations under the Gold Mining Agreements until the same.
49.10. By 25 January 2014, the Relevant Failures remained unaddressed due to the unlawful acts of the C & E. On 27 January 2014, Mr Xu wrote to Winko informing that there were, and Mr Xu accepted, the allegedly repudiatory breaches of the Gold Mining Agreements in respect of the Relevant Failures.
49.11. On 28 January 2014, Winko requested a further extension of time (of 12 months) for Winko’s performance of the various obligations under the Gold Mining Agreements, and requested Mr Xu to explore with the relevant regulatory authorities in Mainland China for an exceptional extension of time in respect of the validity period and retention period of the Exploration Rights.
49.12 There were ensuing correspondence and resulting in “Gold Mining Supplemental Agreement 2” between Winko and Mr Xu, whereby:
1). Winko indicated that Hongsen was willing to assist Winko in taking out a loan of RMB 200 million from banks in Mainland China on the condition that Winko provides a 10% (i.e. RMB 20 million) deposit, and that Hongsen was willing to use part of the sums payable by Hongsen under the 1^st and 2^nd Sales Contracts as such deposit.
2). Clause I to III of Gold Mining Supplemental Agreement 2 is set out below:
Clause I “Amends Clause III (2) of the “Agreement on the Exploitation of Gold Minerals”:
1. The content of the original clause “Party A contributed RMB 200 million to account for 20% of the equity” is now revised to “Party A contributes RMB 70 million to account for 20% of the equity.”
2. The content of the original clause “Party B contributes RMB 800 million to account for 80% of the equity” is now revised to “Party B contributes RMB 280 million to account for 80% of the equity.”
Clause II “According to the amendment of Clause I above, the joint venture now has a total investment of RMB 350,000,000.”
Clause III “Based on the judgement of the appeal judgement of the High Court of HK (CACV 219/2013), and the “confirmation for credit transaction” of USD 2,240,000 and HKD 26,000,000 issued HSBC, Department of Land and Resources (“国土资源厅”) specially approved the “Exploration Right” to be extended from 26 January 2014 to 30 January 2015, Party and Party B shall attended the Xinjiang Uygur Autonomous Region Department of Land and Resources (“新疆维吾尔自治区国土资源厅”) for the application and obtaining of the “mining permit” before the expiration and retention dates.”
49.13. At the material times in November and December 2014, Winko, as the owner of the mining rights was entitled to the mineral rights in accordance with the law in the joint exploration and operation of the “Project for the exploitation of resources in the copper and gold mining area of the Qie Mo County” provided that it fulfilled its corresponding obligations under the Gold Mining Agreement according to the amount of its capital contribution.
49.14. As a result of the defendant’s breach of the above mandate and duty of care and unlawful deprivation of property (namely the funds from ECO), the plaintiffs failed to fulfill its obligations according to the amount of its capital contribution during the term of the prospecting rights and the retention period under the Gold Mining Agreement. As a result, the Xinjiang Department of Land and Resources revoked Winko as the rights of mine owners in respect of their mineral titles in accordance with the law in the joint exploration and operation of the “Project for the exploitation of resources in the copper and gold mining area of Qie Mo County”, resulting in losses to the plaintiffs.”

Brief Background

5. The 1^st Plaintiff, a Hong Kong company trading in metal products, has been a customer of the Defendant since 2010. The 2^nd Plaintiff, a BVI company, has been the Defendant’s customer since sometime in 2011/2012. Both companies, as well as Winko, are believed to be controlled by Mr Chin Kam Chiu (秦錦釗) (“Mr Chin”).

6. The Plaintiffs’ original case, as pleaded in the ASoC, is a relatively straightforward one and can be summarised as follows.

7. As customers of the Defendant, the 1^st Plaintiff held its USD Account and HKD Account (“1^st Plaintiff’s Accounts”) while the 2^nd Plaintiff held its USD Account and HKD Account (“2^nd Plaintiff’s Accounts”) with the Defendant. Both the 1^st Plaintiff and the 2^nd Plaintiff held their respective accounts pursuant to a written mandate governing the relationship between them and the Defendant (“Mandate”).

8. The Mandate provided for, inter alia, the Defendant’s obligations to comply with all directions given for or in respect of any account or accounts of any kind whatsoever on behalf of the 1^st Plaintiff and the 2^nd Plaintiff respectively. It is also the Plaintiffs’ case that the Mandate included the implied terms that (a) the Defendant would exercise all reasonable skills and care and/or use its best endeavours in the execution of the Plaintiffs’ respective orders and (b) the Defendant would have the best interest of the Plaintiffs in mind and rendered such assistance as might be necessary to achieve the purpose and effect of the Mandate.

9. On 17 January 2012, the 1^st Plaintiff remitted 2 sums of HK$26m and US$2.24m (collectively “Sums”) to the bank accounts of a company called ECO Metal (Hong Kong) Limited (“ECO”) at Citibank. Subsequently, ECO tried to transfer the Sums back to the 1^st Plaintiff, but Citibank refused to execute that instruction on the basis that those accounts were restrained by the Customs and Excise Department (“C&E”) when no restraint order was issued.

10. The 1^st Plaintiff then brought proceedings against Citibank for repayment of the Sums while Citibank applied for and obtained interpleader relief in HCA 964/2012. On 25 September 2014, the Court of Appeal handed down a judgment in CACV 219 & 223/2013 in favour of the 1^st Plaintiff, dismissing Citibank’s interpleader summons, culminating in the remittance of the Sums from ECO’s Citibank accounts to the 1^st Plaintiff’s Accounts with the Defendant on 25 and 26 November 2014.

11. In anticipation of the release of the Sums, on 30 October 2014 and 21 November 2014, the 2^nd Plaintiff entered into the 1^st Purchasing Contract and the 2^nd Purchasing Contract with Midas Connective Trading Inc (“Midas”) whereby Midas agreed to sell and deliver to the 2^nd Plaintiff an agreed quantity of No. 1 Scrap Copper. Shortly thereafter each of the 1^st and 2^nd Purchasing Contracts an in reliance thereof, the 2^nd Plaintiff entered into 2 back-to-back agreements with Guangdong Hongsen Group Co. Ltd (“Hongsen”) whereby the 2^nd Plaintiff agreed to sell and deliver to Hongsen the same quantity of No. 1 Scrap Copper pursuant to the 1^st Sales Contract and 2^nd Sales Contract with Hongsen. The 1^st Plaintiff acted as the guarantor of the 2^nd Plaintiff’s of the terms and conditions (including payment conditions) under all the aforesaid contracts (“collectively “Sales and Purchasing Contracts”). These payment obligations were intended to be honoured by the Sums to be remitted and were in fact remitted to the 1^st Plaintiff’s Accounts with the Defendant on 25 November 2014 and 26 November 2014 respectively.

12. To honour the 2^nd Plaintiff’s payment obligations under the Sales and Purchasing Contracts, on 28 November 2014, Ms Chun, a representative of the 1^st Plaintiff (as well as the 2^nd Plaintiff), first gave instructions to the Defendant to transfer the Sums out of the 1^st Plaintiff’s Accounts, repeated on 3 December 2014. On 22 December 2014, Ms Chan, another representative of the 1^st Plaintiff, repeated the Instructions to the Defendant, with slight modification to the name of the transferee, to transfer the Sums out of the 1^st Plaintiff’s Accounts.[5]

13. It is common ground that the Defendant did not carry out those instructions. On the Plaintiffs’ case, the Defendant’s failure to execute the instructions on 28 November 2014, 3 and 22 December 2014 (“Instructions”) constituted a breach of the Mandate and/or a breach of duty of care.

14. Meanwhile, the Plaintiffs, by themselves or through solicitors, wrote to the Defendant on 1, 5, 23 December 2014 and 8 January 2015 and 9 February 2015 to complain about the failure to execute the Instructions. The complaint was geared towards the intended use of the Sums by the Plaintiffs to perform and their failure to perform the Sales and Purchasing Contracts caused by the Defendant’s failure to execute the Instructions.

