SO PAK HUNG v. CHEUNG CHOW AND OTHERS

1994, No. A3685

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. This is an application by the defendants for an order to strike out the particulars provided by the plaintiff in reply to the defendants' request for further and better particulars.

2. It is common ground that by two mortgages dated 29 April 1965 and 27 August 1965, registered in the Land Office by Memorial Nos. 484711 and 500057 respectively, the plaintiff mortgaged to the 1st defendant :

1) Units A, B and D on the Ground Floor;

2) The whole of the 1st Floor;

3) The whole of the 2nd Floor; and

4) Flats F and G on the 3rd Floor

of the building at 398-400 Reclamation Street, Kowloon, Hong Kong ("the Properties") for the sum of $800,000 (see paragraphs 2 & 3 of the Amended Statement of Claim and paragraph 1 of the Defence). The 1st defendant exercised the power of sale as mortgagee and sold and assigned the Properties to the 2nd defendant in 1968 for the sum of $201,000 (see paragraph 4 of the Amended Statement of Claim, and paragraph 2 of the Defence).

3. In the Amended Statement of Claim, the plaintiff alleges that the 2nd defendant was the agent of the 1st defendant at the material time (see paragraph 7 of the Amended Statement of Claim). The power of sale was not exercised bona fide by the 1st defendant in 1968 for the purpose of recovering money due under the mortgage (see paragraph 7 of the Amended Statement of Claim). And the sale of the Properties by the 1st defendant was at an undervalue (see paragraph 8 of the Amended Statement of Claim).

4. The defendants sought further and better particulars of the allegations that the 2nd defendant was the agent of the 1st defendant, the power of sale was not exercised bona fide and the sale was at an undervalue. In response to that request, particulars were provided by the plaintiff.

5. In order that this judgment may be understood in context, the particulars requested and the answers to them are set out in the annexure to this judgment.

6. Mr Leo Remedios for the defendants says that the plaintiff's answers to the request for particulars do not answer the request, are irrelevant to the issues pleaded and should be struck out for these reasons :

1) Answer l(l) is not relevant to the allegation that the 2nd defendant was the agent of the 1st defendant, because even if it is proved that the 2nd defendant is a housewife with no independent income of her own and that the two properties mentioned in this answer were sold to the 2nd defendant, these facts do not establish the allegation that the 2nd defendant is the agent of the 1st defendant.

2) The properties referred to in answer 1(1) are not those pleaded. The properties referred to are No. 5 Osmanthus Road, Yau Yat Chuen and No. 432 Shanghai Street (see page 25 of the bundle) of which the registered owner was the plaintiff's wife and not the plaintiff (see 1(1)(a) of the Answer). The plaintiff's wife is not, and never has been, a party to these proceedings. This answer also contains particulars of fraud (see subparagraph (d)), which has not been pleaded in the Amended Statement of claim.

3) Answer 1(2) has nothing to do with the allegation that the power of sale was not exercised bona fide, and is irrelevant.

4) Answers 2(1) and (2) do not plead facts, they plead the opinion of the plaintiff which is neither relevant nor admissible.

5) Answer 2(3) is not relevant for the reasons stated in relation to answer 1.

7. Mr Remedios says that the defendants need to know what case they have to answer and asks rhetorically : how do they know what that case is from these answers?

8. Mr Remedios reminds me that the answers to a request for further and better particulars form part of the pleadings (see Halsbury's Laws of England Vol. 36 para 61, Yorkshire Provident Life Assurance Co. v Gilbert and Rivington (1895) 2 QB 148 at 152, Arnold and Butler v Bottomley (1908) 2 KB 151 at 155 and Esso Petroleum Co. Ltd. v Southport Corpn (1955) 3

All ER 864). According to Order 18 rule 19, any part of a pleading can be struck out on the ground that it is scandalous, frivolous or vexatious, or may prejudice, embarrass or delay the fair trial of the action, or is otherwise an abuse of the process of the court. And that the court also has an inherent jurisdiction to prevent an abuse of its process by striking out pleadings which are frivolous or vexatious.

9. As to the answers being scandalous, Mr Remedios says allegations in a pleading are scandalous, if they state matters which are indecent or offensive, or are made for the mere purpose of abusing or prejudicing the opposite party (see Cashin v Cradock (1876) 3 Ch.D. 376 at 378, see also 1997 White Book Vol.1 page 330). If the allegations are irrelevant to the issue, they will be struck out (see Blake v Albion Assurance Society (1876) 45 LJ.C.P. 663, see also 1997 White Book Vol.1 page 330). The test is laid down in Christie v Christie (1873) LR 8 ChA 499 at 503, (see also 1997 White Book Vol. 1 at page 330) as being :

"The sole question is whether the matter alleged to be scandalous would be admissible in evidence to show the truth of any allegation in the pleading which is material with reference to the relief prayed?"

