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HCA 1911/2012


IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
HIGH COURT ACTION NO 1911 OF 2012
_________________________

BETWEEN

LEUNG SIU Plaintiff
and
BANK OF CHINA (HONG KONG) LIMITED

Defendant

_________________________


Before: Mr Registrar K.W. Lung in Chambers (Open to the public)
Date of Hearing: 7 March 2014
Date of Decision: 7 March 2014

_____________
D E C I S I O N
_____________


THE APPLICATION

1. This is the plaintiffs application for adducing expert evidence
under Order 38 rules 4 & 4A of RHC (as submitted by Mr. P. Wong,
Plaintiffs counsel). I consider that the appropriate rule should be rule 36.
Rule 4 refers to limitation of expert evidence; rule 4A, evidence by single
joint expert whereas rule 36 is on restrictions on adducing expert evidence.
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Mr. Wong agrees this is the correct rule for the plaintiffs application. The
defendant opposes this application. The defendant is represented by Mr. V.
Dawes, counsel.

2. The terms of the plaintiffs summons for the application are:

1. Leave be granted for the Plaintiff and the Defendant to
adduce expert witness to give opinion to the nature and
risk levels of the finance products, namely, Note 11A and
Note 35B as pleaded in paragraphs 4 and 7 of the
Statement of Claim,

2. The Plaintiff and the Defendant shall exchange their
expert reports within 28 days before the setting down of
this trial.

3. The costs of and incidental to this application be costs in
the cause.

THE JOINT LETTER

3. Pursuant to Master Hos direction, the parties have jointly
signed a letter, in which they set out their positions on this issue. The
plaintiff explained that the expert evidence was necessary to assist the Court
to understand the risks involved in the product for the following reasons:

(a) The Plaintiffs cause of action include i) the Defendants
breach of duty of care, in particular the failure to comply
with the Code of Conduct of Persons licensed by or
registered with the Securities and Futures Commission
(paragraph 12b of the Statement of Claim); ii) the
particulars of the Defendants breach in paragraphs 15(f),
15(i), 15(m) and 15(n) on various risks of the Products;

(b) The Plaintiff contends that it was the Defendants duty to
ensure the Plaintiff understanding the nature and risk of
the Products (paragraph 13(1) of the Statement of
Claim).
1


1
See letter dated 28 February 2014
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4. The defendant opposed the plaintiffs application on the ground
that detailed information had been set out in the relevant leaflets, program
prospectus and issue prospectuses, all of which had been disclosed under
items 4 to 9 of the Defendants list of documents.
2
So the defendant
maintains that there is no necessity for expert evidence to be adduced in this
matter.

PLAINTIFFS CAUSES OF ACTION

5. The plaintiff, aged about 60, had suffered loss in her investment
in credit-linked notes, viz Note 11A and Note 35B (the Notes). She claims
that she was induced by a Miss Yu of the defendant to sign the agreements
for the Notes. She now claims against the defendant for damages. Mr.
Wong has set out the plaintiffs causes of action against the defendant in
paragraph 10 of his written submission:

a. Misrepresentation of D; (A/11-14)

b. Undue Influence of D; (A/14-16)
and

c. Negligence and breach of fiduciary duties and implied terms of
D under the 1
st
and 2
nd
Agreements. (A/16 to 23)

THE DEFENDANTS GROUNDS OF OBJECTION

6. Mr. Dawes submits that the expert evidence is not necessary
because it is irrelevant to the real issues between the parties.
3


2
3 of written submissions
3
12 of written submissions
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THE APPLICABLE LEGAL PRINCIPLES

7. I shall now set out the relevant legal principles applicable to the
discussion below:-

a. Under Order 38 rule 36 of RHC, unless the parties agree, no
expert evidence may be adduced at the trial without leave of
court. See Fung Chun Man v Hospital Authority HCPI
1113/2006 by Bharwaney J on 24 J une 2011 ;

b. The court is concerned with proper directions for expert
evidence in order not to cause delay and waste of expenses.
Faith Bright Development Limited v Ng Kwok Kuen [2010] 5
HKLRD 425 at 430-431;

c. Where the proposed expert evidence is plainly inadmissible or
irrelevant, the court will refuse admission of such evidence. If
the court cannot form a clear view on the relevance or the
evidence is clearly relevant, it should grant leave for the
evidence to be adduced at the trial. The evidence is relevant if it
is helpful to the court in arriving at its decision on one or more
of the issues to be resolved. Wong Hoi Fung v American
International Assurance Company (Bermuda) Limited & Shrila
Chan [2002] 3 HKLRD 507;

