WANG TAT METAL MFY v. GARWIN ENTERPRISESE LTD

DCCJ2334/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2334 OF 2008

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JUDGMENT

Background

1.  This is an application by way of an inter partes summons[1] to strike out the Plaintiff’s statement of claim[2] on the ground that the claim was frivolous and vexatious and/or abuse of process. [3]

2.  The Plaintiff, Wang Tat MFY, sold goods to the Defendant, Garwin Enterprises Limited, for the sum of $324,787.70. Goods were delivered by the Plaintiff’s subsidiary (“Psub”) to the Defendant’s subsidiary (“Dsub”) in China. Part of the sum ($186,484.60) was paid by the Defendant to the Plaintiff by cheque dated 20/5/08. This cheque was dishonoured. [4] Psub sued Dsub in China on 30/5/08 for the sum.[5] The Plaintiff also filed a claim in the District Court of Hong Kong on 2/6/08 for part of the sum ($186,484.60) based on the dishonoured cheque.

3.  The action in China was settled on 8/9/08 between Psub and Dsub. The settlement agreement stipulated, among other terms, that the Plaintiff would withdraw the action in Hong Kong. Dsub to pay the settlement sum ($324,787) to Psub before 20/10/08. In default, Psub reserved the right to sue the Defendant.[6]

4.  On the same day, the Plaintiff signed a declaration in China. In gist, the Plaintiff agreed to cancel its claim against the Defendant for the whole sum of $324,787.70. The matter would be dealt with by Psub and Dsub through mediation.[7]

5.  On 30/9/08, the Defendant took out a summons to strike out the Plaintiff’s claim in Hong Kong[8], subject matter of the present application. Eventually, the Defendant did not pay the settlement sum before 20/10/08.

The key issues

2.  It is not in dispute that the Defendant ordered goods from the Plaintiff in early 2008. The goods were delivered by Psub to Dsub in China on the request of the Defendant. The Defendant made part payment in Hong Kong ($186,484.60) by a cheque dated 20/5/08 which was dishonoured. There were actions by the Plaintiff in the District Court and Psub in the court in China for payment.

3.  The main issue is whether the Plaintiff’s declaration signed in China had extinguished the cause of action of the Plaintiff’s claim in the District Court.

4.  Alternatively, the defendant argued that the declaration and the settlement reached in the court in China had extinguished the Plaintiff’s cause of action in the District Court. Under the settlement agreement, only Psub reserved the right to sue the Defendant for the sum.

5.  Further, the defendant argued that the Plaintiff had failed to establish the breach of the settlement agreement.

6.  The Plaintiff argued that the action was not frivolous, vexatious or abuse of process. It was based on a dishonoured cheque under the Bills of Exchange Ordinance. The Plaintiff’s declaration filed in the court in China was not signed by the Defendant. It was not a binding contract. The Defendant was not party to the subsequent settlement agreement and could not rely on it.

Evidence

7.  The Plaintiff relied on the affirmation of Mr. Chow Hon Kwan, the sole proprietor of the Plaintiff.[9] The defendant relied on the two affirmations filed by Mr. Kevin Kin Kwok Nie, solicitor for the Defendant.[10]

The Declaration

8.  The Plaintiff signed this declaration in China on 8/9/08. The background under which this declaration was made is important.

9.  According to the Plaintiff, the lawyer of the Dsub approached Psub proposing a settlement on 8/9/08. Subsequently, there was a settlement agreement signed by Psub and Dsub. The lawyer also requested the Plaintiff to sign a declaration. [11]

10.  On the same issue, Mr. Nie, solicitor for the Defendant stated in his affirmation that he learned about the action of Psub against Dsub in China in early September. He wrote to the Plaintiff demanding discontinuation of the action in the District Court in view of the action in China. There was no reply from the Plaintiff. On 11/9/08, the lawyer of Dsub sent him the declaration dated 8/9/08 by the Plaintiff. [12]

11.  The declaration was not the result of any negotiation between the Plaintiff and the Defendant. From the affirmation of Mr. Nie, the Defendant only learnt of the declaration on 11/9/08. The fact that there was no signature either by the Defendant nor it’s legal representative supported this finding.

12.  I have carefully considered the content of the declaration. It did not refer to the action in the District Court of Hong Kong. The declaration mentioned two sums of goods sold and unpaid totalling $324,787.70. This sum was the total claim of Psub against Dsub in China. The plain meaning of the declaration was that the Plaintiff would discontinue its action. Psub and Dsub would proceed to mediate. In my view, the declaration must be referring to the action in China between Psub and Dsub.

13.  This declaration cannot stand alone. It must be considered together with the subsequent settlement agreement. Given that mediation was in progress, its outcome was important. It might or might not arrive at a settlement. I do not think the Plaintiff meant in this declaration that it would forego all claims against the defendant so long as there was mediation,  irrespective of the outcome.

14.  In fact, according to the affirmation of Mr. Chow, proprietor of Plaintiff, the lawyer of Dsub requested the Plaintiff to sign the declaration at the about same time or after the settlement agreement.[13] This again shows that the declaration was not an agreement on its own.

15.  Solicitor for the Defendant, Mr. Nie, mentioned about a letter dated 5/9/08 to the Plaintiff. This letter threatened to strike out the action in the District Court unless the Plaintiff discontinue it. According to the affirmation of Mr. Nie, the Plaintiff did not respond to this letter. [14] There was no indication from the Plaintiff, before signing the declaration, that it would discontinue the action in the District Court.

