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

CACV 20/2012 & HCMP 32/2012
(Heard Together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 20 OF 2012 & MISCELLANEOUS PROCEEDINGS NO 32 OF 2012
(ON APPEAL FROM HCA NO 907 OF 2011)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Kwan JA:

1.  I agree with the Reasons for Judgment of Barma J.

Hon Fok JA:

2.  I agree with the Reasons for Judgment of Barma J.

Hon Barma J:

3.  This was an appeal by the Defendants against the Order of Reyes J dated 20 December 2011, by which he entered final judgment for the Plaintiffs in respect of part of their claims in these proceedings on the basis of an alleged admission by the Defendants made in paragraph 56 of the Amended Defence and Counterclaim (“ADC”) dated 14 November 2011.  The Defendants also sought an order pursuant to RHC Order 59 rule 10(1) for leave to amend paragraph 56 of the ADC to make it clear that they do not admit that part of the Plaintiffs’ case.  The amendment for which leave was sought was the subject of an unsuccessful application for leave to amend (made by the Defendants’ summons dated 30 November 2011), which was also dealt with by Reyes J on 20 December 2011.

4.  The Defendants also sought leave to appeal against Reyes J’s refusal to permit them to amend paragraph 56 of the ADC.

5.  At the conclusion of the hearing, we allowed the appeal and set aside the judgment entered by Reyes J, with reasons to be given later.  These are those reasons.  We also gave leave to the Defendants to amend paragraph 56 of the ADC in the form that was before the Judge below.  As a result, it was not necessary to deal with the Defendants’ application for leave to appeal mentioned in paragraph 4 above.  We also ordered the payment out of the security for the costs of the appeal and application for leave provided by the Defendants pursuant to the orders of Chu JA dated 29 March 2012.  So far as costs were concerned, we ordered that the costs of the appeal and application for leave should be to the Defendants, and that the Judge’s order as to the costs of the application for judgment on admissions should be set aside and replaced by an order that the costs of that application should also be to the Defendants, in each case with certificate for two counsel and to be taxed on the party and party basis if not agreed.  So far as the costs of the application to amend below were concerned, we left the order below undisturbed.

The Background

6.  The proceedings relate to a Sale and Purchase Agreement dated 19 August 2010 (“the SPA”) by which the Plaintiffs were to acquire the Defendants’ shareholdings in certain cemetery and funeral services businesses in the PRC (the Defendants deny that any concluded agreement was in fact reached).  Under the SPA, the 2^nd Plaintiff was to issue convertible notes to the Defendants which would entitle the Defendants, upon conversion, to acquire a substantial shareholding in the 2^nd Plaintiff. According to the Plaintiffs, for the transaction to proceed, it was necessary that the Defendants had a legitimate offshore vehicle to hold the securities to be issued by the 2^nd Plaintiff.  The Plaintiffs say that the Defendants assured them that such an offshore vehicle existed.  The SPA envisaged that a special purpose vehicle would be established, as a wholly owned subsidiary of the 1^st Plaintiff.  The Plaintiffs allege that a company called Rich Base International Investments Limited (“Rich Base”), whose only share was owned by the 3^rd Plaintiff, was designated to be such special purpose vehicle, and that by an undated written agreement made in October or November 2010 (“the Rich Base Agreement”), the 3^rd Plaintiff agreed to transfer its share in Rich Base to the 1^st Defendant for a consideration of HK$1.00.  The share was transferred to the 1^st Defendant’s nominee, Topath Limited (“Topath”), in December 2010.

7.  The Plaintiffs say that, believing that all conditions precedent in the SPA were satisfied, they called on the 1^st Defendant to complete the sale.  However, they were told that not all conditions precedent had been satisfied.  This led them to commence these proceedings on 31 May 2011, seeking specific performance of the SPA.  Subsequent to the issue of the proceedings, the Plaintiffs say that they discovered that the Defendants did not in fact have the necessary legitimate offshore vehicle to enable the transaction to proceed, and that the Defendants had made misrepresentations to the Plaintiffs about the existence of such a vehicle.  As the absence of such a vehicle would mean that the SPA could not be specifically performed, the Plaintiffs sought, and on 26 September 2011, obtained, leave to amend their Statement of Claim by the filing of a substituted Amended Statement of Claim (“the ASC”).

