FU SAU KWOK BARRY v. FOO SAU CHUN RICHARD

HCCL 20/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.20 OF 2004

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Dates of Hearing : 15 and 16 September 2004

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J U D G M E N T

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The application

1. This is an Order 14 application taken out by the plaintiff by summons dated 4 August 2004.

2. Somewhat unusually the summons asks for final judgment “for the amount claimed in the Statement of Claim and Reply and Defence to Counterclaim” together with interest and costs.

The action

3. Sadly, this is a dispute between brothers.  Barry Fu, the plaintiff, makes this claim in respect of the failure of the defendant, his brother Richard Foo, to meet his contractual obligations in relation to a Settlement Agreement, dated 28 March 2002, which was entered into between them.

4. The history of the relationship between these parties is set out in the affirmations filed.  The essence of the problem is that, upon the death of their father, the defendant, Richard, who was executor of his father’s will, held assets, in particular shares in the Hong Kong Stock Exchange Ltd, on trust for his brother Barry.  However, Richard sold some 305,000 these shares without his brother’s authority, and did not account for the proceeds.

5. This led to negotiations, which in turn led to the signing of a Settlement Agreement dated 28 March 2002, a document which was intended to be a global settlement of their outstanding disputes, including the issue of the shares.

6. The defendant is now said to have defaulted under the Agreement, hence this action to enforce it.

7. The prayer in the Statement of Claim requests varied forms of relief.  In particular prayer (a) asks for specific performance in accordance with the provisions of the Settlement Agreement regarding the transfer of the 305,000 shares wrongly so sold, alternatively damages are sought “to reflect the value of the shares which should have been so transferred”.

8. This application for summary judgment, which is strenuously contested, has been launched after the completion of the pleadings in this case, the final document in the sequence being the plaintiff’s Reply and Defence to Counterclaim which was served on 5 July 2004.

The argument

9. At the outset of the argument Mr Soo, appearing for the defendant, objected to the late filing of the 2^nd affirmation of Barry Fu, which dealt, inter alia, with share valuations and dividends.  He had, he said, had no chance either to deal with or to consider its contents.  He suggested an adjournment.

10. In response the court did not grant an adjournment, but ordered that the argument should proceed on the basis of liability only with (if such should be established as appropriate), a corresponding order that damages were to be assessed by a Master.  The application thus proceeded upon this basis, and due to time constraints was heard over successive afternoons.

11. Mr Soo also took a further technical point.  He said that in its present form the summons was defective in that it sought an amount certain, whereas save for an incidental figure at paragraph (c) of the prayer, there was no such relief on the face of the Statement of Claim.

12. In response, Mr Wilmot on behalf of the plaintiff elected, for the purpose of this summary judgment application only, to pursue the alternative damages remedy, so that if and in so far as the issue of liability could clearly be established, the mathematical calculations of share values and accrued dividends would be suitable for a hearing before a Master upon an assessment of damages.

13. Accordingly, argument proceeded on this basis, absent formal amendment of the summons.

14. It is fair to say that Mr Soo’s address on behalf of the defendant became somewhat more focused as the argument proceeded.  He submitted strongly that there were triable issues in this case not susceptible to summary determination.

15. In a nutshell, Mr Soo did not accept that there was any outstanding liability of his client to his brother, in light of payments in the total sum of approximately HK$1.6 million which had been made, together with the transfer of other assets in the form of valuable paintings.  He contended that the agreement between the brothers had been varied, and that the monies thus received had been notionally converted into shares, using the market price of the shares as at the date of the receipt of the monies, thereby serving significantly to reduce, or perhaps even to extinguish, the settlement liability to account for the outstanding shares.  He did not put it exactly thus, but that, at any rate, was the gist.

16. For his part, Mr Wilmot maintained that the case was clear.  The proposition of the defendant deserved to be laughed out of court, he suggested.  The Settlement Agreement spoke for itself : see clause 10, which provided that the agreement recited therein may not be amended or varied unless such amendment or variation itself was in writing.  And there was no such document.

17. Moreover, he submitted, the idea that what had been received thus far by his client could extinguish the debt created by the conversion of the 305,000 shares was a non-starter, given that the present value of the shares, at that day’s quoted price, was in excess of some HK$5 million.  In addition, it was clear on the evidence that the paintings that had been received were simply held as collateral, pursuant to the clear contractual obligation under the Settlement Agreement.

18. Accordingly, he asked that judgment be entered for his client, with damages to be assessed by a Master — which was the approach suggested by this court against the backdrop of the late-served evidence.

