WINGAMES INVESTMENTS LTD AND OTHERS v. MASCOT LAND LTD AND OTHERS

CACV 63/2012 AND HCMP 2691/2011

CACV 63/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 63 OF 2012

(ON APPEAL FROM HCA NO. 907 OF 2011)

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HCMP 2691 /2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2691 OF 2011

(ON AN INTENDED APPEAL FROM HCA NO. 907 OF 2011)

________________________

________________________

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REASONS FOR JUDGMENT
AND
JUDGMENT

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Hon Fok JA:

Introduction

1.  This appeal and the applications for leave to appeal arose out of various interlocutory orders made by Reyes J in the course of this litigation.

2.  CACV 63/2012 was the defendants’ appeal[1] against the Judge’s order dated 3 October 2011:

“… that the Second Defendant return the HK$44,000,000 deposit advanced by the China HealthCare Holdings Limited to China Zhongfu Industry Co., Ltd., to the Second Plaintiff, and that the Second Plaintiff return the RMB37,928,000 deposit advanced by China Zhongfu Industry Co., Ltd., to the Second Defendant.”

3.  In HCMP 2691/2011, the plaintiffs seek leave to appeal against the Judge’s orders dated 20 December 2011 whereby he dismissed their applications:

(1)  to strike out paragraphs 70 and 71 and paragraph (2) of the Prayer of the defendants’ Amended Counterclaim dated 14 November 2011; and

(2)  to enter summary judgment against the defendants for part of the claim, namely the return/repayment of the sum of HK$44 million and interest.

4.  On 30 March 2012, Tang VP (as he then was) directed that the plaintiffs’ applications for leave to appeal in HCMP 2691/2011 be heard together with the defendants’ appeal in CACV 63/2012 and that, should leave be granted, the appeals be heard immediately after the appeal in CACV 63/2012.

5.  At the conclusion of the hearing of the appeal and applications for leave to appeal, we:

(1)  allowed the appeal in CACV 63/2012 and set aside the Judge’s order dated 3 October 2011 in respect of the repayment of the deposits, with reasons to be handed down in due course; and

(2)  reserved judgment in relation to the applications in HCMP 2691/2011.

6.  This Judgment sets out our reasons for allowing the appeal in CACV 63/2012 and our decision on the applications in HCMP 2691/2011.

Factual background

7.  The factual background to the order giving rise to CACV 63/2012 is succinctly set out in the Reasons for Decision dated 7 December 2011 of Yuen JA granting the plaintiffs’ application for security for costs of the application for leave to appeal and, for convenience, the relevant paragraphs are set out below:

“Factual background

8. In 2010 there were negotiations between the 2nd Plaintiff, which is a Hong Kong listed company, and the 2nd Defendant, which is a PRC company. The negotiations were for the 2nd Defendant to sell its shares in a PRC company (“Shanghai FSY”) to the 2nd Plaintiff, in consideration for $3,360,000,000 which was to be provided by way of convertible notes which could be converted into shares of the 2nd Plaintiff.

9. According to the Plaintiffs, it was agreed that the transaction was to be structured in such a way that the convertible notes would be provided, not directly to the 2nd Defendant, but to the Procurer, a BVI company wholly owned by a Thai company which had been set up by the 2nd Defendant with the approval of the PRC Ministry of Commerce. According to the Plaintiffs, that approval was essential as it affected the legality of the implementation of the transaction.

10. According to the Plaintiffs, the 2nd Plaintiff entered into a Sale and Purchase Agreement on or about 19 August 2010 (“the August SPA”). This was supplemented by 4 Supplemental Agreements (collectively referred to as “the SPA”). Suffice it to say that the Defendants’ case is that the SPA had not been concluded and that documents had not been duly executed in accordance with their terms.

Exchange of deposits

11. On 3 November 2010, the 2nd Defendant and the 2nd Plaintiff signed an agreement in Chinese which has been called “the Deposit Agreement”.  It provided (in its English translation):

“Pursuant to the terms stipulated in the ‘Very Substantial Acquisition Agreement’ [the 2nd Plaintiff] pays HK$44,000,000 to the [2nd Defendant] as deposit; [the 2nd Defendant] promises the performance of this Agreement, and pays [the 2nd Plaintiff] or the designated accounts of the [2nd Plaintiff] an amount of RMB37,928,000, equivalent to HK$44,000,000.