8.  By the ASC, the Plaintiffs claim that, as a result of the misrepresentations allegedly made by the Defendants, the Plaintiffs were entitled to (and did) rescind the SPA and the Rich Base Agreement, and to recover from the Defendants the benefits conferred under those agreements.  Such benefits included the payment of a deposit of HK$44 million under the SPA, and the transfer of the Rich Base share.  There are also alternative claims that the Plaintiffs were entitled to rescind such agreements on the basis of terms that the Plaintiffs contend are to be implied into the agreements, and on the basis that the agreements are no longer capable of performance.

9.  This appeal is concerned with the Plaintiffs’ claim for rescission of the Rich Base Agreement, and the return of the Rich Base share transferred to Topath.

The Plaintiffs’ pleaded case

10.  The Plaintiff’s case in relation to the Rich Base Agreement, as set out in the ASC can be summarised as follows:-

(1)   Paragraph 46 alleges that on around 27 October 2010, Mr Bai of the Defendants requested Dr Li of the Plaintiffs to transfer the Rich Base share to a company associated with the 1^st Defendant, as the Defendants did not wish to lose control of any assets they might inject into the special purpose vehicle until after the convertible notes had been issued, at which time Rich Base would be returned to the 3^rd Plaintiff.

(2)   Paragraph 47 alleges that in reliance on representations made to him (set out in paragraphs 15, 19, 38 and 41 of the ASC), Dr Li caused the 3^rd Plaintiff to enter into the Rich Base Agreement.

(3)   Paragraph 48 alleges that pursuant to the Rich Base Agreement, the share in Rich Base was transferred to Topath in December 2010.

(4)   Paragraph 49 alleges that there was an implied term of the Rich Base Agreement (or a collateral contract) to the effect that if the SPA was not completed, any assets transferred to Rich Base would be reversed out and the Rich Base share transferred back to the 3^rd Plaintiff.

(5)   Between paragraphs 64 and 76 of the ASC, the Plaintiffs refer to attempts to complete the SPA their initial claim for specific performance, and their subsequent requests for return of deposits paid under the SPA and the return of the Rich Base share.  Paragraph 76 pleads that the Defendants have failed and refused to (among other things) return the Rich Base share to the Plaintiffs.

(6)   Paragraphs 77 to 80 of the ASC allege that the representations made by the Defendants (pleaded in paragraphs 15, 19, 38 and 41 of the ASC) were false to the knowledge of the Defendants, and had been made with the intention of inducing the Plaintiffs to rely on them by entering into (among other things) the SPA and the Rich Base Agreement, with the result that the Plaintiffs were entitled to rescind the SPA and the Rich Base Agreement. Paragraphs 81 and 82 assert a right on the Plaintiffs’ part to rescind such agreements on the basis of implied terms.

(7)   Paragraphs 83 to 85 plead that the Plaintiffs are entitled to recover back all benefits conferred on the Defendants under the SPA and the Rich Base Agreement, including the Rich Base share.  Paragraph 85(1) pleads that the Plaintiffs are entitled to an order requiring the 1^st Defendant to retransfer the Rich Base share to the 3^rd Plaintiff, and an order to this effect is sought by paragraph (7) of the prayer for relief.

The Defendants’ pleaded case

11.  On 14 November 2011, the Defendants served the ADC, in which:-

(1)   They denied making the representations alleged in paragraphs 15, 19, 38 and 41 of the ASC (see paragraphs 10, 13, 24 and 77 of the ADC).

(2)   Save for averring that Rich Base was established pursuant to the proposed terms of the draft SPA, and that the 3^rd Plaintiff transferred the Rich Base share to Topath (allegedly contrary to the terms of the draft SPA), all of the allegations in paragraphs 46 to 49 of the ASC were denied (see paragraph 26 of the ADC).

(3)   It was expressly pleaded, in response to paragraph 76 of the ASC, that:-

“Paragraph 76 is denied.  It is averred that the Plaintiffs are not presently entitled to the return of the China Healthcare deposit or to the return of the share in Rich Base before the parties’ substantive claims for final relief are determined by the Court at the trial of this Action.”

(see paragraph 51 of the ADC).

(4)   Each of paragraphs 77 to 82 of the ASC were denied (see paragraphs 52 to 55 of the ADC).