Decision

19. This matter is larded with detail, together with allegation and counter-allegation on the face of the affidavit evidence.  As may be anticipated, I have no intention of becoming enmeshed in such detail upon a summary judgment application.

20. Within a sea of factual dispute, the one matter which stands proud is the Settlement Agreement itself, a document which undoubtedly has been signed by the parties — indeed, it is not contended otherwise.

21. In light of the terms of this Agreement, and in particular the preclusion therein on amendment/variation absent documentation, it is fair to say that as a matter of first blush this court would not have attached much importance to undocumented claims of a variation in terms of that which now is being canvassed by the defendant, Richard Foo.

22. However, on the second session of this hearing Mr Soo drew my attention to correspondence emanating from the plaintiff’s solicitors, annexing a document in the form of a schedule, purporting to set out a running total in terms of outstanding liabilities.  This document contained not only a variation in the number of shares outstanding, which had been reduced to 282,000 — a variation consistent with the contentions as to amendment that have been advanced on behalf of the defendant — but further invoked an interest rate of 30%, a rate said in the letter accompanying this schedule to have been agreed by the defendant in May 2002, two months subsequent to the entry into the Settlement Agreement, the breach of which now forms the plaintiff’s cause of action.

23. I note in passing that the figure of 282,000 shares also has been the subject of the plaintiff’s handwritten amendment to the Settlement Agreement, although this case is being fought on the basis that the full 305,000 shares remains outstanding.

24. Mr Wilmot accepted that, in his words, “there was no getting away” from the fact that his client had “felt that some interim arrangement had been achieved”, but that quite simply this was not binding in light of the terms of clause 10 of the Agreement.

25. I find this difficult to accept at face value, persuasively though it was canvassed.  I do not decide this point at this stage.  For present purposes, however, it is not easy to understand why the same parties who entered into the ‘head’ Agreement were not at liberty subsequently to agree to vary that Agreement, even if such variation in fact was not written, provided always that such subsequent variation is supported by consideration.  Certainly at this stage, on 2 March 2004, demands appear to be being made of the plaintiff precisely on the basis of such varied obligation, and when the matter is raised as a triable issue I do not consider that the point simply can be met by invoking the existence of the prior contractual arrangement.  At the very least this begs the question as to what variations indeed were agreed, and upon what basis, and this, it seems to me, is a matter which can only be satisfactorily explored after full discovery, and with the benefit of cross examination.

26. However, Mr Wilmot remained undaunted.  Even if, he said, there had been a variation in the contractual obligation concerning these shares, and this variation had been in terms of that which Mr Soo was putting forward on behalf of his client, on the defendant’s best case, and taking the share price of these shares at its lowest over the period in question, there still could be demonstrated to be an outstanding cash entitlement in favour of the plaintiff in the sum of almost HK$650,000.  I apprehend that his line of argument in this regard probably was that the court now should be persuaded at the least to award the plaintiff this sum, and that all other matters could be adjourned to a Master in terms of an assessment of damages.

27. I do not accept this approach either.  Whilst I do not decide the point at this summary stage, I should be surprised, at least on the basis of the evidence before the court, if in fact the defendant could make good on his contention that no outstanding liability whatever remained towards his brother.  Nevertheless, it seems to me that this is not a case wherein liability safely can be determined, without more, thereby leaving a Master to assess damages.  What is critical in this case, and in my view that which is the flaw in Mr Wilmot’s alternative approach to the effect that there must at least be owed HK$650,000 to his client, is that any damages assessment must be conducted on the basis of the breach of an established contractual obligation, and until the ambit of such obligation be established — in this case at trial — there can be no possibility of justly proceeding further with this case.

28. Accordingly, the decision of this court on this application is that triable issues exist, as to both liability (and certainly as to quantum, given the dividend claim), and that accordingly leave must be granted to the defendant to defend this action.  In my view no appropriate basis has been demonstrated, in light of the present disputed factual situation, to justify imposition of a requirement in terms of conditional leave.

Order

29. In light of the foregoing I make the following order :

(i)      There be unconditional leave to the defendant to defend this action;

(ii)      There be an order nisi that the costs of this application be reserved to the trial judge.

30. I make a costs order nisi in these terms because it strikes me that this is not a case which should attract the ‘normal’ costs order in instances of the grant of unconditional leave to defend, namely costs in the cause, and that the trial judge should be afforded a degree of flexibility to make such order regarding this application as he thinks just in light of the evidence that is received at trial.

31. Although I presently make no other order, I anticipate that the parties will now proceed to drive this case forward to discovery, and thereafter.  Absent agreement, which I should not have thought will be difficult, this court will upon application make appropriate procedural directions.