10. Mr Remedios says this application is similar to the one in Blake v Albion (above). In Blake v Abion, in an action in the Common Pleas Division against the defendant for defrauding the plaintiff of a sum of money, the plaintiff pleaded details of transactions other persons had with the defendant in which those other persons were defrauded. This was done to show that the plaintiff's transaction was similarly fraudulent. The defendant applied to strike out the paragraphs containing the details of these other transactions. The judge referred the application to the Common Pleas Divisional Court. Lord Coleridge CJ held that these transactions were not relevant to the cause of action. He said, at page 666, that :

"If the cause of action, ..., is proved, then the plaintiff does not want what is stated in these four paragraphs at all. If, on the other hand, the plaintiff proves these four paragraphs and does not prove his cause of action against the defendant in this particular case, then it is plain that he does not succeed in the action, and he proves that which is only irrelevant to his claim. Therefore it is plain that these four paragraphs contain a statement of facts not necessary to be proved. ... The matter stated in these four paragraphs does not appear to me to be relevant to the maintenance of the claim and 1 am therefore of opinion that the defendant are entitled to the order they seek for striking them out."

In the same application, Brett J, at page 667, was of the opinion that :

"The facts contained in these four paragraphs would be at the utmost mere evidence of fact which must be proved in order to affirm the statement of claim, and that therefore at the utmost they would only be evidence; but I am further of opinion that here these facts are not even evidence which could be given by the plaintiff to substantiate the facts which must be proved in order to make out this statement of claim. ... They are clearly not facts which the plaintiff is allowed to plead, and consequently these paragraphs ought to be struck out." (at 667)

11. Applying Lord Coleridge CJ and Brett J's reasoning, Mr Remedios says the details of transactions given by the plaintiff in answers 1(1) and 1(2) are not relevant to the cause of action or matter in issue. At the most, they may be regarded as evidence of facts to be proved and thus should be struck out as they are both scandalous and irrelevant and may prejudice the fair trial of the action.

12. The answer at 2(3) puts forward an allegation of bad faith on the part of the 1st defendant. Mr Remedios says this allegation is not relevant to the issues as pleaded as there is no allegation of fraud pleaded in the Amended Statement of Claim, it is therefore scandalous and should also be struck out.

13. As to the answers being frivolous and vexatious, a pleading is such when it is without foundation and to put it forward would waste the time of the court (see Dawkins v Prince Edward of Saxe-Weimar (1876) 1 QBD 499 at 503), Mr Remedios says the answers at 2(1) and (2) contain the plaintiff's personal opinion of the market value of the Properties at the material time. This, he says, offends against the rules of pleadings stated in Order 18 rule 7, it is therefore vexatious or frivolous and should be struck out.

14. Mr Remedios says that the answers to the request for further and better particulars should be struck out under Order 18 rule 19 of the Rules of Supreme Court.

15. Miss Audrey Eu SC, for the plaintiff reminds me that a mortgagor may set aside the sale by the mortgagee if the sale was not in good faith, or if he sells to himself (see Halsbury 4th Ed. Vol.32 paras.726, 734).

She submits that at trial the relevant issues will be whether :

1. The 2nd defendant was the 1st defendant's agent - in effect, was the 1st defendant selling to himself?

2. The sale was bona fide; and

3. The sale was at an undervalue.

16. She reminds me that as the further and better particulars were requested by the defendants, it sits ill with them to question their adequacy and propriety; and that their function is to inform the defendants in advance of the nature of the case they have to meet, so that they will not be taken by surprise at trial (see White Book 18/12/1).

17. She says the court should only strike out a pleading when it is plain and obvious to do so. If there is any doubt, the court should not strike out in case this may fetter the trial judge. He is the one in a best position to decide on the admissibility and relevancy of the evidence to be adduced.

18. As to the allegations of fraud, she says these are not scandalous, if relevant to the issue (see White Book 18/12/12).

19. She cites Mayor etc. of City of London v. Horner (1914) 111 LT 512, where at page 514, Pickford L.J. said :

"For the purposes of the present case I take 'embarrassing' to mean that the allegations are so irrelevant that to allow them to stand would involve useless expense, and would also prejudice the fair trial of the action by involving the parties in a dispute that is wholly apart from the issues. In order that allegations should be struck out from a defence upon that ground, it seems to me that their irrelevancy must be quite clear and so to speak, apparent at the first glance. It is not enough that on considerable argument it may appear that they do not afford a defence."

Earlier in the same case Cozens-Hardy M.R. said at p.512:

"But the point rather is, and I think is the only point, whether it is so manifest on the view of the pleadings, merely reading through the pleadings, that it is one which does not admit of plausible argument and that on that ground it ought to be struck out as embarrassing to the trial of the real issue."