15. The Defendant’s case is that it had received a “letter of no consent” from C&E on 25 November 2014 that the funds in the 1^st Plaintiff’s Accounts were believed to represent proceeds of an indictable offence and it reasonably believed that any dealings in the Sums would constitute an offence under section 25(1) of the Organized and Serious Crimes Ordinance Cap. 455 (“OSCO”) as a result of which the Defendant was not to allow any transfers out of the Plaintiffs’ Accounts. On 16 March 2015, a restraint order was granted prohibiting the 1^st Plaintiff from dealing with the funds in its accounts with the Defendant[6].

16. In failing to comply with the Instructions, the Defendant had acted wrongfully and in breach of the Mandate and its duty of care. The Plaintiffs were unable to advance their payments to Midas and to deliver No. 1 Scrap Copper to Hongsen under the Sales and Purchasing Contracts. As a result, both Midas and Hongsen accepted the Plaintiffs’ repudiations under the Sales and Purchasing Contracts and demanded compensations.

17. As a result, the Plaintiffs claim damages against the Defendant in the ASoC in the total sum of US$43,504,320. Their claims are based on the compensations they needed to pay Midas and Hongsen and the profits which they would have made under the Sales and Purchasing Contracts.

Deliberation

The Law

18. The principles governing amendments of pleadings in general are well-established and can be expressed, for the present purpose[7], as follows.

(1) It is a guiding principle of cardinal importance on the question of amendment that generally speaking, all such amendments ought to be made for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings.
(2) Leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail. While the court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation.
(3) If the proposed amendments are bound to fail, no leave to amend should be granted. In this regard, the court will take the applicant’s proposed pleaded case to the highest.

19. Ms Sit SC, very properly, accepts that if the claim as pleaded in Para 49 is arguable, leave to amend should be given. But as this court states earlier, her position is that the claim in Para 49 is bound to fail.

New case under Para 49 and the related contemporaneous documents and and Chun 1

20. The terms of Para 49 have been set out in full above. In summary, the Plaintiffs’ new case under Para 49, supplemented by the related contemporaneous documents and Chun 1, appears to involve the following pleas.

21. Before the issue of the Sums and Citibank arose in 2012, and well before the Sales and Purchasing Contracts were entered into in 2014, Winko, representing the 1^st Plaintiff, entered into an agreement dated 23 February 2011 with a PRC national, 徐基川 (“Xu”), whereby Xu would sell his interests in certain gold mining rights in the Mainland to a JV company to be incorporated (“JV”) in which Winko would hold 80% shares and Xu would hold 20% (“Gold Mining Agreement[8]”).

22. The Gold Mining Agreement contained a specific schedule for payment from Winko.

Date Payment
By 23 February 2012 RMB100m in 3 tranches
30 days after JV’s registration and business registration licence (“Licence”) RMB400m
120 days after JV’s registration and Licence RMB400m

23. By 23 February 2012, RMB20m were still outstanding because the Sums in the 1^st Plaintiff’s Accounts with Defendant could not be utilized as they were frozen by C&E.[9]

24. Even though Xu had accepted Winko’s repudiatory breach on 28 February 2012, he had subsequently agreed to multiple extensions of time for Winko to perform to 25 January 2014. On 27 January 2014, Xu again accepted Winko’s repudiatory breach of the Gold Mine Agreement for failure to pay up the balance of the initial RMB100m ie RMB20m. From that point onwards, Xu and Winko were not in a contractual relationship until the Gold Mining Supplemental Agreement 2 dated 16 December 2014.

25. Under the Gold Mining Supplemental Agreement 2, it was recorded that the PRC authorities had extend the exploration rights and the time for the application for the requisite mining permit to 30 January 2015 on or before which the parties should make the application. Further, Xu and Winko agreed (i) to vary the share capital to be injected into the JV and hence the amount of contribution by each party - in the case of Winko, its total capital contribution became RMB280m[10] and (ii) Winko should pay RMB200m to Xu for the latter to discharge various fees under Clauses IV and V.

26. Although the same is not expressly spelt out in Clause I of the Gold Mining Supplemental Agreement 2, it would appear to be implicit from Clause VIII that there was an agreed extension of time for Winko to pay its capital contribution of RMB280m also to 30 January 2015.

27. To finance Winko’s payment of RMB200m, Winko entered into a special arrangement with Hongsen (“Special Arrangement”) whereby (i) Hongsen would obtain a RMB200m loan from PRC banks on condition that Winko would provide a RMB20m deposit, and (ii) Hongsen would use part of the purchase price payable under the 1^st and 2^nd Sales Contracts as such deposit.[11] As shall be seen later in this Judgment, the Special Arrangement was more complicated than pleaded in Para 49(12).

28. Owing to the Defendant’s breaches of the Mandate and its duty of care, the Plaintiffs[12] failed to fulfil the payment obligations under the Gold Mining Supplemental Agreement 2 by 30 January 2015. Under Clause VII of the Gold Mining Supplemental Agreement 2, this should be deemed to be a breach of the Gold Mining Agreement itself. Further, as a result, the PRC authority revoked Winko’s “rights of mine owners in respect of their mineral titles”, resulting in losses of an estimated assets value to the tune of RMB34,072,256,368.

Lack of causation

29. It cannot be disputed that as a matter of law:

(i) There must be a causal connection between the defendant’s breach of contract and the plaintiff’s loss - the plaintiff may recover damages for a loss only where the breach was the “effective” or “dominant” cause of that loss. The answer to whether the breach was the cause of the loss or merely the occasion for the loss must in the end depend on the court’s common sense in interpreting the facts.
(ii) The chain of causation may be broken by the plaintiff where, following the defendant’s breach of contract, it suffers loss through its own voluntary act or omission ie novus actus interveniens. Mere unreasonable conduct on a Plaintiff’s part will not necessarily break the chain of causation, whereas reckless conduct often will. In this regard, a highly relevant factor is whether the claimant knows of the defendant’s breach. Ultimately, the question of whether there has been a break in the chain of causation is fact sensitive.
Chitty on Contracts 34^th ed., Vol I paras 29-073, 29-078, 29-080; Galoo Ltd v Bright Grahame Murray (a firm) [1994] 1 WLR 1360, 1374-5 (CA), Borealis AB v Geogas Trading SA [2010] EWHC 2789 (Comm) at [45] - [46].

30. The facts of this case as pleaded and as revealed in the contemporaneous documents disclosed by the Plaintiffs and in Chun 1 are that:

(i) On 28 November 2014, the Defendant had committed a breach of the Mandate and duty of care for failing to carry out the Instructions. On that occasion, Ms Chun gave the Instructions to the Defendant’s Kwai Fong branch service manager Ms Yau (“Ms Yau”) and Ms Yau had immediately informed Ms Chun that the Instructions could not be carried out. [13]
(ii) The explanation from Ms Yau was that as the Defendant has received the ‘No Consent Letter’ from C&E, the 1^st Plaintiff’s Accounts were subject to the restrictions imposed by C&E. Therefore, the Instructions could not be executed, otherwise an offence would be committed under section 25(1) of OSCO. Ms Yau also stated there were reasonable grounds to believe that the Sums were derived from the proceeds of an indictable offence. Ms Yau then asked Ms Chun to contact Inspector Ng at C&E and gave her a note with a phone number.[14]
(iii) Ms Chun called Mr Ng with the phone number provided by Ms Yau. She expressed to Inspector Ng that the 1^st Plaintiff could not transfer the Sums out of its accounts with the Defendant and asked him whether he had instructed the accounts to be frozen and whether C&E had a Court restraint order[15]. Inspector Ng claimed that C&E was conducting a criminal investigation into a case back in 2012 (case number CID/3/1/12).[16]
(iv) Also on 28 November 2014, the 1^st Plaintiff wrote to Inspector Ng of C&E enquiring about the freezing of the 1^st Plaintiff’s Accounts with the Defendant. According to the letter, Inspector Ng had spoken to Mr Chin on the phone earlier that day in which Inspector Ng informed Mr Chin that the freezing of the 1^st Plaintiff’s Accounts was due to a criminal investigation into a suspected case of money laundering by the 1^st Plaintiff back in 2012.
(v) On 1 December 2014, C&E wrote back to the 1^st Plaintiff stating that the 1^st Plaintiff’s Accounts were frozen due to the on-going investigation into a suspected case of offending inter alia the OSCO and that if there were any further update, C&E would notify the 1^st Plaintiff as soon as possible.
(vi) On 1 December 2014, the Plaintiffs’ solicitors wrote to the Defendant enquiring about the status of the Instructions and the freezing of the 1^st Plaintiff’s Accounts by C&E. As pleaded in para 35 of the ASoC, in the letter, the Plaintiffs’ solicitors also notified the Defendant that (i) the 1^st Plaintiff had entered into the 1^st Purchasing Contract and it required to transfer the Sums as directed under the Instructions to the designated accounts as payment under the 1^st Purchasing Contract. In its reply letter dated 8 December 2014, the Defendant stated that “We are sorry to inform you that the Bank is currently unable to allow operation of the captioned account / conduct the transaction the customer instructed.”[17]. In the reply letter, the Defendant again asked the Plaintiffs’ solicitors to contact Inspector Ng.
(vii) Meanwhile, on 3 December 2014, Ms Chun went to the Defendant’s Kwai Fong branch to arrange for the transfers of the Sums according to the Instructions. Ms Yau informed Ms Chun that the 1^st Plaintiff’s Accounts were still subject to the restrictions imposed by C&E. Therefore, the Instructions could not be executed, otherwise an offence would be committed under section 25(1) of OSCO.

31. On 16 December 2014, Winko and Xu entered into the Gold Mining Supplemental Agreement 2.

32. Ms Sit SC submits that the Plaintiffs’ claimed loss arose from Winko’s failure to perform the Gold Mining Supplemental Agreement 2. However, that agreement was only entered into by Winko on 16 December 2014, well after the Defendant’s breach on 28 November 2014. Given that Winko on its own volition entered into the Gold Mining Supplemental Agreement 2, this clearly constituted a novus actus interveniens.

33. Ms Sit SC further submits that the Plaintiffs cannot rely on the Defendant’s failure to comply the Instructions given on 3 and 22 December 2014, when the 1^st Plaintiff simply repeated the request for the withdrawal of the Sums when both the Defendant and C&E had informed it that (i) there was ongoing criminal investigation against the 1^st Plaintiff and (ii) the possibility of the Defendant committing an offence under section 25(1) of OSCO if the Defendant had carried out the Instructions. The Plaintiffs knew full well that the 1^st Plaintiff’s Accounts were frozen for these reasons, but if there were results in the investigation, the 1^st Plaintiff would be informed. Nevertheless, Winko went on to enter into the Gold Mining Supplemental Agreement 2 in the absence of any suggestion or information from C&E that the investigation had or would soon be concluded in the 1^st Plaintiff’s favour. Nor was there any other change in circumstances which would render it reasonable for the Plaintiffs to think that the Sums would be released in time to enable Winko to perform its obligations under the Gold Mining Supplemental Agreement 2 in full before the deadline ie 30 January 2015.

34. Mr Ng submits that the issue of causation is a question of evidence and is fact sensitive. He further submits that under the Gold Mining Agreement, Winko had already made a total payment of RMB80,000,000 by 10 November 2011. In order to rescue the gold mining investment, it is normal and reasonable for Winko to negotiate with Xu for a further extension of time for Winko’s performance of its various obligations under the Gold Mining Agreement, and hence reaching the Gold Mining Supplemental Agreement 2. Lastly, Mr Ng submits that the Plaintiffs’ case on causation is capable of a reasonable argument and being eventually a question of evidence, should be ventilated at trial.

35. This court accepts Ms Sit SC’s submissions and rejects those of Mr Ng for these reasons.

36. To start with, the issue of causation does not necessarily have to be determined at trial as long as the facts are sufficiently clear to enable the Court to make a proper determination of it. Galoo Ltd v Bright Grahame Murray (a firm) is an example where causation was determined in relation to a striking out application. Mulvenna v Royal Bank of Scotland Plc [2003] EWCA Civ 1112 is another example where causation was determined in relation to an application for the summary dismissal of a plaintiff’s claim.

37. Next, in this case, not only did the Plaintiffs know of the breach by the Defendant on 28 November 2014 but also the reasons for it. There was no suggestion that the Plaintiffs had any grounds at all to believe that the Sums could be released in time to kick start the Special Arrangement, in so far as it actually required the 1^st Plaintiff/Winko to fork out RMB20m, and to perform the other obligations under the Gold Mining Supplemental Agreement 2.

38. It may be normal and reasonable for the 1^st Plaintiff to seek from Xu a further extension of time for Winko’s performance of its various obligations under the Gold Mining Agreement. It is also understandable that the 1^st Plaintiff wished to rescue the gold mining investment. But that does not mean that Winko should enter into the Gold Mining Supplemental Agreement 2 when it had no grounds to believe the Sums could be released soon or that it could actually pay its capital contribution of RMB280m by 30 January 2015. The 1^st Plaintiff had not, for instance, applied to court on an urgent basis and obtained a mandatory injunction against the Defendant for the latter to carry out the Instructions prior to entering into the Gold Mining Supplemental Agreement 2. Nor, on the evidence, had the 1^st Plaintiff been able to obtain funds from other sources.

39. In this court’s view, entering into the Gold Mining Supplemental Agreement 2 in these circumstances is akin to a leap in the dark, is wholly unreasonable and in fact verges on recklessness for the 1^st Plaintiff/Winko to do so. Applying this court’s common sense in interpreting the facts, this court is driven to the conclusion that Ms Sit SC is right that the chain of causation has been broken by the 1^st Plaintiff. The new claim in Para 49 is bound to fail for this reason.

Remoteness

40. This court will first set out the law on remoteness pertinent to the present case.

41. First, it is generally accepted that the “reasonable contemplation” test in contract is more restrictive than the “reasonable foreseeability” test in tort. Damage may be of a kind which is reasonably foreseeable (and therefore recoverable in tort) yet highly unusual or unlikely (and therefore irrecoverable in contract): The Achilleas[2009] 1 AC 61 at [31]; Wellesley Partners LLP v Withers LLP [2016] Ch 529 at [74] (CA).

42. As Lord Reid explained in The Heron II [1969] 1 AC 350, 386, there is good reason for the difference:

“In contract, if one party wishes to protect himself against a risk which to the other party would appear unusual, he can direct the other party's attention to it before the contract is made, and I need not stop to consider in what circumstances the other party will then be held to have accepted responsibility in that event.”

43. The point that Lord Reid was making was that the more unusual the consequence, the more likely it is that provision will be made for it in the contract if it is to result in liability. Terms may be written into the contract to provide for the extent, if any, of the liability. That is the way commercial contracts are entered into: The Achilleas at [32].

44. Second, where, as in the present case, a plaintiff asserts a claim of breach of duty of care (ie tortious) and a claim of breach of mandate (ie contractual) and the duty of care is said to arise from the contractual relationship of the parties and is concurrent with the contractual duty, the applicable remoteness test is that for breach of contract: Wellesley Partners LLP v Withers LLP at [80]. The reason is that where the claim in tort is in the context of a contractual relationship, the parties are not strangers, as most tortfeasors and tort victims are, and they should be bound by what they have brought to their contractual relationship in terms of what risks have been communicated by the one and undertaken by the other. This rationale is proposed in McGregor on Damages 19^th ed at para 22-009 and accepted in Wellesley Partners LLP v Withers LLP at [75] - [76] as making good sense.

