S.A. MARSH v. BENONI YING KWONG WU

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JUDGMENT

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1. These are my reasons for the dismissal on the 17th July 1984 of the appeal under Order 58 by the original Defendant ("Mr. Wu") in this action against the order of a Master made on the 26th June 1984 directing that Centron Co. Ltd. ("Centron") be added as the Second Defendant in this action and dismissing Mr. Wu's application that he ceased to be a defendant pursuant to Order 15 rule 6 and that alternatively "the action" be struck out under Order 18 rule 19 and the inherent jurisdiction of the court on the ground that it is frivolous and vexatious and an abuse of the process of the court.

2. As frequently happens in these cases, the arguments and circumstances under consideration on the appeal are materially different from those presented to the Master. Apart from the question of costs of the hearing before the Master the developments in the action between the date of the hearing before him and the date of the hearing of the appeal before me were such that I was faced with what amounted in practical terms to a fresh application, on appeal.

3. The circumstances leading to the appeal are as follows. The Plaintiff's action was initiated by a specially indorsed writ issued on the 18th January 1984 against Mr. Wu. The substance of his claim was one for damages for wrongful termination of an agreement of employment allegedly made on or about the 15th December 1981 whereby Mr. Wu is alleged to have employed the Plaintiff as a real estate property consultant to perform duties in the United States of America.

4. In paragraph 3 of the original Statement of Claim it is pleaded that the agreement in question was "partly oral and partly contained in two letters dated the 15th December 1981". One of these letters is addressed to the Plaintiff on Centron note paper by Mr. Wu who has signed the letter for and on behalf of Centron in his capacity as Managing Director of that company. The letter is a personal letter beginning with the words –

"        I refer to our meeting with Mr. William Kwan in his office, and hereby confirm the following:"

Mr. William Kwan is evidently a solicitor in Hong Kong. The letter goes on to set out 5 terms, 2 of which are expressed in language indicating that it is contemplated that the Plaintiff will be available to become a full time real estate consultant to Centron and that he will be required to form a subsidiary of Centron in the United States for the purpose of investing in property there for Centron and/or its assigns.

5. At the bottom left-hand side of the letter there appear the following typed words: -

"Agreed and accepted on this 17th day of December, 1981"

Below those words appears what purports to be the signature of the Plaintiff.

6. The other letter dated the 15th December 1981 is also written on Centron note paper, addressed to the Plainiff and signed by Mr. Wu on behalf of Centron as Managing Director. It has no indorsement of acceptance by the Plaintiff as in the case of the contemporaneous letter referred to previously. This letter contains 4 terms. One of the terms refers to Centron as having asked the Plaintiff to be its consultant to invest in real estate in the United States and goes on to state "and you have agreed to be available on a full time basis from January 1, 1982." Another term indicates that Centron "further agrees to pay you a 5% of the profit "........  It was common ground between the Plaintiff and Mr. Wu, on the evidence before me, that the reason for segregating the terms contained in this letter from the other contemporaneous letter were that the Plaintiff was not anxious to disclose the terms of the remuneration payable to him under the last mentioned letter to the Revenue authorities in the United States of America.

7. Having regard to the terms of the pleading in paragraph 3 of the original Statement of Claim and to the terms of the above mentioned two letters dated the 15th December 1981, with particular reference to the designation of Centron as the party contracting with the Plaintiff, it is to my mind not surprising that Mr. Wu applied on the 18th February 1984 to the Master for an order pursuant to Order 15 rule 6 that he cease to be a defendant in the action and alternatively for an order under Order 18 r.19 and the inherent jurisdiction of the court that "the action" be struck out on the grounds that it was frivolous and vexatious and an abuse of the process of the court.