16.  Given the above, the Defendant’s argument that the declaration had extinguished the Plaintiff’s claim must fail.

The settlement agreement

17.  This agreement consisted of three main conditions, namely, (i) that the Plaintiff agreed to discontinue its action against the Defendant in Hong Kong and forgo all its rights; (ii) that the Dsub would pay a settlement sum of $292,308 to Psub before 20/10/08 and (iii) that in default of Dsub, Psub reserved its right to sue the Defendant.

18.  Plainly, the Psub reserved its right to sue the Defendant in this agreement on failure to perform the conditions. In my view, the parties intended that the agreement must be performed before their respective obligations in the original cause of action would be discharged.

19.  For settlement of a cause of action, the law is well settled. In general, where there is a settlement agreement, either a promise to pay or to do an act, there is an accord and satisfaction. The original cause of action is discharged and substituted by the subsequent settlement agreement. A plaintiff cannot pursue the original cause of action.[15] However, one must construe the settlement agreement to ascertain the intention of the parties, whether it is an agreement in substitution of the original cause of action or an agreement to discharge the original cause of action only upon the performance of the settlement agreement.

20.  The case of Scott v English [1947] VLR 445 at 453 illustrates this principle precisely. In this case, the plaintiff compromised the action on the term that the defendant would pay a sum of 70 sterling pounds within 14 days and that the trial should be adjourned to a date to be fixed. The defendant failed to pay within time. The court held that the plaintiff could proceed with the original action on the defendant’s failure to pay. Fullagar J said at page 453 of the report:

“ The essence of the matter may be said to be that a mere ‘accord’ is not a contract at all. But, if we find in any particular case that there is a contract—a promise accepted in ‘satisfaction’ against a promise—our problem is not necessarily at an end. We have still, I think, in some cases to construe the contract to see whether its effect is to discharge the original cause of action absolutely, so that the plaintiff can never thereafter sue on it but can only sue on the new contract, or whether it effects only a conditional discharge, merely suspending the original cause of action, so that if it is not performed by the defendant according to its tenor, the plaintiff may still maintain that original cause of action….The question is likely to arise wherever a time is fixed for performance of the defendant’s promise

Here the “compromise” contains mutual promises, and I am of the opinion that there was no mere accord executory but a contract intended to create new “antecedent” obligations in place of the “remedial” obligation originally asserted by the plaintiff. But I am of the opinion that that contract effected no absolute discharge of any cause of action: there was, in my opinion, to be a discharge of any cause of action if, but only if, the defendant performed her promise…..the provision for adjournment of the action is, I think, conclusive to show that there is no absolute discharge, no undonditional substitution of a new obligation…..Where it occurs in an agreement under which the defendant’s part is to be performed before the plaintiff’s part, I think it is decisive. The abandonment of any pre-existing cause of action was, in my opinion, conditional on the performance by the defendant of her part of the compromise.”

21.  The principle above was adopted by Deputy Judge Ronny Tong, QC, as he then was, in another case.[16]

22.  In my view, the settlement agreement between Psub and Dsub was conditioned upon Dsub paying the settlement sum before 20/10/08. The Psub had expressly reserved its right to sue the Defendant in the latter’s default.

23.  Counsel for the defendant argued that the Plaintiff should discontinue the action in the District Court first before the Defendant was  to pay. I do not agree. Apart from the fact that there was no time stipulated for the Plaintiff to discontinue the action, the Plaintiff was also required to forgo all its related rights. If the Plaintiff had to do this first, he would have no redress when the Defendant failed to pay. I hold that it was for the Defendant to pay the settlement sum first before the Plaintiff would discontinue the action in the District Court.

24.  I find that Psub had never agreed to abandon the original cause of action by the settlement agreement in China. There is no basis to support the proposition that the Plaintiff had done so either.

25.  I accept Mr. Chow’s affirmation that the Dsub had not paid the settlement sum. Counsel for the Defendant argued that there was no evidence that the Defendant failed to pay. I find this argument of no substance. Had the Defendant paid the settlement sum or the part in relation to the action in District Court, either party would not choose to continue with this action. I reject the Defendant’s argument.

26.  I dismiss the application by the Defendant. I make the following orders:

i)  The application by the Defendant is dismissed. Judgment for the Plaintiff.

ii)  Order nisi that costs of this application to the Plaintiff to be taxed if not agreed.

iii)  Such order nisi be made absolute 14 days after the date of handing down of this judgment.

[1]  Dated 30/9/08.

[2]  Dated 2/6/08.

[3]  O.18 r.19(b) and (d).

[4]  Bundle B, page 7.

[5]  Bundle B, page 13-15. The claim was filed in a court at PanYu District.

[6]  Bundle B, page 48-49.

[7]  Bundle B, page 19.

[8]  This was before the due date for payment by the Dsub under the settlement agreement.

[9]  Bundle A, pages 32-39.

[10]  Bundle A, pages 23-28, 40-44 .

[11]  Bundle A, page 36, paragraphs 10-11.

[12]  Bundle A, pages 23-26, paragraphs 8-10.

[13]  Bundle A, page 36 last sentence of paragraph 11.

[14]  Bundle A, pages 26 and bundle B, page 17.

[15]  Madam Lam Fung Ying v Ho Tung Sing HCA 2329/1992 at paragraphs 42 & 43. Scott v English [1947] VLR 455 at 453, Morris v Baron &Co [1918] AC 1 at 35.

[16]  Lam Fung Ying v Ho Tung Sing, [1993] 2 HKC 437 at 449A to F.