WONG CHONG YIP v. CHAN YIN FONG

HCPI 755/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO. 755 OF 2006

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D E C I S I O N

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1.  This is a trial of a preliminary issue in a personal injuries action. 

2.  The plaintiff used to work as a chef in the defendant’s Hong Kong-style café.  He has claimed employees’ compensation on the ground that he was injured on 11 October 2003 in the course and out of work.  He also claims in this action that he was injured as a result of the negligence, breach of statutory duty and breach of common duty of care by the defendant.  He pleaded in the statement of damages a total sum of compensation at $3,114,018 and gave credit for $206,626.67 as employees’ compensation already received from the defendant.

3.  The defendant has not filed any defence yet.  She has applied for the trial of a preliminary issue.  The issue is whether the plaintiff has already settled both the potential employee compensation claim and potential personal injuries claim with the defendant by signing some settlement documents with the defendant and her insurer on 4 June 2004.

4.  The plaintiff denied that the settlement documents are valid or binding.  He argued that he was tricked into signing these documents by the economic duress, undue influence and misrepresentation of the defendant, her insurer, Wing Lung Insurance Company Limited (“Wing Lung”), and its agent, TRM Hong Kong Limited (“TRM”).  The plaintiff, however, did not oppose to the course of a trial of a preliminary issue being taken.  Directions for the trial were then given by the Registrar and the days of the trial fixed.  There were also directions for discovery for this trial.  There have also been two applications for specific discovery against the defendant, Wing Lung and TRM, for documents pertaining to the settlement and on undue influence.

5.  The plaintiff’s case on economic duress and undue influence is that he was not paid his periodic payments as and when they fell due.  He was thus put into financial difficulty by the defendant.  TRM then came along and played the role of the good guy.  It helped him obtain the periodic payments from the defendant and eased his financial difficulty.  TRM thus gained his faith and trust.  TRM then procured him into accepting a very unfavourable settlement with the amount of compensation not even enough to cover his employees’ compensation entitlement, not to say his common law remedies.

6.  He argues that the defendant, Wing Lung and TRM had colluded together to procure this settlement from him and the conduct of TRM amounted to undue influence. 

7.  In order to determine the preliminary issue, I have to determine whether there was undue influence practised by TRM on the plaintiff in order to bring about the settlement.

8.  In Royal Bank of Scotland Plc v Etridge (No. 2) [2002] 2 AC 773, Lord Nicholls of Birkenhead said of undue influence in paragraphs 14, 21, 22 and 25:

“14.   Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant’s financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof.  On proof of these two matters, the stage is set for the court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence.  In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties’ relationship.  He preferred his own interests.  He did not behave fairly to the other.  So the evidential burden then shifts to him.  It is for him to produce evidence to counter the influence which otherwise should be drawn.  …

21.   As already noted, there are two prerequisites to the evidential shift in the burden of proof from the complainant to the other party.  First, that the complainant reposed trust and confidence in the other party, or the other party acquired ascendancy over the complainant.  Second, that the transaction is not readily explicable by the relationship of the parties.

22.    Lindley LJ summarised this second prerequisite in the leading authority of Allcard v Skinner 36 CHD 145, where the donor parted with almost all her property.  Lindley LJ pointed out that where a gift of a small amount is made to a person standing in a confidential relationship to the donor, some proof of the exercise of the influence of the donee must be given.  The mere existence of influence is not enough.  He continued, at p 185, “But if the gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act, the burden is upon the donee to support the gift.”  In Bank of Montreal v Stuart [1911] AC 120, 137, Lord Macnaghten used the phrase ‘immoderate and irrational’ to describe this concept.  …

25.    This was the approach adopted by Lord Scarman in National Westminster Bank plc v Morgan [1985] AC 686, 703-707.  He cited Lindley LJ’s observations in Allcard v Skinner 36 CHD 145, 185, which I have set out above.  He noted that whatever the legal character of the transaction, it must constitute a disadvantage sufficiently serious to require evidence to rebut the presumption that in the circumstances of the parties’ relationship, it was procured by the exercise of undue influence.  Lord Scarman concluded, at p 704:

‘the Court of Appeal erred in law in holding that the presumption of undue influence can arise from the evidence of the relationship of the parties without also evidence that the transaction itself was wrongful in that it constituted an advantage taken of the person subjected to the influence which, failing proof to the contrary, was explicable only on the basis that undue influence had been exercised to procure it.’ (Emphasis added)”

9.  If I should find in favour of the plaintiff on the first issue of trust and confidence, I would then have to decide whether the purported settlement would constitute a sufficiently serious disadvantage to the plaintiff so that evidence may be required to rebut the presumption of undue influence. 

10.  In order to decide this second issue, it is necessary for me to decide the amount that the plaintiff would have obtained but for the settlement.  If the plaintiff should lose his common law claim, the settlement would not appear to constitute a serious disadvantage to him.  But if he should succeed in the common law claim, then the settlement may well constitute such a disadvantage sufficient to call for a rebuttal of the presumption.  The resolution of the issue of undue influence would thus require an adjudication of the liability of the defendant to the plaintiff’s common law claim, but neither party has prepared to have a trial on such liability.

11.  Mr Lam for the plaintiff now says that the procedure of a trial of a preliminary issue is inappropriate and the action should proceed in the normal way with the settlement pleaded as one of the grounds of defence.  Mr Pang for the defendant disagrees.  He says every settlement involves some give and take from both parties.  I should therefore approach this matter by treating the plaintiff as an ordinary man who had entered into this purported settlement with the ordinary motive in settling a potential litigation. 

12.  If Mr Pang is right, the plaintiff could not have suffered from any undue influence in this case (which Mr. Pang asserts to be so).  Mr Pang’s submission in fact asks me to rule against undue influence before hearing the evidence on it.  I do not think I can subscribe to that course. 

13.  I also note from the affidavit of one Miss Hou of TRM, who had negotiated the settlement with the plaintiff, that she did not appear to have knowledge of how the accident had happened.  She did not appear to have enquired from the plaintiff on this and how the plaintiff was injured.  In proposing a sum for settling both the potential employees’ compensation claim and the potential personal injuries claim, Miss Hou also did not appear to have provided any sum to cover the potential personal injuries claim.  Her calculations were made on the basis of the employee compensation claim only.

14.  At this moment, Mr Pang submits that the defendant does not even admit liability for the employees’ compensation claim.  Thus, the settlement and payment for the employees’ compensation claim already reflected the defendant’s concession on liability in the employees’ compensation claim.  I must say that this has come as a surprise to me and to Mr Lam.  None of the communications between Wing Lung and TRM as disclosed would indicate a denial of liability for the employee compensation claim.  The Form 2 submitted by the defendant to the Commissioner for Labour also contains a description of the accident which happened in the course and out of the plaintiff’s work.  There is not the slightest indication or query on the part of the defendant regarding the happening of the accident and the plaintiff’s injury therefrom. 

15.  All in all, I do not think I can decide the preliminary issue at the end of this trial as the parties are not ready to deal with the issue of the defendant’s liability in this action or the happening of the accident.  I agree with Mr Lam that this action should proceed in the normal way.