45. Third, the contractual remoteness test is the two limbs espoused in Hadley v Baxendale^{^[18]}. The first limb encompasses damages that are “such as may fairly and reasonably be considered [as] … arising naturally, i.e. according to the usual course of things, from such breach of contract”. Since every reasonable person is taken to know of the damage which flows ‘naturally’ from a breach of the contract to which he is a party, this knowledge is imputed to a contract-breaker. In the second limb, actual knowledge of the contract-breaker is required in respect of special circumstances giving rise to damage which cannot be said to result naturally from such a breach of contract. The two limbs are “the practical expression of a single principle … that parties should only be liable for damages which were when they contracted within their contemplation in the event of a breach” and both limbs turn on an objective assessment of what the contract-breaker knew or ought to have known: De Monsa Investments Ltd v Richly Bright International Ltd (2015) 18 HKCFAR 232 at [16] - [19].

46. Fourth, the rule in Hadley v Baxendale is a prima facie assumption about what the parties might be taken to have intended, and is capable of rebuttal in cases in which a party would not reasonably have been regarded as assuming responsibility for such losses. The concept of assumption of responsibility provides a principled basis for distinguishing between losses which are or are not too remote. Thus the concept of assumption of responsibility is usually a limiting principle, as in The Achilleas. Whether a contract breaker has assumed responsibility for a particular type of loss is decided by viewing the nature and object of the contract against its commercial background: De Monsa Investments Ltd v Richly Bright International Ltd at [29] - [34], [37] - [38], [41].

47. Fifth, the contemplation of the parties that falls for consideration is contemplation as at the time of making of the contract: De Monsa Investments Ltd v Richly Bright International Ltd at [18]; Attorney-General of the Virgins Islands v Global Water Associates Ltd [2021] AC 23 at [32] (PC). There is however some suggestion in an Australian authority, cited by Mr Ng, that where the contract is one to be performed from time to time, such as that between a bank and a customer, it may be appropriate to take into account the knowledge that the bank has acquired in the course of executing the contract: National Australia Bank Ltd v Nemur Varity Pty Ltd [2002] VSCA 18 at [49]. Obviously, this court is bound by De Monsa Investments Ltd v Richly Bright International Ltd.

48. Sixth, in the context of a banker/customer relationship, it has been observed that normally a failure to pay money gives rise to no damages other than a possible obligation to pay interest for late payment. It may be possible for some more extensive liability to be imposed. If that liability is to be imposed, it must be by virtue of special circumstances being drawn to the attention of the payer of the money. But simply drawing the attention of the payer of the money to special circumstances does not necessarily impose a liability on the payer to be responsible for damages flowing from the special circumstances to which attention has been drawn. A defendant will only be liable for damages resulting from special circumstances when those special circumstances have been brought home to him in such a way as to show that he has accepted, or is taken to have accepted, the risk. Not only must the parties contemplate that the damage resulting from the special circumstances may occur. But they must further contemplate that the defendant is taking the risk of being liable for such consequences should they occur: Mulvenna v Royal Bank of Scotland Plc[19] at [24] - [25].

49. Ms Sit SC submits that, on the undisputed facts of this case, remoteness cannot be established for 3 reasons. This court agrees.

50. First, there can be no suggestion that the second limb of Hadley v Baxendale applies ie actual knowledge of the contract-breaker in respect of the special circumstances giving rise to damage. There is neither plea nor evidence that the Plaintiffs had ever informed the Defendant of the Gold Mining Agreement or Gold Mining Supplemental Agreement 2 at the time the banking contract was entered into in June 2010 and December 2011 respectively. As far as the 1^st Plaintiff is concerned, at the time of its banking contract, the Gold Mining Agreement dated 23 February 2011 had not even come into existence. As far as the Plaintiffs are concerned, at the time of their banking contracts, the Gold Mining Supplemental Agreement 2 dated 16 December 2014 was not in existence either. Indeed, Mr Ng confirmed to this court that he was not alleging that the Defendant was ever aware of the Gold Mining Agreement or Gold Mining Supplemental Agreement 2.

51. In his written submissions at paras 46-47, Mr Ng’s counter-argument boils down to this:

“It must have been known to D (as it would have been declared in the various documents including but not limited to the account opening mandate) that Ps, as a trading company, would naturally enter into various business contracts on a frequent basis and will require money transferred/withdrawn from its accounts to make payment for business dealings…
By breaching D’s duty to follow Ps’ instructions to make payment of money, it follows that the D, with such knowledge about the nature of Ps’ operation (being a trading company), must have been aware of the consequence of its action, namely, contracts and business dealings entered into by Ps cannot be fulfilled giving rise naturally to consequential business losses.”

52. In this court’s view, the Defendant’s knowledge of the general nature of the Plaintiffs’ trading operations and of the general consequences of its breach of the Mandate, even assuming that to be the case, cannot possibly be translated into actual knowledge of the Defendant in respect of the special circumstances giving rise to damage, in this case the loss of the exploiting and operating rights of the Gold Mine. Indeed, at the hearing, Mr Ng indicated to this court that he principally, if not exclusively, relied on the first limb of Hadley v Baxendale.

53. Second, the Plaintiffs cannot demonstrate the remoteness test within the first limb of Hadley v Baxendale ie only losses which arise in the usual course of things from the breach of contract would qualify.

54. In this case, the new losses claimed by the Plaintiffs arose from the unusual and highly convoluted Special Arrangement as stated in Mr Ng’s written submissions at para 52(1) to (3) as follows:

“52. …
(1) Winko’s payment obligation for the RMB 200 million to be injected into the JV pursuant to the Gold Ming Agreements (as amended by the Gold Mining Supplemental Agreement 2) was to be assisted by way of a loan arranged by Hongsen with a bank in Mainland China. As made clear in the relevant correspondences, the pre-condition was that copper scrap was to be delivered to Hongsen in the PRC, such that proceeds from the sale of copper scrap to the value of RMB 20 million might be used as margin for the purpose of arranging the aforesaid loan.
(2) To be able to perform its shipping obligations under the 1^st and 2^nd Sales Contracts, P2 would have to first pay Midas, the seller of copper scrap to P2 (with Hongsen as the consignee under both the 1^st and 2^nd Purchasing Contracts), before shipping could be made to Hongsen.
(3) However, as a result of D’s breach of the Mandate in the form of refusing to carry out the Instructions and the 2^nd Instructions, P1 and P2 were unable to honour their payment obligations (as guarantor and buyer respectively) under the 1^st and 2^nd Sales Contracts. This, in turn, meant that Hongsen was unable to generate the RMB 20 million agreed and required from the sale of copper scrap delivered from Midas for the purpose of securing the RMB 200 million loan for the Qie Mo Mining Project.”

55. In this court’s view, there is no way that the Defendant’s failure to comply with the Instructions resulting in the loss of the exploitation rights of the gold mine, through such a Special Arrangement, may fairly and reasonably be considered as arising naturally, i.e. according to the usual course of things and that the knowledge of such loss can be imputed to the Defendant.

56. Third, there is no basis to suggest that the Defendant has assumed responsibility for the Plaintiffs’ losses under the Gold Mining Agreement or the Gold Mining Supplemental Agreement 2 when there is no plea or evidence that the Defendant knew about the Plaintiffs’ involvement in the gold mines business in the PRC or the existence of the 2 Agreements. In fact, Mr Ng, properly and advisedly, indicates to this court at the hearing that he is not relying on assumption of responsibility based on the Defendant’s knowledge of special facts.

57. To conclude, since the Plaintiffs cannot satisfy the remoteness test, the new claim in Para 49 is also bound to fail for this reason.