d. However, evidence meeting the test could still be excluded if
the court took the view that calling it would not be helpful to the
court in resolving any issue in the case justly. Such evidence
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would not be helpful where the issue to be decided was one of
law or was otherwise one on which the court was able to come
to a fully informed decision without hearing such evidence.
Barings plc (in liquidation) and another v Coopers & Lybrand
(a firm) and others Barings Futures (Singapore) Pte Lye (in
liquidation) v Mattar and others [2001] All ER (D) 110 by
Evans-Lombe J .

e. When there is a dispute over whether expert evidence should be
adduced at trial, the court has to examine the pleadings to
determine whether the proposed expert evidence is required in
the pleaded case. Yeung Ga Wai v Lau Ming Shum
HCA798/2004 delivered on 19 J uly 2012; the burden of
establishing relevance is on the applicant, at 7 of Majorette
Hong Kong Ltd v Fullmore Corporation Ltd HCA1583/2008
(unreported, 23 J une 2010);

f. Expert evidence must be confined to the live issues of dispute
between the parties, which must be sought from the pleadings
China Gold Finance Limited v CIL Holdings Limited & Ors
HCA2900/2001 (unreported, 25 September 2012, at para.
17-18.)

g. It will be helpful to bear in mind the factors of real issues of
dispute between the parties; the burden of proof; fair trial and
proportionality for the determination of the scope of expert
evidence. See paragraph 10 of Pak Ko Batteries Factory Ltd &
Others v New Leader Battery Industry Ltd HCA1139/2007
(unreported, 14 J anuary 2014).

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DISCUSSION

Misrepresentation

8. On the issue of misrepresentation, the allegations are set out in
paragraphs 4 to 7 of the Statement of Claim. They relate to the Notes. I do
not propose to set out the terms in detail. Suffice it to say, they relate to the
facts, the nature of redemption and risk-free of the Notes, all of which are
facts. The defendant has in paragraphs 6-9 of the Defence denied those
factual allegations.

9. It will be helpful to note that the defendant does not dispute that
the Notes are credit-linked Notes; that they are not principal protected; that
they are high risk products and finally the defendant says that its
representative had explained to the plaintiff those matters as pleaded in
paragraph 6 of the Defence, to which the plaintiff disagreed as pleaded in
paragraph 3 of the Reply.

10. It is quite apparent that on the issue of misrepresentation, the
proposed expert evidence is not relevant because the dispute on factual
issues should only be solved by the factual witnesses evidence. Expert
evidence simply has no role to play at the trial.

Undue influence

11. On the issue of undue influence, the plaintiff pleaded in the
Statement of Claim that she was induced to sign the 1
st
and the 2
nd

Agreements of the Notes under the undue influence of the defendant and
pursuant to the faith, trust and confidence reposed in the defendant without
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any separate or independent advice and without due consideration of the
reasons for or the effect of what she was doing. The plaintiff then set out the
defendants position in the banking business as compared to her position of
not understanding English and being a long-time relationship between the
defendant and the plaintiff, the plaintiff reposed trust and confidence in the
defendant. See paragraphs 11 and 12 of the Statement of Claim. The
defendant denied that any of its authorized representatives including Ms Yu
had induced the plaintiff. See paragraphs 13 and 14 of the Defence.

12. Again, the issue of undue influence is really a mixed issue of
law and factual dispute between the plaintiff and the defendant. For the
same reason as misrepresentation, the factual dispute can only be solved by
factual evidence. As to the issue of law, the expert evidence simply does not
assist. Therefore, the expert evidence will not assist the trial judge on this
issue.

Negligence & breach of fiduciary duties etc.

13. On the issue of Negligence and breach of fiduciary duties and
implied terms of D under the 1
st
and 2
nd
Agreements, the plaintiff has set out
the code of conduct for persons licensed or regulated by the Securities and
Futures Commission from (a) to (n) and she has also set out the particulars of
the breach of duties/implied terms as from (a) to (v). On a broad-brush
approach over these items, I do not consider that the plaintiff relies on all of
them in support of the application. It will therefore be useful to make
reference to Mr. Wongs submissions as to the relevant items on which
expert evidence is required.