8. A substantial volume of affidavit evidence was filed on behalf of both parties. Suffice it to say at this stage that Mr. Wu relied on the letters dated the 15th December 1981 as making it demonstrably clear that Centron was the contracting party whereas the Plaintiff contended in a lengthy affidavit that he had at all times intended to contract with Mr. Wu, that Mr. Kwan had represented to him on the 17th December 1981 that the two letters dated the 15th December 1981 incorporated the terms of a previous draft letter setting out the terms of a proposed agreement between the Plaintiff and Mr. Wu and so the Plaintiff had had no reason to doubt that he was signing an agreement with Mr. Wu personally and not with Centron.

9. On the 26th June 1984 the Master heard Mr. Wu's application and decided to add Centron as the Second Defendant in the action but dismissed the summons to strike out and ordered that costs be in the cause. Mr. Wu gave notice of appeal against this decision on the 2nd July 1984. On the 11th July 1984 the Plaintiff amended the Statement of Claim to add Centron as a Defendant pursuant to the Master's order. At the same time the Plaintiff also made important amendments pursuant to Order 20 rule 3 affecting the claim against Mr. Wu in the Statement of Claim. Thus the opening words of paragraph 3 of the Amended Statement of Claim were amended so as to read as follows :-

"The agreement was partly oral and partly evidenced by an undated draft letter and two letters dated the 15th December 1981 and contained, inter alia, the following express terms:-"

10. The undated letter referred to in the Amended pleading was exhibited to the affidavit of the Plaintiff. It is expressed to be a letter addressed to the Plaintiff by Mr. Wu personally setting out terms and conditions under which the Plaintiff is expressed to have agreed to look after Mr. Wu's operations in the United States of America and the Plaintiff is asked at the end of the letter to sign an enclosed copy to signify his agreement to the terms and conditions set out therein. The terms and conditions are not the same as the letters dated the 15th December 1981 and no reference is made to Centron.

11. Whereas in the original paragraph 3 of the Statement of Claim the Plaintiff had pleaded 4 express terms to the alleged agreement, contained in paragraphs 3(a) to (d) of the pleading, all of which were referable to the letters dated the 15th December 1981, the amended pleading introduced two new terms in amended paragraph 3(b) and (c) which are clearly referable to the undated draft letter and relate to services to be performed by the Plaintiff for Mr. Wu personally. Paragraph 3 of the Amended Statement of Claim concluded with the words:-

 

"In so far as the agreement was made orally, it took place at the offices of Messrs. Woo, Kwan, Lee, & Lo, solicitors, H.K."

12. At the hearing of the appeal on the 13th July 1984 counsel for Mr. Wu was content to treat the appeal as an application to strike out the Plaintiff's Amended Statement of Claim and my understanding was that the appeal against the dismissal of the application under 0.15 r.6 was not pursued. At the beginning of the hearing Mr. Wu's counsel submitted that the Amended Statement of Claim should be struck out on the grounds that it disclosed no reasonable cause of action and also on the grounds that it was frivolous and vexatious and an abuse of the process of the court. Although the original application to strike out had made no reference to 0.18 r. 19(1)(a), counsel for the Plaintiff informed the court that he was prepared to deal with both grounds. I propose to say nothing further in this judgment regarding the arguments of counsel for Mr. Wu under 0.18 r.19 (1)(a) because the subsequent amendment of the pleading made those arguments irrelevant.

13. On the remaining ground for striking out counsel for Mr. Wu's initial argument was short and cogent. He relied on the parol evidence rule and contended that the two letters dated the 15th December 1981 relied on by the Plaintiff were the only contractual documents. They clearly indicated that the contracting parties were the Plaintiff and Centron and the parol evidence rule excluded the admissibility of any extrinsic evidence regarding the terms of the contract between the parties. Likewise, he contended, the evidence of terms contained in a draft letter which had not been signed by any party was inadmissible. I will return to these submissions later.

14. Counsel for the Plaintiff initially indicated that he intended to apply to reamend paragraph 3 of the Amended Statement of Claim so as to plead-that the agreement was oral (and not merely partly oral). On this footing he contended that the real issue between the parties was whether or not the agreement between the parties was an oral agreement made between the Plaintiff and Mr. Wu. If the agreement was in fact an oral agreement as alleged by the Plaintiff, then the parol evidence rule did not apply because that rule only applied to a written contract whereas the letters dated the 15th December 1981 were merely memoranda of the contract and not contractual documents within the parol evidence rule. I will return to this argument later.