Upon the Completion of the transaction, [the 2nd Plaintiff] would return the security deposit of RMB37, 928,000 to [the 2nd Defendant].

If for any objective reasons, the transaction cannot be completed, then both parties have to return the above deposit and security deposit”.

12. Pursuant to this Deposit Agreement, the 2nd Plaintiff paid HK$44m (“the HKD sum”) to the 2nd Defendant, and the 2nd Defendant paid RMB37,928,000 (“the RMB sum”) to the 2nd Plaintiff.

13. According to the Plaintiffs, the 2nd Defendant failed to proceed with the transaction.

Proceedings issued

14. On 31 May 2011 the Plaintiffs issued proceedings in Hong Kong asking for specific performance. They also sought an interlocutory injunction against the Defendants restraining them from dealing with shares in various associated companies (“the Shares”).

3 June 2011 - Chung J’s order

15. On 3 June 2011 (summons day), there was a hearing before Chung J.

(1) The Defendants produced a 3-page document in Chinese purporting to show “imminent pending transactions which form part of the ordinary course of business” (which I will for convenience call “the Transactions document”). However no affirmation had been filed in relation to that document. The learned judge adjourned the hearing to 17 June 2011 to enable that document to be considered.

(2) As far as the Shares were concerned, the Defendants (except for the 4th Defendant) gave undertakings not to deal with the Shares. The learned judge gave an injunction against the 4th Defendant along the same lines.

(3) As far as the HKD and the RMB sums were concerned, the 2nd Defendant gave an undertaking not to deal with the HKD sum it had received from the 2nd Plaintiff, and the 2nd Plaintiff gave an undertaking to deposit the RMB sum in an escrow account with its solicitors King & Wood (“KW”).

17 June 2011 - Chung J’s order

16. (1) On 17 June 2011, at the resumed hearing, the Defendants opposed the grant of injunctions against them but apparently did not file affidavit evidence, not even to support the contents of the Transactions document.

(2) The learned judge found that the Plaintiffs had “enough merits in their case to justify the grant of an interim order” and that “because of the failure to disclose further information, very little was known about the transactions set out in the [Transactions document]; in particular both the supporting documents and the factual details were lacking” (see Chung J’s Decision handed down on 23 June 2011)

(3) Accordingly the learned judge granted injunctions against the Defendants from dealing with the Shares and the HKD sum until the hearing scheduled for 15 July 2011.

15 July 2011 - Reyes J’s order - “early warning system”

17. (1) On 15 July 2011 the parties appeared before Reyes J. The learned judge gave an order “dismissing” (or setting aside) the injunction orders given by Chung J, on the Defendants’ undertaking that their solicitors provide 96 hours’ notice to the Plaintiffs’ solicitors of “any contemplated transaction in breach of clause 8.1 of the [August SPA]”.

(2) Clause 8.1 provided that the business of the group companies would be operated in a normal and prudent basis and in the ordinary course of business. In particular, no group companies would, without prior written consent, borrow or raised money exceeding RMB20,000,000 other than on normal commercial terms in the ordinary course of its business.

(3) The provision for 96 hours’ notice has been referred to as “the early warning system”.

18. The learned judge also ordered that the RMB sum in KW’s escrow account be paid into a joint stakeholders account in the joint names of the Plaintiff’s solicitors and the Defendant’s solicitors in Beijing.

19. Pausing there, it is clear that the Plaintiffs’ position then was that there was a valid and binding agreement to acquire Shanghai FSY from the 2nd Defendant, and they wanted specific performance of that agreement. The Defendants’ case throughout was that the SPA had not been concluded.

Plaintiffs’ change of position

20. It is the Plaintiffs’ case that a few days after Reyes J’s order of 15 July 2011, they received information that no approval from the PRC authorities had been obtained for the Thai company purportedly set up by the 2nd Defendant, the subsidiary of which was to receive the convertible notes. The Plaintiffs asserted that in those circumstances the claim for specific performance could not proceed.

21. On 25 August 2011 the Plaintiffs, in a change of position from their prior claims, demanded (amongst other things) the return of the HKD sum instead.

22. On 9 September 2011 the Plaintiffs amended their Statement of Claim, deleting their claims for specific performance, and claiming instead a declaration that the Sale and Purchase Agreement had been rescinded, or further/alternatively, validly terminated; and claiming (amongst other things) damages, or further/alternatively return of the HKD sum.