Disposition and costs order nisi

58. In the premises, this court hereby allows the Defendant’s appeal, sets aside the Order of Master Tang dated 31 January 2022 and dismisses the Plaintiffs’ amendment summons dated 12 August 2021.

59. There shall be an order nisi that costs of this appeal and below be to the Defendant, to be taxed if not agreed, and paid by the Plaintiffs to the Defendant forthwith, certificate for two counsel.

	(Peter Ng)
	Judge of the Court of First Instance
	High Court

Mr Alan M S Ng and Ms Tanie Toh, instructed by KH Mak & Co, for the 1^st and 2^nd Plaintiffs

Ms Eva Sit, SC and Mr Brian Lee, instructed by Mayer Brown, for the Defendant

[1] Upon the Plaintiffs’ application by summons dated 12 August 2021.

[2] There remains a breach of mandate claim.

[3] See para 12 of the Master’s Decision dated 31 January 2022.

[4] The “Declaration of Trust” dated 16^th February 2011 entered between Winko Foundation Limited and the first plaintiff.

[5] While the Plaintiffs have pleaded the 22 December 2014 request as the 2^nd Instructions, the substance of the Instructions ie to transfer the Sums out of the 1^st Plaintiff’s Accounts is the same. Hence this court will describe all of them as “Instructions”.

[6] The restraint order was eventually discharged on 18 October 2019.

[7] The principles governing amendments to which a limitation objection is raised are different. Since the limitation point will not be dispositive of this appeal and is regarded as academic, this court will not dwell on those principles.

[8] This was supplemented by a Gold Mining Supplemental Agreement dated 22 September 2011 the terms of which were immaterial for the present purpose and were not even pleaded in Para 49.3.

[9] This is factually wrong as there is no evidence of the 1^st Plaintiff’s Accounts with Defendant being frozen in 2011 or 2012.

[10] Clause I.

[11] Para 49(12) ASoC. The terms of the Special Arrangement are rather unclear: it is unclear whether it was Winko who had to fork out the RMB20m deposit from the Sums or whether it was Hongsen who would use part of the purchase price as the RMB20m deposit or both.

[12] This is a mistake - it should be Winko.

[13] The Instructions to transfer out the Sums, according to Chun 1 at para 17, were “in preparation for the payment of US$5,980,800 as partial payment of the 1^st Purchasing Contract”.

[14] Chun 1 at para 19(2) and (3).

[15] It is accepted by the Defendant that a restraint order was obtained on 16 March 2015.

[16] Para 18(4) of Chun 1.

[17] Para 21 of Chun 1.

[18] (1854) 9 Ex 341, 156 ER 145

[19] A case where the claimant sought damages for loss of profits out of the development of 2 properties said to be caused by the bank’s failure to credit certain refund to his bank account as agreed. The claimant’s claim failed on both issues of causation and remoteness.

HCA 329/2015

[2022] HKCFI 306

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 329 OF 2015

________________________

BETWEEN
	YINGGAO RESOURCES LIMITED	1^st Plaintiff
	WINBEST RESOURCES LIMITED	2^nd Plaintiff
	and
	THE HONGKONG AND SHANGHAI BANKING	Defendant
	CORPORATION LIMITED

________________________

Before:

Master Alexander Tang in Chambers (Open to public)

Date of Hearing:	18 January 2022
Date of Decision:	31 January 2022

_________________________________

DECISION

_________________________________

A. Introduction

1. This is the Plaintiffs’ (Ps’) application to re-amend its Amended Statement of Claim by way of a Summons dated 12 August 2021.

2. As detailed below, the Defendant (D) opposes the amendments on 4 grounds:-

(a)  Time Bar (Issue 1);
(b)  the claim brought about by the amendments are bound to fail, due to issues with:-
(i)  Ps’ lack of standing to sue/locus (Issue 2);
(ii)  causation (Issue 3); and
(iii)  remoteness (Issue 4).

B. Background

B.1 The Amended Statement of Claim (ASoC)

3. In summary, Ps’ case, as per its original ASoC, was as follows:-

(a)  On 25 Sep 2014, pursuant to a judgment in CACV 219/2013, HK$26M and US$2.24M was ordered to be paid by Citibank to P1 [ASoC §§9, 14]. The monies were eventually deposited into P1’s account kept with D on 25 and 26 Nov 2014 [ASoC §§23, 24].
(b)  Ps engaged in sales and purchasing contracts in relation to scrap copper in an around October/November 2014 (the Scrap Copper Contracts).
(i)  There was an agreement whereby P2 agreed to purchase scrap copper from a company named Midas [ASoC §§18, 21].
(ii)  There was an agreement whereby P2 agreed to sell scrap copper to a company named Hongsen [ASoC §§19, 22].
(iii)  P1 acted as guarantor to P2’s obligations [ASoC §§18(5), 19(3), 21(7), 22(3)]
(c)  To fulfil P2’s obligation under the purchase agreements, on 28 Nov 2014:-
(i)  P1 sought to transfer monies from P1’s account with D to P2’s account with D [ASoC §30];
(ii)  the purpose of such transfers was for payment to Midas under the Scrap Copper Contracts [ASoC §31].
(d)  However, D refused to honour the instructions [ASoC §38]. D’s refusal is related to a letter issued by the Customs & Excise Department, colloquially known as a “no consent letter”.
(e)  Ps then argues that, in failing to honour Ps’ instructions:-
(i)  D is in breach of its contractual mandate against P1 [ASoC §46].
(ii)  Alternatively, D owes a tortious duty of care to P1 and P2 and is in breach of such duty in failing to give effect to P1’s instructions [ASoC §48].
(f)  As a result, it is said that D is liable for damages arising out of P2’s breach of the sale and purchase contracts with Midas and Hongsen [ASoC §55].

B.2 Draft Re-Amended Statement of Claim (RASoC)

4. By this application, Ps seek to re-amend its ASoC. The draft RASoC attached to the Summons contains a large number of amendments, although quite a number of them are stylistic.

5. Substantively, four main areas of additions can be identified.

(a)  Addition 1: §49, which consists of 14 sub-paragraphs, can be roughly termed the “Gold Mining Agreement” (GMA) amendments. In gist, Ps’ case is that:-
(i)  Due to a number of agreements entered into by P1 (via a company named Winko), P1 was entitled to mineral rights in the PRC provided that P1 fulfilled its obligations under the agreements [ASOC §49.13].
(ii)  Due to D’s breach of contractual mandate or the tortious duty of care, Ps failed to fulfil its obligations under those agreements and had the mineral rights confiscated, resulting in losses [ASOC §49.14].
(b)  Addition 2: §50 provides that, due to D’s breach of contractual mandate or the tortious duty of care, P1 failed to pay security for costs in HCA 964/2012, as a result of which losses were suffered.
(c)  Addition 3: There is a plea titled “Reasonable Time Limits”, which at first glance, appears to be a plea in relation to postponement of time bar:-
(i)  §§51-52 pleads the process by which Ps were able to obtain C&E’s no consent letter on 14 May 2021.
(ii)  §53 alleges that the contents of the no consent letters were inconsistent with statements made by the staff of D at various times in 2014, and also in the Defence.
(iii)  §54 then goes on to allege that the said statements by the staff of D were false, and that they did not believe such statements were true. It then goes on to allege that “As the truth was concealed, the reasonable time limit shall begin to run from the date of the “disclosure” of the letter by the Defendant on 14 May 2021”.
(d)  Addition 4: At the first paragraph in §55, there is a plea for claim for “aggravated, punitive and/or constitutional damages” due to the defendant’s tortious conduct in obtaining Ps’ property by deception and/or unlawful deprivation of the plaintiff’s property, in breach of Article 105 of the Basic Law. There also appears to be related pleas at:-
(i)  §42;
(ii)  §55(1), where losses are said to result from misappropriations of property by inter alia D;
(iii)  The reference to §55(1) in prayer for relief at para (2).
(iv)  prayer for relief at para (3).