15. On the resumption of the hearing of the appeal on the 17th July 1984, I indicated to counsel for the Plaintiff that the documents relied upon in paragraph 3 of the Amended Statement of Claim as partly evidencing the alleged agreement between the Plaintiff and Mr. Wu were contradictory. Furthermore no facts had been pleaded to justify the random selection by the Plaintiff from these documents of the terms which were pleaded in paragraph 3 as the terms of the alleged agreement. I pointed out that the embarrassing and oppressive nature of such a pleading would have been manifested if the full terms of the letters had been set out in the Amended Statement of Claim and that it was only by omitting references to the contents of the letters dated the 15th December 1981 which were unfavourable to the Plaintiff's case that he was able to make his pleading appear to show a reasonable cause of action and take refuge behind Order 18 rule 19(2) which precludes the admission of evidence on an application under Order 18 rule 19(1)(a).

16. Thereupon counsel for the Plaintiff applied for leave to re-amend the Amended Statement of Claim so as to plead in paragraph 3 thereof that, inter alia, the agreement between the Plaintiff and Mr. Wu was an oral agreement containing the specified terms previously pleaded. Reference to the undated draft letter and the two letters dated the 15th December 1981 were to be deleted and further incidental amendments were sought. Counsel for Mr. Wu did not oppose the application to re-amend and I accordingly granted it. It was at this late stage that the effective arguments began.

17. The late amendment had, in my judgment, eliminated any grounds for striking out the Re-amended Statement of Claim under Order 18 rule 19(1)(a). Counsel for Mr. Wu did not accept that the amendment disposed of the matter and continued to press for the striking out of the pleading on the grounds that it was frivolous and vexatious and an abuse of the process.

18. On this issue counsel for the Plaintiff, as indicated above, contended that the fundamental issue between the parties was whether or not there was initially an oral contract. That issue should, he contended, go to trial. He cited WenLock v. Moloney [19651 1 W.L.R 1238 (C.A.) and reminded the court that the striking out procedure was not intended to be used as a preliminary hearing and that even if the court took the view that the Plaintiff's action was unlikely to succeed it was not right for the court at this interlocutory stage to try issues of fact on affidavit and usurp the functions of the trial judge. Counsel for Mr. Wu accepted these procedural propositions as he was bound to and he also acknowledged that the court was obliged by settled authority to approach the striking out issue on the basis that the Plaintiff should not be denied his right to a trial of the action unless it was plain and obvious that the Re-amended Statement of Claim should be struck out as being frivolous and vexatious and an abuse of the process of the court. Put another way the onus was on Mr. Wu to satisfy the court that on the evidence available the Plaintiff's claim as pleaded was without foundation and could not possibly succeed because it was obviously frivolous and vexatious or unsustainable: see Bullen & Leake at pp. 145 to 146.

19. Approaching the matter in the light of this stringent test, I was persuaded by counsel for Mr. Wu that the parol evidence rule was not confined to written contracts as contended by counsel for the Plaintiff.

20. In my judgment it is clear, even for the purposes of a striking out application, that the true rule is, as stated in Phipson at p.[926] at para. 37-01 that -

"When a transaction has been reduced to, or recorded in, writing either by ........... agreement of the parties, the writing becomes, in general, the exclusive memorial thereof, and no evidence may be given to prove the terms of that transaction except the document itself ............"

21. My understanding of the statement of the rule in Chitty on Contracts, Volume 1 at paragraph 802 is that it is to the same effect. There the rule is stated as follows:-

"When the parties have embodied the terms of their contract in a written document, the general rule is that 'verbal evidence is not allowed to be given' ......so as to add to or subtract from, or in any manner to vary or qualify the written contract."

22. Although the expression "written contract" is used at the end of the above statement of the law, the editor goes on to cite the leading case of Hutton v. Watling [1948] Ch. 398 (C.A.) in relation to preliminary agreements.