Reyes J’s direction

23. At the hearing of a summons issued by the Plaintiffs on 28 September 2011, Reyes J (presumably on the basis that on either side’s case, there was now no extant agreement) directed the parties to return the deposits to each other.”

Reasons for allowing defendants’ appeal in CACV 63/2012

8.  In support of their appeal the defendants pointed to the fact that:

(1)  In the underlying action (HCA 907/2011), the plaintiffs never sought either specific performance or the rescission of the Deposit Agreement but they do seek, as final substantive relief, an order for the return of the 2^nd plaintiff’s HK$44 million escrow deposit (but without any corresponding offer to return the 2^nd defendant’s RMB37.928 million escrow deposit).

(2)  As at 3 October 2011, the plaintiffs had not applied for any form of summary determination, whether under RHC Order 14 or otherwise, of their substantive claim for final relief that the defendants be ordered to return the HK$44 million escrow deposit to the 2^nd plaintiff.

(3)  Instead, at that hearing, the only application before the court was paragraph 2 of the plaintiffs’ summons dated 28 September 2011 whereby the plaintiffs sought an order that “Paragraph 3 of the Order of the Hon Mr Justice Reyes dated 15 July 2011 be dismissed”.[2]

(4)  That paragraph was made pursuant to the parties’ mutual undertakings whereby the plaintiffs were ordered to pay the 2^nd defendant’s deposit into a joint stakeholders account to be opened in the joint names of the plaintiffs’ lawyers and the 2^nd to 6^th defendants’ solicitors instead of leaving the money in the escrow account of the plaintiffs’ PRC lawyers (King & Wood Shanghai).

9.  In the circumstances, the defendants contended that the Judge lacked jurisdiction to compel the 2^nd plaintiff and the 2^nd defendant to repay the deposits by making, on his own initiative, a final order which effectively ordered the specific performance of the Deposit Agreement.  The Judge’s order summarily determined, in the absence of any application by the parties, their substantive rights by the granting of a final mandatory injunction order which effectively ordered the specific performance of the Deposit Agreement, thereby finally determining rights governed by principles of substantive law and not by any judicial discretion derived from the court’s inherent jurisdiction.  Alternatively, the defendants contend that if there was jurisdiction to make the order, the Judge erred in law or acted in disregard of established principles by anticipating the outcome of the trial process and in disregard of the established principles governing the interlocutory grant of mandatory injunctions.

10.  In support of the existence of jurisdiction to make the order, the plaintiffs relied on the statutory jurisdiction to grant injunctions conferred by s. 21L of the High Court Ordinance (Cap. 4), which provides:

“(1) The Court of First Instance may by order (whether interlocutory or final) grant an injunction … in all cases in which it appears to the Court of First Instance to be just and convenient to do so.”

11.  This jurisdiction is undoubtedly a wide one: see A Co v B Co [2002] 3 HKLRD 111 per Ma J (as he then was) at §37. However, the defendants contended, accepting the existence of the jurisdiction under s. 21L, that the Judge wrongly exercised his discretionary jurisdiction by acting in disregard of the established principles governing the making of final mandatory injunctions.

12.  It appears from the transcript of the hearing before the Judge on 3 October 2011 that his reasoning for making the order he did in relation to the deposits included the fact that on the defendants’ own case there was no contract, that it did not seem that the cross-deposits were meant to be held as fortification for the grant of injunctive relief by Chung J and that “the logical and natural thing to do [was] to return the deposits one to the other as soon as possible”.

13.  With respect to the Judge, although he was clearly motivated by a desire to shorten matters and to achieve procedural economy, I do not consider that his order in relation to the deposits was one which he should have made.  The fact is that, at the time of the hearing on 3 October 2011: the 2^nd to 6^th defendants’ Defence and Counterclaim had not been filed and served; no discovery had been provided; there had been no exchange of evidence relating to the parties’ substantive claims for final relief before the court; there was no application before the court for the return of the deposits; and the Judge was apprised of the 2^nd to 6^th defendants’ intention to seek compensation for the losses allegedly sustained by them as a result of the grant of the interlocutory injunction.