C. Ps’ Changes of Stance and Latest Position

6. 5 days before the hearing on 18 January 2022, Ps put forward a revised version of the draft RASoC; with further revisions trickling in on 14 January 2022. However, no formal application for amending the original Summons was made.

7. Not surprisingly, Mr Fung SC (together with him Mr Brian Lee) complained about the lateness of these revisions in their Skeleton filed on 14 January 2022.

8. Early on the day of the hearing, Mr Alan Ng (together with him Mr Ivan Lee), acting for Ps, filed a Note of Reply. Therein, Mr Ng confirmed that Ps will only proceed with the original draft RASoC, and not the further revised versions. Mr Ng also made it clear that he is not going to pursue Addition 2, ie, the claim in relation to HCA 964/2012.

9. At the hearing, I also clarified with Mr Ng his stance as to the remaining Additions, as he had not made submissions on all of them.

(a) As to Addition 3, Mr Ng submits that these were background facts, rather than constituting any cause of action. Nor is postponement relied upon as a ground to extend the limitation period (as discussed below). On this basis, I am not minded to allow these additions, especially when, as summarized above, Addition 3 contain serious allegations of fraud to which no properly pleaded cause of action attaches.
(b) As to Addition 4, Mr Ng’s position is that he would not make any submissions thereon, although he has no instructions to abandon them. In this regard, I agree with Mr Fung SC’s submissions that they should not be allowed in, as the case Harvest Good Development Ltd v Secretary for Justice (HCAL 32/2006, 16 July 2007) at §138 makes it quite clear that Art.105 of the Basic Law relates to compensation for expropriations of property by the State, not private individuals.

10. The main bone of contention is therefore Addition 1.

D. Addition 1 – the Gold Mining Agreements

11. Before embarking on any analysis, it would make sense to first understand in a little bit more detail the pleas made by Ps in this regard.

D1. The Pleas

12. With no disrespect to the drafter(s) (not Mr Ng and Mr Lee), the pleas are rather convoluted and not the easiest to understand. Quite a bit of interpretation and reasoning is required to decipher the exact order of events. My best understanding of the pleas are as follows.

13. On 23 February 2011, a company named Winko and a Mr Xu entered into a Gold Mining Agreement (GMA) to set up a JV to hold a gold mining project [RASoC §49].

(a)  In entering into the agreement, it is alleged that Winko acted as a representative/trustee of P1. A declaration of trust appears to show that Winko held 80% of the JV for P1.
(b)  Under the agreement, Winko had to pay RMB40M, RMB 40M and RMB 30M by 23 February 2012 (the 3 Tranches) [RASoC §49.2(1)].
(c)  Further, once exploration reports are issued, Winko needs to attend the local Government bureau to register the existence of the JV Co.
(d)  Once the JV Co is set up and the business licence obtained, there will then be further obligations on the part of Winko to inject capital into the JV Co, the quantum being:-
(i)  RMB 400M within 30 days; and
(ii)  another RMB 400M within 120 days (the Capital Injections).

14. Pursuant thereto, Winko paid the first 2 of the 3 Tranches in full.

15. However, only RMB 10M out of the RMB 30M was paid for the 3^rd Tranche, due to Custom & Excise’s freezing of P1’s account then kept with Citibank [RASoC §49.6].

16. Despite Winko’s breach, the GMA was apparently varied (in Dec 2014).

(a)  According to Ps, the Capital Injection amount is reduced to RMB200M, which Ps say Winko intends to pay with a loan to be taken out by Hongsen.
(b)  The said loan, however, requires the payment of a deposit of RMB20M.
(c)  Ps allege that the RMB20M was to be satisfied out of amounts payable by Hongsen to P2 under the Scrap Copper Contracts.

17. Ps then allege that due to D’s breach of mandate and/or duty of care:-

(a)  the Scrap Copper Contracts cannot be completed;
(b)  Hongsen is no longer liable to pay P2 under the Scrap Copper Contracts, and the source of the RMB20M deposit evaporated;
(c)  this led to the failure of the RMB200M loan, whereby Winko failed to pay the Capital Injection;
(d)  Winko’s interest in the mines, which is held for P1, became valueless [RASoC §49.14].

D.2 Issue 2 - Lack of Standing to Sue or Locus

18. I start with D’s objection based on lack of locus. In gist, D argues that, given Winko and not Ps is the party to the GMA, Ps have no standing to sue for losses. D also makes the point that even if Winko were a trustee for P1, this does not make P1 the proper plaintiff, as it would normally be for the trustee to sue.

19. In response, Ps argue that this point is a red herring, as the claim herein is not one of breach of GMA.

20. I agree with Ps on this point. The causes of action relied upon herein are breach of mandate and/or breach of the tortious duty of care by D. It is not dependent on the GMA and who the parties are to it. The GMA is the background against which it is said Ps had suffered loss.

D.3 Issue 3 - Lack of Causation

21. D’s second objection is based on lack of causation. As I understand it, D claims that there is an insufficient causal link between the alleged breach and the loss.The point is framed by D as follows:-

(a)  On Ps’ pleaded case, Winko is obliged to pay 3 tranches of capital contribution totalling RMB 100M on or before 23 Feb 2012 [RASoC §49.2(1)].
(b)  RMB 80M had been paid [RASoC §49.3]. The alleged inability to pay must relate to the remaining RMB 20M [RASoC §§49.5-6].
(c)  However, by the deadline for payment (i.e., 23 Feb 2012), the monies were not yet with D. Instead, they were with Citibank.
(d)  As such, D could not have been the reason why Winko failed to pay the capital contribution.

22. Based on my understanding of the pleas (see §§12-16 above), Ps’ case is not that the losses claimed arose out of the failure to pay RMB 20M (as referred to in §14 above).

23. Instead, it is tolerably clear that such obligation had been said to be varied in December 2014, whereby the obligation became one to inject RMB 200M as capital (see §15 above).

24. As to the causation chain, so far as I understand it, Ps’ case is that:-

(a) The breach of mandate/duty caused the failure of the Scrap Copper Contract.
(b) The failure of the Scrap Copper Contract made it impossible to pay the RMB20M required to be paid to raise the RMB 200M Capital Injection under the revised GMA, and this caused loss to P1 (see §16 above).

25. Based on the above, it appears to me that one can see a but for causation link (albeit only after some interpretation and reasoning, as I noted at §12 above). While I must say the plea is far from perfect, given the relatively low threshold at the amendment stage, I do not think that the pleas are bound to fail for lack of a valid plea of causation. Of course, it may be that upon further and better particulars and information discovered the convoluted causation chain may be found to be unsustainable – but this is a matter for another day.

D.4 Issue 4 - Remoteness

26. Moving on to remoteness, D’s point is simple – even if there is but for causation, the claimed losses are far too remote, no matter whether one applies contractual or tortious remoteness principles.

27. In support of this point, Mr Fung SC points to the fact that, while express pleas had been made in the SoC as to Ps’ putting D on express notice that the instructions for payment were made to satisfy the Scrap Copper Contracts, no such pleas had been put forward in relation to the new losses in relation to the GMAs, Mr Fung SC further points out that causation depends on knowledge, and knowledge is something which has to be specifically pleaded under general pleading principles.