(5)   In relation to paragraphs 83 to 85 of the ASC, the Defendants:-

(a)   repeated paragraph 25(5) of the ADC (in which they had indicated that they were ready willing and able to return the deposit paid by the Plaintiffs under the SPA against the return by the Plaintiffs of their cross-deposit);

(b)   stated that “the [1^st Defendant] is ready able and willing to cause [Topath] to return the share in Rich Base to [the 3^rd Plaintiff]”; and

(c)   otherwise denied paragraphs 83 to 85 of the ASC

(see paragraphs 56(1) to (3) of the ADC).

The applications below

12.  On 21 November 2011, the Plaintiffs applied for judgment in respect of their claim for the return of the Rich Base share on the basis of what they said was an admission contained in paragraph 56(2) of the ADC.

13.  The Defendants responded to the application for judgment by making an application (by summons dated 30 November 2011) for leave to amend the ADC.  So far as paragraph 56 of the ADC was concerned, it was sought to amend it to read as follows (the proposed amendments are underlined):-

“56. As to paragraphs 83 to 85:-

(1) Paragraphs 25(5), 26, 48(2) and 54 is are repeated.

(2) Following the trial of this Action, in the event the Court pronounces judgment finding that:- (a) the relevant parties did enter into the Rich Base Agreement as pleaded in Paragraphs 46 to 48 of the [ASC]; and (b) there was an implied term to the Rich Base Agreement that, in the event the Zhou SPA did not proceed to completion, the share in Rich Base would be returned to [the 3^rd Plaintiff] upon the terms pleaded in Paragraph 49 of the [ASC] – then, subject to the matters pleaded in paragraphs 26, 48(2) and 54 above, T the [1^st Defendant] is ready able and willing to cause [Topath] to return the share in Rich Base to [the 3^rd Defendant] in order to assist in the final adjudication and determination of the dispute herein.

(3)   Save as aforesaid, Paragraphs 83 to 85 are denied.”

14.  As I have noted, on 20 December 2011, the Judge gave judgment for the Plaintiffs, ordering the Defendants to return the Rich Base share to the Plaintiffs, on the basis of the admission said to be contained in the original paragraph 56(2) of the ADC, and refused leave to make the amendments sought in respect of paragraph 56, saying that they did not get the Defendants anywhere.

The legal principles applicable to granting judgment on admissions

15.  RSC Order 27 rule 3 empowers the Court to give judgment on admissions.  It states:-

“Where admissions of fact or of part of a case are made by a party to a cause or matter either by his pleadings or otherwise, any other party to the cause or matter may apply to the Court for such judgment or order as upon those admissions he may be entitled to, without waiting for the determination of any other question between the parties, and the Court may give such judgment or make such order on the application as it thinks just”.

16.  It was common ground that in order for judgment to be given on admissions, the admissions in question must be clear and unambiguous (see Re Chung Wong Kit (A Bankrupt) [1999] 1 HKC 684 at 686G).

The Defendants’ arguments on appeal

17.  Mr Barlow SC, appearing for the Defendants, contended that the Judge was wrong to have given judgment for the Plaintiffs as he did. He argued that:-

(1)   Viewed in its proper context, i.e. the ADC as a whole, the alleged “admission” was not an admission at all, and at any rate, could not be regarded as being clear and unambiguous so as to justify judgment being entered on the strength of it.  This was because:-

(a)   The bases on which the Plaintiffs’ claims were put were misrepresentation and implied term or collateral contract.  Each of these was denied by the Defendants (see paragraphs 11(1), (2) and (4) above);

(b)   The Defendants’ position was stated in paragraph 51 of the ADC, where they made it clear that the Plaintiffs were not presently entitled to the return of the Rich Base share until the parties’ substantive claims had been determined after trial; and

(c)   The Defendants had, in paragraph 56 of the ADC, specifically traversed and partly denied paragraphs 83 to 85 of the ASC, although pleading in response to the claims for rescission that the Defendants were ready willing and able to reverse the benefits conferred under the SPA and Rich Base Agreement.