14.  The plaintiffs, who did not initiate the making of the order in question but instead “hitched their wagon” to the Judge’s indication that he was minded to do so, sought to uphold the order by reference to inter-solicitor correspondence and earlier skeleton arguments in which they had indicated a desire for the return of the cross-deposits.  However, the simple fact remains that there was no application before the court on 3 October 2011 for any summary determination of the plaintiffs’ substantive claim for final relief, namely “return/repayment of the sum of HK$44,000,000”.  The allegations on which the plaintiffs’ substantive case is founded are challenged by the defendants.  These challenges may or may not be made out (see below) but, unless and until the underlying substantive claim is determined, whether summarily or after a full trial, a final order for the substantive relief claimed by the plaintiffs in the action should not have been made.

15.  It was then said by the plaintiffs that it was within the scope of the Judge’s powers of case management to handle the matter in the way that he did bearing in mind the court’s duty to manage cases (O.1A r.4), its broad powers of case management including taking steps for the purpose of managing the case and furthering the underlying objectives (O.1B r.1(2)(1) and its powers to make orders of its own motion (O.1B r.2).

16.  I do not agree that this was simply a matter of case management.  However, even where the judge is considering making interlocutory orders on his own motion pursuant to O.1B r.2, the exercise of that power is subject to the requirement under O.1B r.2(3) that the court “shall give each party likely to be affected by the order at least 3 days’ notice of the hearing”.  Plainly, in the present case, the defendants had no notice of the Judge’s intended order prior to the hearing on 3 October 2011 at which it was made.

17.  Mr Alexander Stock, counsel for the plaintiffs, further sought to uphold the making of the order of the return of the cross-deposits on the basis that it was “sensible and reasonable” by reference to the circumstances prevailing, including the fact that it was common ground that the SPA would not and could not be performed and the stance of the defendants in their Defence at the date of the hearing on 3 October 2011.  Notwithstanding the submissions in this regard advanced on behalf of the plaintiffs by Mr Stock, which may or may not be made good in due course, I do not consider that it would be appropriate for this court to resolve on appeal those submissions that amount in effect to an application for summary judgment which has not been the subject of determination by the Court of First Instance.

HCMP 2691/2011

The strike out summons

18.  The target of the strike out application consists of paragraphs 70 and 71 and paragraph (2) of the Prayer of the Amended Counterclaim dated 14 November 2011.  These plead (omitting the Particulars of loss and damage) as follows:

“70. Further, as a result of the injunction and undertakings improperly obtained by Wingames and China Healthcare against the Defendants as pleaded above, the Defendants have suffered loss and damage by reason of being restrained from using the shares of the Shanghai FSY group companies as collateral or security for raising working capital in the course of their businesses.

Particulars

…

71. In the circumstances, Wingames and China Healthcare are liable to compensate the Defendants for the loss and damage sustained as [sic] result of the injunction and undertakings improperly and wrongly obtained against the Defendants.

…

AND the Defendants claim:-

…

(2) Damages, or alternatively, an order for inquiry as to damages sustained by the Defendants as a result of the injunction and undertakings improperly and wrongly obtained by the Plaintiffs;”.

19.  The factual basis for the defendants’ pleading was that the plaintiffs’ change of stance meant that the interlocutory injunction that had been granted was not justified and had led to its discharge by the Judge’s order dated 15 July 2011.

20.  The basis of the plaintiffs’ application to strike out[3] was that those paragraphs disclosed no reasonable cause of action on the ground that (as set out in the plaintiffs’ summons dated 2 December 2011):

“an enjoined defendant has no cause of action for damages caused to him by the grant of an injunction; his only remedy is to claim under a cross undertaking in damages, if one has been given, but that is not a claim for damages”.

21.  At the hearing of the strike out summons on 20 December 2011, the Judge declined to strike out those paragraphs.  It is clear from the transcript of the hearing that the Judge thought that the defendants’ approach in the pleading might not be a “conventional cause of action” but he did not think as a matter of principle that there was anything preventing the inclusion of this plea in the counterclaim.

22.  I am, with respect, unable to agree with the Judge.  It is well established that an undertaking in damages does not found any cause of action: see Prosperous Tone Ltd v Pearl Fame Development Ltd, unrep., CACV 1128/2001 per Le Pichon JA at §5 applying Cheltenham & Gloucester Building Society v Ricketts [1993] 1 WLR 1545 at 1551E.  I do not consider that the Diplock LJ’s definition of a cause of action in Letang v Cooper [1965] 1 QB 232 at pp.242-243, on which the defendants relied, leads to a contrary conclusion.  Letang v Cooper was not addressing the specific question of whether a claim on a cross-undertaking as to damages given in relation to injunctive relief amounts to a cause of action.