28. In response, Mr Ng makes two main points.

(a)  First, he makes the point that there is no legal requirement to plead remoteness. As such, the issue of notice/knowledge is not something for Ps to plead and the lack of such cannot be a ground upon which to refuse an amendment.
(b)  Second, he argues that, even on the principles set out in the CFA case of Richly Bright International Ltd v De Monsa InvestmentsLtd (2015) 18 HKCFAR 232, there are two types of losses which are not barred by remoteness:-
“18. The two limbs are “the practical expression of a single principle … that parties should only be liable for damages which were when they contracted within their contemplation in the event of a breach”[10] and both limbs turn on an objective assessment of what the contract-breaker knew or ought to have known. As Lord Walker of Gestingthorpe observed in Jackson v Royal Bank of Scotland plc:[11]
“The common ground of the two limbs is what the contract-breaker knew or must be taken to have known, so as to bring the loss within the reasonable contemplation of the parties”.
19. The first limb encompasses damages that are “such as may fairly and reasonably be considered [as] … arising naturally, i.e. according to the usual course of things, from such breach of contract”. Since every reasonable person is taken to know of the damage which flows “naturally” from a breach of the contract to which he is a party, this knowledge is imputed to a contract-breaker. In the second limb, actual knowledge is required in respect of special circumstances giving rise to damage which cannot be said to result naturally from such a breach of contract. Where the first limb is relied upon, the horizon of contemplation is confined to loss which arises naturally in the usual course of things and which is therefore presumed to have been within the parties’ contemplation. Under the second limb, the horizon of contemplation is extended to loss that does not arise in the usual course of things but which flows from the circumstances of which the contract breaker had actual knowledge.” [emphasis added]
(c)  In the present case, Mr Ng says he is entitled to rely on the first limb, ie imputed knowledge from the factual matrix, and thus there is no need to plead actual knowledge specifically.

29. As to the first point, the issue, it seems to me, boils down to this: for pleading purposes:-

(a) is “lack of remoteness” an element of causation (which Ps must plead right at the outset); or
(b) is remoteness a doctrine which is more of an issue to be pleaded in defence to sever causation even if but for causation can be established?

30. In this regard, both parties had not cited any cases. One therefore has to fall back on first principles. While there is some attraction to the intuitive point that the law has separated out the concept of remoteness from causation and placed it as a separate heading, which lends some weight to the idea that it is a “positive defence” of some sort, on proper analysis, it would seem to me that this is no more than a convenient frame of analysis which does not actually shift any burdens. The tests for the concept, ie, whether the loss is within the reasonable contemplation of the parties, or assumption of responsibility, appear to be more of facts for the plaintiff to prove rather than points for the defendant to prove.

31. Despite the attractive way in which it was put, therefore, I do not accept Mr Ng’s first point.

32. As to the second point, the existence of an imputed limb means that there is no need for Mr Ng to plead the state of actual or constructive knowledge of D per se, unless the pleaded losses flow so un-naturally from the breach such that, even at this early stage, one must conclude the imputed limb cannot be relied upon, bearing in mind that amendments are only disallowed if they are bound to fail.

33. On the present facts, I fully understand why the remoteness point is taken by Mr Fung SC – the chain of causation of the GMA losses is convoluted – and no doubt remoteness is an issue that comes to mind.

34. In fact, if one thinks about it, here, the claim is breach of the duty to follow an instruction to make payment of money; the most ‘natural’ loss is that Ps had been deprived of use of such monies, which would be compensated by time value of money. The issue, however, is, going one step further, whether consequential business losses is also a loss that flows ‘naturally’ from the alleged breach. At this stage, I find this a difficult question to answer, especially when:-

(a) Before me, there are no authorities giving guidance as what is regarded as ‘natural’ losses arising out of a similar factual matrix (eg, other breach of bank mandate cases).
(b) Neither had there been an analysis of the contractual matrix (ie terms in the banking contract etc) which may highlight the contemplation and allocation of risks.

35. As such, I am unable at this stage to conclude that the losses claimed herein must be regarded as not flowing naturally from the breach (such being a product of the test being that to refuse amendment the amended claim must be one which is bound to fail). I therefore reject the objection to the amendment based on remoteness on the contract claim.

36. For the sake of completeness, I would note that the parties have not focused their submissions in this respect on the tort claim. This is probably for the reason that that, as per the CFA in Richly Bright (supra) at §24, the rules of remoteness for tort are generally more generous to the plaintiff (albeit there is clearly an argument that, when there are concurrent tort/contractual liabilities, the contractual test for remoteness should apply). Given I cannot be sure that Ps’ claim is remote for contract purposes, I will also not debar the amendment for tort on remoteness grounds as well.

D.5 Issue 1 – Time Bar

37. This brings us to the most complicated point – time bar.

38. The parties are ad idem that I should apply the 3 stage approach applied by Ng J in Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd (HCA 2114/2007, 18 July 2016) at §16, being:-

(a)  Stage 1: Is it reasonably arguable that the opposed amendments are outside the applicable limitation period? If not, then the amendments fall to be considered in accordance with the general principles governing amendment applications.
(b)  Stage 2: If the answer to (1) is yes, do the proposed amendments seek to add or substitute a “new cause of action”? If not, then again the amendments fall to be considered in accordance with general principles.
(c)  Stage 3: If the answer to (2) is yes, does the new cause of action arise out of the same or substantially the same facts as are already in issue in the existing claim? If not, the amendments cannot be allowed. If yes, then the court retains a discretion to allow or refuse the amendments in accordance with general principles.

39. I will deal with each stage in turn.

Stage 1

40. Mr Ng had very fairly made no submissions on this Stage; he made no reliance on the postponement of limitation based on the matters pleaded as Addition 3.

41. I therefore assume that Stage 1 is satisfied.

Stage 2

42. The first fundamental question to answer is what constitutes a “cause of action” for the purposes of this stage.

43. A useful starting point would be the Court of Appeal’s decision in Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd [2019] 2 HKC 17 at §81:-

“For the definition of a “cause of action”, one has regard to various dicta in the following cases:
“A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person.”
(Letang v Cooper [1965] 1 QB 232 at 242 to 243)
“A cause of action is that combination of facts which gives rise to a legal right.”
(Berezovsky v Abramovich [2011] 1 WLR 2290 at §59)
““Cause of action” has been held from the earliest time to mean every fact which is material to be proved to entitle the plaintiff to succeed, every fact which the defendant would have a right to traverse.”
(Cooke v Gill (1873) LR 8 CP 107 at 116)
“Euhhvery fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court. It does not comprise every piece of evidence which is necessary to prove each fact, but every fact which is necessary to be proved.”
(Read v Brown (1888) 22 QBD 128 at 131)
“The language I used obviously means this: the plaintiff in order to make out a cause of action must assert certain facts which, if traversed, he would be put to prove. … In former times, if he failed to assert any of those facts, his declaration was demurrable as shewing no cause of action.”
(Coburn v Colledge [1897] 1 QB 702 at 706 to 707)”

44. In my view, the above passages (especially the passage from Coburn) suggest that, in determining what are the facts constituting a “cause of action”, the litmus test is whether the facts must be pleaded to sustain a claim and avoid it being struck out. The discussion in §§82-85 of Shenzhen Futaihong (CA) appears to me to confirm this approach, various cases being cited, with the conclusion being that before comparing the old and the new pleadings, one has to boil the pleadings down to “the essential factual elements”.

45. This is further confirmed by another case dealing with time bar issues, Arta Properties Ltd v Li Fu Yat Tso (HCA 2741/1998, 5 January 2007), whereby Recorder Paul Shieh SC had this to say:-

“These definitions focus on the pleading of material facts sufficient to give rise to a claim that is not susceptible to being struck out.”

46. It will therefore be necessary to separately analyse the breach of mandate claim (based on contract) and the breach of duty of care claim (based on tort). The constituent elements of the claims are different, as loss is not an essential element of the contract claim, but is essential to the tortious claim.

Contract

47. It is not really disputed that, in essence, the GMA amendments relate to loss. As loss is not an essential element of the contract claim, one would have thought the GMA amendments will not lead to a new cause of action.

48. In this regard, Mr Fung SC relies upon the case of Arta Properties (supra) for the proposition that “A claim based on a different contract from that originally pleaded raises a new cause of action.” While I agree with this proposition, I do not think it is applicable to the present case. While the GMA is a new contract, that is not the contract being sued upon.