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14. In paragraph 3, supra, I have set out the plaintiffs concern over
the parts of the Statement of Claim, which her counsel submits that expert
evidence should be given. I am very much assisted by the discussion with
respective counsel today.

Breach of The Code

15. Paragraph 3(a) refers to paragraph 12b of the Statement of
Claim. This paragraph pleaded that the defendant should comply with the
Code. The Code was pleaded in paragraph 13 of the Statement of Claim. Mr.
Wong does not dispute that the Code is not the statutory code. In DBS Bank
(Hong Kong) Ltd v San-Hot HK Industrial Co Ltd & Anor (Deputy J udge
Pow SC) [2013] 4 HKC at paragraph 217, the Court explained that the Code
was not the subsidiary legislation. The breach of the Code did not render the
person in breach liable to any judicial proceedings; that it was only provided
for regulating the conducts of the registered members and was only
admissible in determining that question.

16. The plaintiff then refers to paragraph 15(f) failing to declare
the accurate risk relating to the Notes to the plaintiff; 15(i) failing to
explain and advise the plaintiff the nature and potential risk of the Notes;
15(m) omitting to advise the plaintiff the risk of credit default swap
embedment; and 15(n)- omitting to advise the plaintiff if she were qualified
for the credit risk for the Notes. The plaintiff emphasizes on the defendants
duty to ensure that the plaintiff understands the nature and risk of the
products.

17. Mr. Dawes argues that the above items concern whether proper
and correct explanation had been given, which is not the case or the
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alternative claim made by the plaintiff.
4
Mr. Dawes also highlights the
importance of specifying the exact complaints of the plaintiff in relation to
the matters that the plaintiff alleges that the defendant had failed or omitted
to explain to her in the pleadings so that the defendant may make
corresponding pleadings to those allegations.

18. Mr. Wong argues that the plaintiff has pleaded her case in the
Statement of Claim as specified in paragraph 15 as mentioned above. He
further argues that by pleading that the defendant had failed to explain the
questionnaire or the risks to the plaintiff, the plaintiff means that even if the
defendant had explained, the word fail should also mean not sufficiently
explained. Hence the pleadings are clear enough for the present application.
With respect to Mr. Wong, I consider that, given the defendants Defence
that she had given explanation to the plaintiff, the fact that for items where
no explanation had been given and those items that explanation was
insufficient must be pleaded clearly together or in the alternative. Otherwise
the Court will be confused. This is illustrated in the cases of the Court of
Final Appeal.

19. The importance of proper pleadings is well-illustrated by the
Court of Final Appeal in Sinoearn International Ltd v Hyundai-Ccecc Joint
Venture (a firm) FACV22/2012 (Ribeiro PJ 30 September 2013) where
Ribeiro PJ said at 27:

27. We have been faced with the extraordinary situation of
a plaintiff being allowed at trial to run two alternative
unpleaded cases without being required even to formulate a
proposed amendment setting out what exactly those
alternatives are. We face the even more extraordinary situation
of the plaintiff proceeding on appeal on the basis of the

4
21 of written submissions
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alternatives still not pleaded by way of amendment and
succeeding on one of those alternatives. The position remained
the same with nothing formulated in writing even when the
case came on for hearing in this, the Court of Final Appeal.
This has given rise to confusion and a real likelihood of
procedural unfairness.
At 30
A party must raise all the issues he wishes to raise to be dealt
with at the trial. Parties are not entitled to have issues recently
thought up dealt with separately and piecemeal. The other
party is entitled to know from a clear pleading what is the entire
case he has to meet so that he can decide whether particulars
should be sought; how he should plead in response; what
discovery he is entitled to; what evidence he should adduce to
meet it; and what points of law should be taken.

20. On the same day, another case before the Court of Final Appeal
on the importance of pleadings where the CJ highlighted at 21 and 23 in
Kwok Chin Wing v 21 Holdings Ltd (formerly known as GFT Holdings Ltd,
Capital Prosper Ltd and Rockapetta Holdings Ltd & Another FACV 9/2012
(CJ Ma, 30 September 2013):

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

23. The purpose of pleadings, in clearly and unambiguously
setting out the true extent and nature of a dispute not just for the
benefit of the parties but also for the Court in managing and
trying cases, remains important under our system of civil justice.
The retention of the old rules as to pleading as well as the
introduction of new provisions over four years ago under the
Civil Justice Reform, reinforce this.
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21. If the plaintiff has pleaded that the defendant had explained the
nature and the risk of the product to the plaintiff at the material times, but the
explanation was unclear, not comprehensible or not in full, then the factual
matrix of the case may be different. The legal issue may also be different as
the question whether the defendants representative had the duty to give a
full explanation of the product will be required under the law, bearing in
mind the complexities of the product and it would take more than an expert
in the banking business to fully understand the terms of the product. The
plaintiff may have to plead the case clearly such requirements under the law.
The defendant will make corresponding pleadings in the Defence.