23.  Instead, in this context, the position is clearly stated in the judgment of Millett LJ (now Lord Millett NPJ) in CT Bowring & Co (Insurance) Ltd v Corsi & Partners Ltd [1994] BCC 713 at p.729A-B:

“Although the defendant is claiming monetary compensation for loss which it alleges it has sustained as a result of the injunction, it has no independent cause of action to recover such loss. It cannot bring separate proceedings, whether by writ or counterclaim in the existing proceedings. Its claim arises out of and is wholly dependent upon the plaintiff’s cross-undertaking. Its only remedy is to enforce the cross-undertaking by applying under the liberty to apply in the proceedings in which the cross-undertaking was given.”

In the same case, at p.731B, Sir Michael Kerr said of the cross-undertaking as to damages that:

“It is given to the court, not to any opposite party. No action, set-off or counterclaim can be founded upon it.”

24.  For their part, the defendants contend that the plaintiffs’ appeal against the Judge’s refusal to strike out is based on a “very technical argument” and that this fails to address the reality of the case.  That reality included: the fact that the plaintiffs had obtained an interlocutory injunction to which, on their current substantive case, they were not entitled; that the defendants had asked for an inquiry in damages; that the Judge concluded that such an inquiry should take place and that the more convenient course would be to undertake the inquiry within the trial.

25.  It was submitted that in allowing the defendants to advance by counterclaim their claims for their losses arising from the plaintiffs’ improperly-obtained injunction, the Judge exercised his powers of case management to facilitate the early identification of the relevant issues to be determined in the course of the trial rather than by a separate hearing with, for example, the possible duplication of evidence.  This, it was submitted, is a course properly within the various possibilities facing the court when it discharges an interlocutory injunction before trial,[4] and is consistent with the court’s duty under RHC O.1A r.4(1) and (2) actively to case manage proceedings to fulfil the underlying objectives.

26.  At a hearing before him on 26 September 2011, the Judge noted that the defendants had suggested in skeleton submissions that there should be an inquiry as to damages caused by the injunction.  As to this, the Judge said:

“I’m happy to say, to direct, that there should be such an inquiry, if directions can be agreed for the purposes of the trial for that inquiry.”

However, it does not appear from that transcript or elsewhere in the papers that the Judge actually made any order or direction for the taking of an account or inquiry as to damages arising from the improper grant of the injunction and it was not suggested that directions for the purposes of the trial of such inquiry were agreed by the parties.  It may well be that this is an order which the judge case managing this litigation in future will make and, in my view, the defendants should now take steps to seek such an order from a judge of the Court of First Instance.  And if such an order is made, it may well be consistent with proactive case management for pleadings in relation to the inquiry to be filed and for that inquiry to be determined in the course of the trial of this action, if there is to be one (which is a question dependent on the outcome of an application for summary judgment, if pursued – the outcome of which may or may not be affected by the existence of a sustainable claim for damages for breach of the cross-undertaking).  But even if all that is so, there is no cause of action disclosed by the plea claiming damages based on the cross-undertaking and its inclusion in the counterclaim cannot, in my opinion, be justified merely on the grounds of case management.

27.  I do not agree that the inclusion of the plea in the counterclaim was simply an exercise of case management by the Judge: the inclusion of the plea in that pleading may be substantively relevant to the question of whether it is a cross-claim amounting to a defence to an O.14 application; at the very least, the inclusion in the counterclaim of the claim for compensation arising from the cross-undertaking has the potential to cause confusion since, as a matter of substantive law, it does not give rise to a cause of action and no action, set-off or counterclaim can be founded on it.  It follows that I do not accept the defendants’ contention that, if this court were to set aside the Judge’s order and strike out this part of the counterclaim, this would merely invalidate the Judge’s case management choice between two alternative procedures and that, since this court should inevitably order an inquiry as to damages, leave to appeal should not be granted.

28.  Mr Barlow SC, leading counsel for the defendants, submitted that the Judge’s decision not to strike out the relevant parts of the Counterclaim was an exercise of discretion under O.18 r.19(1)(a) and that, unless he could be shown to have erred in principle, that exercise of discretion should not be disturbed by this Court.