23. In that case Lord Greene M.R. (with whom Somervell L.J. and Cohen L.J. agreed) made the following observations at p.404 regarding the document under the consideration of the Court of Appeal:-

"In my opinion, when once the document is construed and understand, it is only susceptible of one interpretation. This is that it was intended by the signatories to be, and was represented to the purchaser to be, a true record of the contract and was so accepted by the purchaser. When once that is ascertained it appears to me that the idea of letting in parol evidence to prove an antecedent oral agreement different in its terms fails. It was that which Jenkins J. held, and, in my opinion, he was right."

24. Later at p.405 the M.R. concluded his judgment in the following terms:-

"If the other party to the alleged contract, interpreting it as a reasonably intelligent person would do in the light of the relevant circumstances, takes it to be of a contractual nature, that concludes the matter and it is not possible to call oral evidence to prove that it was a mere memorandum."

25. Accordingly I accept the statement of the Law regarding the parol evidence rule as stated in Phipson in the passage cited above and also in the following passage at paragraph 37-05 -

"where a contract, ........... is reduced to writing by agreement of the parties and intended by them to be complete and operative as such, no extrinsic evidence is admissible to supersede the document, or to prove the terms of the transaction independently."

26. Later in the same paragraph and also at paragraph 37-08 Phipson distinguishes the intended complete record situation from that which arises where there has been an oral agreement followed by a mere informal note or memorandum which cannot be deemed to be a reduction of the agreement into writing so that the parol evidence rule does not apply.

27. Counsel for Mr. Wu argued with great force that the letter dated the 15th December 1981 signed by the Plaintiff could not be construed as a mere informal memorandum of a contract to which the parol evidence rule did not apply but was clearly intended to be a true and accurate record of the terms of the agreement between the Plaintiff and Mr. Wu. Accordingly, he contended, in reliance on Hutton v. Watling (supra) whether the letter was regarded as the contract between theparties or a record of the terms of a preliminary agreement between the parties was immaterial because the parol evidence rule applied to exclude any extrinsic evidence regarding negotiations or the previous draft letter.

28. He further emphasised that the affidavit evidence of the Plaintiff in opposition to the application supported his contention that the parties when negotiating towards a written agreement and had not arrived at any binding oral agreement before the letters dated the 15th December 1981. Thus at paragraphs 7 and 8 of his affidavit, the Plaintiff had referred to Mr. Kwan taking notes during a meeting at which it was agreed that he would draft an agreement to be signed by Mr. Wu and the Plaintiff, the draft agreement being typed and based on Mr. Kwan's notes. This agreement was to be ready for signature by the Plaintiff on his return from Singapore. Furthermore the Plaintiff had never said in evidence that he did not read the letter dated the 15th December 1981 before signing it and it was inconceivable that, with his background in the real estate business for many years, the Plaintiff would not at least to have a glance through the terms.

29. I was very nearly persuaded to accept these arguments, even in a striking out situation based on the ground that the claim was frivolous and vexatious and an abuse of the process of the court. However, the court ultimately has a discretion whether to exercise the Draconian power of striking out a claim and in the end I considered that there was just sufficient to justify declining to accede to the striking out application under the circumstances of this case, notwithstanding the demonstrable weakness of the Plaintiff's claim.

30. I was reluctant to determine finally the true character of the letters dated the 15th December 1981 without hearing the evidence of the Plaintiff and Mr. Kwan and in reliance on affidavit evidence only concerning the relationship between the parties immediately prior to the 17th December 1981 when the Plaintiff alleges that Mr. Kwan produced the two letters dated the 15th December 1981 naming different contracting parties from those referred to in the previous draft letter.