22. Mr. Wong relies upon the Decision in the case of Citibank NA v
Noble Treasure Ltd HCA2639/2008 Deputy J udge Au Yeung (as she then
was) 23 December 2010 and says that in that case, leave was granted to the
applicant to adduce expert evidence. In that case, the plaintiff claimed
against the defendants for shortfall in their investment accounts. The
defendants pleaded that the plaintiff was in breach of trust by recommending
the high risk products to the defendants, who had suffered substantial loss.
The defendants sought leave to adduce expert evidence on the nature, risk
and suitability of the financial products for the defendants. The plaintiff did
not put up strong objection to the expert evidence relating to the issue of
nature and risk of the product. See paragraphs 9 and 11, the last sentence.
The Deputy J udge, (as she then was), found that the expert evidence might
be helpful for the trial. But I tend to agree with Mr. Dawes that the factual
allegations of the defendant are not clear. In those circumstances, I have to
assess the proposed expert evidence within the context of the plaintiffs
pleaded case. As to the code of conduct, the Court found that it was within
the courts ability to understand the terms of the code. Expert evidence
should not be allowed on this issue. See paragraph10. However, as I have
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said, I should focus my attention to the facts of this case. Also, the plaintiff
argued that the proposed expert was not qualified to give such expert
evidence. The Court held that the issue should be determined by the trial
judge. [26 & 27] The Decision in this case is not very helpful to support the
plaintiffs application.

23. In any event, as observed by Deputy J udge Au-Yeung in
Citibank NA v Noble Treasure Ltd HCA2639/2008 referred to by Mr. Wong,
the terms of the Code do not require an expert to explain to the trial judge.
The defendant has admitted that the Notes are high risk product. It is one
thing for the representative to explain the risks of the Notes to the plaintiff,
but it is another thing to require the representative to explain the ins and outs
of the risks embedded in the complicated prospectuses of the Notes. As I
have observed, the prospectuses are so complicated that even an experienced
banking officer may not be able to fully understand the mechanics of the
financial products, let alone a registered financial advisor. Furthermore,
even if an expert who understands the mechanics of the financial products, to
require him to make the investor with the education background such as the
plaintiffs understand the mechanics is almost verging upon impossibility. It
seems that there is no requirement that the investor can only make the
investment if he fully understands the mechanics of the investment risks. It
was not pleaded that this is the position in the Statement of Claim.

Proportionality

24. Mr. Wong has not addressed me on the estimated costs for
expert evidence as proposed. He now tells me that the cost will be around
$50,000. Mr. Dawes takes a different view, given the wide scope of the
proposed expert evidence.
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CONCLUSION

25. In the analysis, I agree with Mr. Dawes that the terms of the
summons for expert evidence are too wide. If an expert were to give
opinions on those terms, the opinion may not serve the purpose and may
even muddle the issues and escalate the costs and time for the trial.

26. As I share the view of Deputy J udge Au-Yeung (as she then
was) in the Citibank case, I do not intend to reframe the issues for expert
evidence. I shall simply dismiss the summons.

27. As to the costs of this application, the costs should follow the
event, (with a certificate for counsel) and to be assessed under Order 62 rule
9A of RHC. I have had the benefit of having both parties schedules of costs.
The costs for the defendant are now assessed at $100,000 to be paid by the
plaintiff to the defendant within 14 days from the date hereof.

28. As to the Case Management Conference for today, it has to be
adjourned to be heard after the disposal of the defendants summons dated
29 J anuary 2014, which has been rescheduled to the heard at 10:00 am on
29 May 2014 before myself and the hearing date on 28 May 2014 be
vacated.





(K.W. Lung)
Registrar, High Court
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Mr. Peter Wong, instructed by Lee & Associates Law Office, for the plaintiff

Mr. Victor Dawes, instructed by Clifford Chance, for the defendant