29.  In the circumstances, in my view and with respect to him, the Judge did err in principle and the relevant paragraphs in the Amended Counterclaim have no place in the pleading and should be struck out.  As I have indicated, this does not mean that the claim for such damages cannot be pursued in the context of this action but, consistent with the authorities I have cited above, the pleading of the claim should not remain.

30.  I would therefore grant leave to appeal and allow the appeal by (i) setting aside the Judge’s order dismissing the strike out summons and (ii) substituting an order in terms of the summons.

The O.14 summons

31.  Subsequent to the making of the order dated 3 October 2011 and the defendants’ application dated 17 October 2011 for leave to appeal against that order, the plaintiffs issued a summons[5] under RHC O.14 r.1 seeking summary judgment for the return/repayment of the sum of HK$44 million plus interest.

32.  The Judge dismissed the plaintiffs’ O.14 summons by his order dated 20 December 2011 because he considered himself to be functus officio, i.e. having discharged his duty such that his authority was exhausted, since he had already made the 3 October 2011 order in respect of the cross-deposits.

33.  For the reasons I have already stated above in relation to CACV 63/2012, I think that the Judge erred in making the order for the return of the cross-deposits.  Had he not made that order then there would not have been any question of his authority to determine the summary judgment application having been exhausted.  I therefore agree with the submission of the plaintiffs that, on this footing, the functus officio objection to the Judge dealing with the O.14 summons falls away.

34.  In the circumstances, I consider, with respect to the Judge, that he was wrong to dismiss the plaintiffs’ O.14 summons for the reason he did.  It remains to consider whether his dismissal of that summons is justified on some other basis.

35.  I reject the contention made on behalf of the defendants that the Judge’s order dismissing the plaintiffs’ O.14 summons was simply part of the Judge’s case management of this litigation.  The decision to refuse to hear the application was not in fact taken as one of case management but rather was one (erroneously) based on a perceived lack of jurisdiction by reason of his order dated 3 October 2011.

36.  On behalf of the defendants, Mr Barlow raised a more fundamental objection to the O.14 summons which was that, since the plaintiffs’ underlying action in HCA 907/2011 includes a claim based on an allegation of fraudulent misrepresentation,[6] there was no jurisdiction to apply for summary judgment under O.14 by reason of O.14 r.1(2)(b) which provides:

“Subject to paragraph (3) this rule applies to every action begun by writ other than –

…

(b) an action which includes a claim by the plaintiff based on an allegation of fraud, …”.

37.  The plaintiffs’ answer to this objection was to contend that the application for summary judgment was for the return of the HK$44 million deposit on the basis of the defendants’ stance that the deposits were mutually repayable to the depositors and not on the basis of the allegations of fraudulent misrepresentation pleaded in the statement of claim.

38.  However, that answer to the defendants’ objection does not sit with the wide language of O.14 r.1(2)(b) which, on its face, suggests that, so long as a claim based on an allegation of fraud is included in the action, O.14 r.1 does not apply and thus an application for summary judgment cannot be made.  In this context, it is relevant to note the observations of Rogers VP in Pacific Electric Wire & Cable Co Ltd v Harmutty [2009] 3 HKLRD 94, namely:

“19. The wording of Order 14 r. 1(2)(b) makes quite clear that what is excluded is an action where there is a claim which is based on an allegation of fraud. Two matters are clear from that. The first is that there may be one or more claims in the action and the rule envisages that one of the claims may not be based on an allegation of fraud but another may be. In those circumstances it is clear that an application for summary judgment under Order 14 will not lie. Secondly, the rule is not confined to excluding actions in which one of the claims is a claim for damages for fraud, what is excluded is any action where there is a claim in respect of which the underlying allegations on which the claim is based constitute an allegation of fraud. It is clear that if rule 1(2)(b) applies there is no jurisdiction for the court to entertain an application for summary judgment.”

(Underlining added)

39.  The observation highlighted above was, however, obiter since Pacific Electric Wire & Cable was not a case in which a plaintiff had pleaded an allegation of fraud but was only applying for summary judgment in respect of another non-fraud-based cause of action: see ibid per Rogers VP at §§29-32.