31. Whilst I accept counsel for Mr. Wu's submission that the words "Agreed and accepted on this 17th day of December, 1981" followed by the signature of the Plaintiff at the foot of one of the letters dated the 15th December 1981 is a strong ground for contending that the letter in question is intended to constitute a written contract embodying an offer made by Centron which is to be accepted by the signature of the Plaintiff offeree, I consider that the use of the word "confirm" at the beginning of the letter gives some support to the contention of the Plaintiff in the Re-amended Statement of Claim that there was an initial oral contract made at the time when the Plaintiff alleges he agreed to a modification of the terms originally set out in the draft letter. Moreover the Plaintiff was not requested to sign the other letter dated the 15th December 1981. That letter also begins with the use of the word "confirm" with reference to the meeting between the Plaintiff, Mr. Wu and Mr. Kwan and in the first term contained in that letter reference is made to the Plaintiff having agreed to be available on a full time basis.

32. I felt reluctant to hoist the Plaintiff by the petard of his own affidavit evidence regarding the dealings between the parties prior to the letters dated the 15th December 1981 because I felt that there were grounds for contending that his evidence contained passages indicating that the parties had reached final agreement before the letters dated the 15th December 1981 were prepared. Thus it paragraph 7 the Plaintiff deposed in relation to the meeting on the 7th December 1981 between Mr. Wu, Mr. Kwan and himself that "We finally agreed on salary and a profit sharing arrangement." Again, in paragraph 8 of his affidavit, the Plaintiff describes the draft letter, as amended, as reflecting the agreement between himself and Mr. Wu. In paragraph 9 he deposed that on the 14th December 1981, he saw Mr. Kwan at his office and agreed that the period of the agreement should be varied from 5 to 3 years with yearly adjustments.

33. Finally, I was concerned that the Plaintiff deposed in paragraph 10 of his affidavit that the letters dated the 15th December 1981 had been produced by Mr. Kwan on the 17th December 1981 when Mr. Wu, Mr. Kwan and the Plaintiff met at Mr. Kwan's office and Mr. Kwan had said that the two letters incorporated the terms of the earlier draft letter.

34. In paragraph 11 of his affidavit the Plaintiff said that he had noticed the letter heading of the letters referred to Centron but Mr. Kwan had told him that they contained the terms of his agreement with Mr. Wu and he had no reason to doubt that he was signing an agreement with Mr. Wu personally and not with Centron. There was no clear evidence on either side to indicate whether Mr. Kwan was purporting to act at any material time as the agent for both the Plaintiff and Mr. Wu or one or other of them. It seemed to me that the role played by Mr. Kwan in this matter should be further investigated at a trial since, if he were to be held to have acted as the agent of Mr. Wu and to have misrepresented the terms of the letters dated the 15th December 1981 in any material respect the Plaintiff would have some ground for contending that extrinsic evidence was admissible to show that, on the footing that there was a preliminary oral agreement between himself and Mr. Wu, he was not bound by the terms of the letters dated the 15th December 1981 because Mr. Kwan, acting on behalf of Mr. Wu, had misrepresented the contents of the letters in question: see Halsbury's Laws of England, Volume 9, paragraph 287.

35. I concluded by observing that this case gave me considerable difficulty but for the reasons given above I ultimately declined to exercise the discretion of the court to strike out the Re-amended Statement of Claim notwithstanding the manifest weakness of the Plaintiff's claim.

36. The Plaintiff had amended his pleading at a late stage of the hearing of the appeal but the appeal had been pursued thereafter by Mr. Wu. Accordingly, having dismissed the application, I considered that it was right to order that costs be in the cause. On the other hand, I was firmly of the view that as the pleadings stood when this matter was before the Master and it was pleaded that the agreement between the Plaintiff and Mr. Wu was "partly oral and partly contained in two letters dated the 15th December 1981" no facts had been pleaded to justify the selection of terms from those letters whilst at the same time ignoring the fact that the letters named the Plaintiff and Centron as the parties to the agreement. In my judgment, the claim was thoroughly vexatious in that form and this was demonstrated by the content of the letters themselves. I considered that as matters stood before the Master, the claim should have been struck out in the absence of an application to amend and accordingly, on the appeal, I varied the order made by the Master as to costs on the original application and substituted an order that the costs below should be to Mr. Wu in any event.