18.  Thus, said Mr Barlow, far from admitting the Plaintiffs’ entitlement to rescission of the Rich Base Agreement and return of the Rich Base share, the Defendants’ position was that those claims and entitlements were denied, so that there was no such entitlement; but if (contrary to the Defendants’ case) the court found in the Plaintiffs’ favour, then the Defendants would be willing to reverse the Rich Base Agreement as pleaded in paragraph 56(2) of the ADC.  In those circumstances, there was no admission, let alone a clear and unambiguous one, of the Plaintiffs’ claim for rescission of the Rich Base Agreement.

19.  Mr Barlow went on to submit that this court should grant leave to amend paragraph 56 of the ADC in the terms proposed, as this would make the Defendants’ position clearer than the present wording did.

The Plaintiffs’ response

20.  For the Plaintiffs, Mr Strachan QC responded that:-

(1)   The terms of paragraph 56(2) of the ADC were clear and unequivocal.  They indicated that the Defendants were prepared to return the Rich Base share to the 3^rd Plaintiff, and as such were an admission of that part of the Plaintiffs’ claim.

(2)   The other parts of the ADC relied on by the Defendants did not get them anywhere, because:-

(a)   So far as paragraph 26 of the ADC is concerned, it actually accepts facts which are critical to the Plaintiff’s entitlement to the return of the Rich Base share, namely that Rich Base was established pursuant to the main transaction on which the parties were engaged (the SPA), and that the Rich Base share had been transferred by the 3^rd Plaintiff to Topath.

(b)   As for paragraph 51 of the ADC, this was more of a submission, which in any event could not take away from the clear terms of paragraph 56(2).

(c)   The suggestion that paragraph 56(2) was intended to convey that the Defendants would be willing to retransfer the Rich Base share if, but only if, the court found in the Plaintiffs’ favour was nonsensical, since if the court so found, the Defendants would have no choice but to do so, and was in any case not what paragraph 56(2) said.

(3)   In any event, it was clear that the Rich Base share should be returned, because both parties were contending that the transactions had failed.

(4)   Leave to amend should not be granted because:-

(a)   The proposed amendments did not make any difference; and

(b)   If they did, this would amount to permitting the Defendants to resile from their admission, which the court should not do because:-

(i)  No reason for the change in position had been given;

(ii)   The Plaintiffs would be prejudiced by the change, as they might otherwise have sought summary judgment rather than judgment on admissions;

(iii)   To the extent that the Defendants might suffer any prejudice, they were the authors of their own misfortune;

(iv)   There was no merit in resisting the return of the Rich Base share when it was obvious that the main transaction could not proceed;

(v)   The application to amend was made late, and only in response to the application for judgment on admissions.

Whether judgment on admissions should have been entered

21.  In my view, Mr Barlow is right in submitting that the alleged admission was not so clear and unambiguous as to justify the entry of judgment on the strength of it.  While it is true that, taken in isolation, paragraph 56(2) of the ADC would appear to indicate that the Defendants are amenable to giving the Plaintiffs the relief sought in relation to the Rich Base share, it would not be right to read that paragraph in isolation, divorced from the rest of the Defendants’ case as set out in the ADC.  It is clear from the parts of the ADC to which I have referred in paragraph 11 above that the Defendants strenuously deny the basis of the Plaintiffs’ claim for rescission of the Rich Base Agreement.  In those circumstances, it would be surprising (to say the least) if they were nonetheless to admit that the Plaintiffs were entitled to the relief claimed. Seen in the context of the ADC as a whole, I am satisfied that paragraph 56(2) cannot properly be regarded as an admission, and certainly not one which is clear and unambiguous.

22.  I cannot agree with the suggestion that the other parts of the pleading on which Mr Barlow relies do not assist the Defendants.  They show quite clearly that the Defendants do not accept the Plaintiffs’ version of events, and do not accept that the Plaintiffs are entitled to the relief that they seek.  The suggestion that paragraph 26 of the ADC accepts some of the facts underlie the Plaintiffs’ claim ignores the reality that paragraph 26 denies the factual foundation on which that claim is based.  Further, paragraph 51 of the ADC makes it clear that the Defendants’ position is that the Plaintiffs are not entitled to the relief claimed.  This is inconsistent with the notion that paragraph 56(2) could have been intended to be an admission of the Plaintiffs claim.

23.  I do not think that Mr Strachan’s further submission that the Rich Base share should be returned because both parties were contending that the transactions had failed assists the Plaintiffs.  The fact remains that the Defendants vigorously dispute the version of events put forward by the Plaintiff and resist the making of orders against them on the basis of the Plaintiff’s case.  I see no reason why they should not be permitted to do so.