49. In my view, therefore, the GMA amendments do not add a “new cause of action” for Stage 2 of the limitation analysis insofar as the breach of mandate claim is concerned.

Tort

50. There appears to be no dispute that, in the tort of breach of duty in the present case, loss is an essential element.

51. If so, the general principles stated above tend to support the idea that by adding new losses, the GMA amendments will constitute a new cause of action.

52. Mr Ng, however, tries to persuade me that the approach to loss, as opposed to other elements of the tort claim, is more generous. For this, he heavily relies on the case of Berezovsky v Abramovich [2011] 1 WLR 2290.

53. In that case, the cause of action was the tort of intimidation. Similar to the present case, the writ was taken out within the limitation period but amendments were then sought outside the prima facie time period. Mr Abramovich objected on the basis that the amendments meant that a new cause of action had been pleaded.

54. The Court then went on to identify the “essential facts” which constitute the tort, such being [§62]:

(a)  The threat by Mr Abramovich to procure expropriation of Mr Berezovksy’s interest;
(b)  Mr Abramovich’s intention to coerce Mr Berezovsky to dispose of his interest;
(c)  Mr Berezovsky was coerced into disposing of his interest;
(d)  Mr Berezovsky suffered loss as a result.

55. It is thus clear that, like the tort herein, the tort of intimidation also has loss as an essential element. Longmore LJ then had this to say:-

“62…In these circumstances no new cause of action is alleged in the proposed amended pleading unless it can be said that once a claimant has particularised his loss, for example (to take the example used in argument) by alleging the loss or theft of his cat, he cannot thereafter allege the loss or theft of his dog. As Mr Popplewell put the argument: a pleader can particularise a general allegation but, once he has so particularised it, he cannot regeneralise the particular without alleging a new cause of action.
63 It may indeed be the case that if a claimant, suing in tort, substitutes by amendment a different kind of loss from that originally pleaded, he will be asserting a new cause of action, but that will not always be so. One needs to know more of the facts of the case before one can confidently assert that the claimant is proposing to substitute a new cause of action. If an act of violence constituting a single breach of duty causes the loss of both a cat and a dog, the claimant would not be substituting a new cause of action if he substituted the word “dog” for the word "cat” but would be relying on the original cause of action which had caused loss. He would be substituting a new loss for the old loss but would not be substituting a new cause of action for the original cause of action. If on the other hand the claimant was relying on a second and distinct act of violence causing a loss at some different time from the loss originally caused to the cat, he would no doubt be relying on a different cause of action.
64 Thus the addition or substitution of a new loss is by no means necessarily the addition or substitution of a new cause of action. For a cause of action to arise in tort there must be a breach of duty which causes loss but it is permissible to add or substitute further losses if they all stem from an original breach of duty which has caused some loss. This happens every day in personal injury claims in which a loss of earnings claim may be added to (or substituted for) a claim for loss and suffering, even after the original time bar has expired; there is no question of a new cause of action being added or substituted because the loss all stems from the negligent act of the car driver or other tortfeasor…” [emphasis added]

56. Applying these principles, Mr Ng argues that the GMA pleas do not change the duty which is said to be breached (ie, the bank’s duty to take care in handling instructions) – he is adding a new loss for the same breach.

57. Mr Fung SC’s response, it appears, is as follows. He does not dispute Berezovsky and indeed states that he relies upon it. He highlights the fact that, at §64 thereof (cited above), the English Court of Appeal used the words “by no means necessarily”, thus indicating that the test is not cut and dried and is fact sensitive. He further relies on the case of Steamship Mutual Underwriting Association Ltd v Trollope & Colls (City) Ltd 33 BLR 77 at 78, whereby May LJ had this to say:-

“In the present case, if one remembers what a cause of action is…if one looks to the size of this particular building, to its complexities…I feel bound to agree with the learned judge where he concluded, the statement of claim in both its original and amended form related only to the air conditioning… In the light of the definitions of a cause of action already referred to, I do not think one can look only to the duty on a party, but one must look also to the nature and extent of the breach relied upon, as well as to the nature and extent of the damage complained of in deciding whether, as a matter of degree, a new cause of action is sought to be relied upon…” [emphasis added]

58. On this basis, Mr Fung SC submits that a common sense approach has to be taken – the said to be colossal losses based on the GMAs has a wholly different factual basis, and is suffered at a different date. On any view, he says, it is so different that it must constitute a new cause of action.

59. I can see much force in Mr Fung SC’s argument. If one had to look at the test purposively, drastic changes in the pleaded losses after an extended period of time creates the same evidential difficulties as changes in other elements of the cause of action. Normatively, there is much to be said about taking a broad view of matters and relying on intuition, rather than hard principles.

60. However, in my view, time limits are never simply about broad justice, and a certain level of technicality is involved in the constant struggle between the certainty of bright line rules and the need to do justice in an individual case. On the case law, it appears to me that the proper approach may well be this.

(a)  As I see it, Berezovsky is the case that is more specific to the issue of substitution/change of pleas of losses. In effect, its ratio boils down to this – the essential element that constitutes the cause of action is that the plaintiff suffered loss as a result of the pleaded breach – rather than the fact the plaintiff suffered a specific loss therefrom.
(b)  As such, insofar as the change to the plea of losses is not dependent on the need to plead a different duty or breach thereof (which are other essential elements of the cause of action), no new cause of action is constituted for time bar purposes.
(c)  Of course, as is well known, in tort, the questions of scope of duty, breach, causation and loss are intertwined – and sometimes issues can be slotted into one category or another – depending on the framework of analysis adopted.
(d)  Cases such as Steamship Mutual therefore simply remind us to avoid allowing the framework of analysis to cloud the overall picture – in some cases, drastic changes to the losses pleaded may indicate that what is in effect being changed is the scope of duty and/or the breaches complained of.

61. Applying this approach, my view is that, on the facts of this case, the GMA pleas proposed to be added herein arise from the same alleged breach of mandate/duty, and do not reflect any change to the essential elements of the cause of action. The change in pleaded loss cannot be meaningfully reframed as one of shift in the scope of duty and/or the circumstances of the breach.

62. In my view, therefore, the GMA amendments do not add a “new cause of action” for Stage 2 of the limitation analysis insofar as the tort claim is concerned as well.

63. It is thus unnecessary to deal with Stage 3.

E. Conclusion

64. For the reasons above, I will only allow amendments in relation to Addition 1.

65. The costs orders nisi is as follows:-

(a)  Costs of the application up till 15 September 2021 be to D, to be payable in any event and to be taxed if not agreed;
(b)  20% of costs thereafter be to Ps, to be payable in any event and to be taxed if not agreed, with certificate for two counsel;
(c)  Costs of and occasioned by the amendments be to D, to be payable in any event and to be taxed if not agreed.

66. The reason I have only allowed Ps 20% of costs is as follows:-

(a)  While they can be seen as the overall winner, 3 out of 4 Additions were abandoned and/or not allowed.
(b)  Ps’ change of stance (see §§6-8 above) generated much inconvenience for the Court and inconvenience and costs on the part of D. Ps must be held responsible.
(c)  There is also an additional procedural issue concerning the filing of a further affirmation by Ps without leave. Master Rita So first gave an order for filing of an affirmation in support on 24 August 2021. Ps filed the Affirmation of Chun Yuet Ming Jessica on 7 September 2021 accordingly. However, without leave, a further affirmation, the 2^nd Affirmation of Chin Kam Chiu, was filed on 15 November 2021. This is not permissible.

67. Finally, I would like to thank Counsel for their invaluable assistance.

(Alexander Tang)
Master of the High Court

Mr Alan Ng Man Sang and Mr Ivan Lee, instructed by K H Mak & Co, for the Plaintiffs

Mr Eugene Fung SC and Mr Brian Lee, instructed by Mayer Brown JSM, for the Defendant

YINGGAO RESOURCES LTD AND ANOTHER v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD

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