40.  Moreover, the Appeal Committee, in refusing leave to appeal to the Court of Final Appeal in Pacific Electric Wire & Cable on the facts of that case, nevertheless considered that the contention that the question of whether the Court of Appeal erred in considering the fraud exception engaged because O.14 r.1(2)(b) is only applicable where the claim involves an allegation of fraud in the sense of deceit as explained in Derry v Peek (1889) LR 14 App Cas 337, and then only where the plaintiff’s action is a common law action for deceit, was “reasonably arguable and of importance”.[7]

41.  It should also be noted that, although Rogers VP’s construction of the fraud exception in Pacific Electric Wire & Cable has been followed by another division of this Court in A-1 Business Ltd v Chau Cham Wong Patrick [2009] 5 HKLRD 579, that was in the context of a case engaging the second aspect of the rule identified by Rogers VP.

42.  Although Mr Barlow raised the argument based on the fraud exception and made passing reference to Pacific Electric Wire & Cable in the course of his submissions, neither he nor Mr Stock cited or analysed any of the relevant authorities on this point and it was not fully argued before us.  In the circumstances, since the objection based on O.14 r.1(2)(b) is a matter of importance, as indicated by the Appeal Committee, I consider that it is a matter that should be resolved by this court only after it has been fully considered in the Court of First Instance.

43.  Since, in my view, it is not appropriate for this court to rule now on the defendants’ objection based on the fraud exception, the short point is that the substance of the underlying summary judgment application has not been determined and, in the light of the outcome of the appeal in CACV 63/2012, there is no reason why that should not now be proceeded with, if the plaintiffs are minded to pursue the application.

44.  A further argument advanced by Mr Barlow was that, since there were, on his analysis, five possible outcomes at the trial of the issue as to the status of the SPA, and since the plaintiffs’ version of the events giving rise to the action are “vigorously disputed”,[8] it would be pointless to remit the O.14 application to the Court of First Instance since the outcome of the application would be inevitable, namely that the case was not suitable for summary judgment.

45.  However, to accede to that submission would be tantamount to determining the O.14 summons here and now.  That is not a course which I think is appropriate and I would decline to do so.  Since it has not been substantively considered by the Court of First Instance, the O.14 application should, in my view, now be remitted to a judge of that court for determination should the plaintiffs wish to pursue it.

46.  Finally, I should mention that Mr Barlow argued that the viability of the O.14 summons was predicated on the strike out application succeeding.  As to this, I would accept that he is right in principle but, as I have determined that the strike out does succeed, this argument does not assist the defendants.

47.  I would therefore grant leave to appeal and allow the appeal by (i) setting aside the Judge’s order dismissing the plaintiffs’ summons for summary judgment and (ii) remitting the summons to a judge of the Court of First Instance for determination, should the plaintiffs wish to pursue it.

Costs

48.  At the conclusion of the hearing, we indicated that we would deal with costs on a nisi basis.  Mr Barlow formally asked for the defendants’ costs in CACV 63/2012.

49.  The result of the appeal and applications for leave to appeal is such that each side has been partly successful.  Looking at matters in the round, the honours have, more or less, been equally divided.  In the circumstances, I consider that the fair disposition of costs would be to make no order as to the costs of the appeal in CACV 63/2012 and the applications for leave to appeal in HCMP 2691/2011.  This will mean that each side bears its own costs.  There has been considerable interlocutory skirmishing by the parties in this litigation.  Some of that interlocutory skirmishing has been justified but, equally, some of it has not.  In my view, it is clear that the parties’ efforts, and costs, would now be best directed towards resolving the substantive issues in the action rather than contesting satellite litigation.  To that end, making no order as to costs of the appeal and the applications for leave to appeal will avoid the distraction of further argument over the quantum of those costs.

50.  I would accordingly make an order nisi that there be no order as to the costs of the appeal in CACV 63/2012 and the applications for leave to appeal in HCMP 2691/2011.

Hon Lam JA:

51.  I have the benefit of reading the judgment of Fok JA in draft and I fully agree with it.  I also share my Lord’s sentiment that parties’ efforts and costs should be directed towards the resolution of the substantive dispute in the action rather than conducting costly satellite litigation.

Hon Barma JA:

52.  I agree with the reasons given by Fok JA for allowing the appeal in CACV 63/2012, with his judgment in respect of the leave applications and consequent appeals, and the costs order that he has proposed.  I would also echo his comments in paragraph 50 above regarding the desirability of the parties avoiding further interlocutory skirmishing and focussing their efforts on the substantive resolution of their disputes.