24.  I am therefore satisfied that paragraph 56(2), read in the context of the ADC as a whole, cannot be regarded as an admission of the Plaintiffs’ entitlement to the relief sought in paragraph (7) of the prayer for relief, and that accordingly judgment should not have been entered in the Plaintiffs’ favour on the basis of it.  I would therefore allow the appeal.

Whether leave to amend should be granted

25.  So far as the Defendants’ application to amend paragraph 56 is concerned, I would also grant leave, pursuant to this court’s powers under RHC Order 59 rule 10(1), to make the amendments sought.  Although it is not strictly necessary to do so, having regard to the conclusion to which I have come, it seems to me that the amendments sought do have the advantage of making clear what the Defendants’ position is.

26.  I would also add that, even if I had considered that paragraph 56(2) amounted to an admission of the Plaintiffs’ entitlement to the relief sought in respect of the Rich Base share, I would in any event have granted leave to the Defendants to make the amendments sought, notwithstanding that this would have involved the withdrawal of an admission, for the following reasons:-

(1)   It is clear from Mr Barlow’s submissions that it was not the intention of the Defendants to admit the Plaintiffs’ claim in respect of the return of the Rich Base share.  This is entirely consistent with the position taken by the Defendants in the other parts of the ADC to which I have referred.

(2)   If paragraph 56(2) amounted to an admission, it was therefore not one that was intended.  Absent real prejudice to the Plaintiffs, fairness requires that the Defendants be permitted to advance their true case.

(3)   I do not see that the withdrawal of the admission (assuming it to be one) would prejudice the Plaintiffs in any way.  The proceedings are at a very early stage – indeed, pleadings had not yet closed when the application for judgment was made.  The suggestion that the Plaintiffs might otherwise have applied for summary judgment is neither here nor there – it remains open to them to do so on the basis of the amended ADC if they consider that this is an application worth making.

(4)   On the contrary, for the Defendants to be held to the admission would clearly be prejudicial to them, and it would not be right to punish them for a slip or error on their part, or that of their legal advisors, when this could be corrected without prejudicing the Plaintiffs.

(5)   As to the suggestion that there could be no merit in resisting the return of the Rich Base share when it was obvious that the main transaction could not proceed, I do not accept this for the reasons given in paragraph 23 above.

(6)   Finally, although it was suggested that the application to amend was late, this clearly was not the case.  The application to amend was made very shortly after the application for judgment on admissions was taken out by the Plaintiff, at a very early stage in the proceedings.  This is very far from a case where leave to withdraw an admission is made at a late stage, very close to the actual trial of the action.

27.  For the foregoing reasons, the appeal was allowed and the other orders mentioned in paragraph 5 above made.

Summary assessment of costs

28.  At the end of the hearing, Mr Barlow invited the court to assess the Plaintiffs’ costs of the appeal on a summary basis in order to save the time and costs that would be involved in a taxation of such costs. He suggested that directions should be given for the Plaintiffs to submit a statement of costs for that purpose and for the Defendants to make submissions in response if they wished to do so.  We declined to do so, for the reasons explained below.

29.  The procedure to be followed in respect of summary assessments of costs is set out in paragraphs 7 to 15 of Practice Direction 14.3.  Paragraph 7 requires any party wishing to seek a summary assessment of costs to prepare a statement of costs.  Paragraph 8 requires the statement to be lodged and served on any party against whom summary assessment is sought at the same time as the skeleton argument for the substantive application is lodged and served.  The reason for this is to afford the other party sufficient time before the hearing to consider his position and to formulate any objections he may have to a summary assessment, and to the quantum of the costs sought if a summary assessment is conducted, so that the assessment can take place immediately at the end of the hearing, when the matter is fresh in the court’s mind, and all the relevant parties are present. While paragraph 11 of the practice direction does allow for an application for summary assessment to be adjourned for later determination either at a further hearing or on the papers, to do so will generally involve further time having to be spent on the matter both by the parties and the court, which is contrary to the objective of having a summary assessment.  The position is, of course, different in relation to applications that are dealt with on the papers, such as applications for leave to appeal, when there is no oral hearing.