20. She submits that the test I should apply is : is it so plain and obvious, on merely reading through the pleadings, that the matters pleaded in the particulars can never possibly, even after full argument at the trial, be relevant at all?

21. Had the particulars been put in merely to prejudice the defendants, then Miss Eu agrees they should be struck out, but if they can be said to be connected to the transactions and issues pleaded, then, she says, they may be relevant.

22. She submits that Blake v. Albion (1876) 45 LJC.P. 663¹ the authority relied on by Mr Remedios, must be read in the light of the eventual outcome of the trial and the appeal from it reported as Blake v. Albion (1878) 4 C.P.D. 94². Although the Common Pleas Divisional Court, in the interlocutory proceedings reported in the earlier report, struck out that part of the pleadings relating to the other transactions, at trial the judge allowed evidence relating to those transactions to be led and this was upheld by the Common Pleas Divisional Court on appeal.

23. Two of the three judges hearing the appeal had sat on the Common Pleas Divisional Court which heard the earlier interlocutory application, namely Lord Coleridge CJ and Lindley J and - unusual though this sounds to us to-day - Lord Coleridge CJ was also the trial judge. Referring to his earlier decision in the interlocutory proceedings, Lord Coleridge said at page 98 of the report of the appeal - (1878) 4 C.P.D. 94 :

"If our observations there were, in effect, only that you cannot prove one offence by merely proving another, they are right, but will not assist the argument. If they convey the idea that, to complete the chain of proof, in a case of fraud, other like frauds by the same offenders cannot be shown by evidence, our ruling was wrong, and I will not be bound by it."

Grove J, who had not sat in the interlocutory proceedings, said at page 102 :

"Evidence may be given of the other acts if they are sufficiently connected with the case, to show that Henry Howard in doing the act with which he was charged did intend and did commit a fraud, or, at all events, they are evidence which the jury might reasonably consider to bear out the inference that he committed fraud."

24. Relying on those passages, Miss Eu submits that if the matters in the particulars are connected to the claim and are admissible at the trial, then they ought to remain as part of the particulars so that the defendants have advance knowledge of them.

25. She referred to Millington v Loring (1881) 6 QBD 190, where Lord Selbourne LC said at page 195 :

"The only result which, so far as I can see, follows from these facts being stated in the pleadings is one which, so far from being embarrassing or prejudicial to the defendant, is in his favour. It is this, that there is no chance of the defendant being taken by surprise at the trial by having charges sprung upon him of which he had no notice. Assuming that these allegations are untrue, nothing could embarrass the defendant more than to hear of them for the first time at the trial. I think therefore that substantial justice is in favour of allowing them to be pleaded."

And where Brett LJ said at page 196 :

"If, then, these matters may be given in evidence at the trial, is it proper to allege them in the pleadings? ... It is true that they are facts which are not necessary to establish the cause of action, but they are facts on which the plaintiff will rely at the trial, then, if they are properly pleadable under Order XIX, they cannot be struck out."

26. Miss Eu says that while each of the particulars may not, on its own, establish or prove the allegation, they are relevant in that they are connected to the subject transaction and at trial the judge may draw the necessary inference from the totality of all matters relied on. For example: in order to decide if the 2nd defendant was the 1st defendant's agent, the court will be entitled to take into account the fact that she had no independent means of her own - if that be the case - and at the same time she was involved in similar transactions in relation to other properties belonging to the plaintiff or his wife. And, in order to decide if the first sale was bona fide, the court will be entitled to take into account the relationship and the degree of reliance or trust between the parties, as well as the value of the properties involved in the other transactions. The price or value of the other properties will throw light on questions such as the market value at the time and the parties' knowledge of that value.

27. As to Mr Remedios' complaint that Answer 2 is inadmissible opinion, Miss Eu says valuation is always a matter of opinion. It is the defendants who have asked for such particulars. The question of the plaintiff's expertise as a valuer of real property must be a matter for trial.

28. In this application, I am with Miss Eu.

29. I am not called upon to decide the action. The matters contained in the plaintiff's answers appear to be relevant to the issues which will be argued at trial.

30. Some parts of the answers may be irrelevant or unnecessary; however it is well established that the mere fact that an opponent's pleading contains unnecessary matters is not a sufficient ground for a judge to allow an application under Order 18 rule 19. A statement will not be struck out merely because it is unnecessary, so long as it is otherwise harmless. (See: Rock v. Purssell (1887) 84 LTR 45).

31. So far as Answers 2(1) and (2) are concerned, valuation is always a matter of opinion, I see no reason to exclude those parts of the answer which give the plaintiff's opinion just because the basis of his expertise is not given.

Note

1 Law Journal Common Pleas 1831-75

2 Law Reports, Common Pleas Division 1875-80

1994, No.A3685

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ANNEXURE

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REQUEST FOR FURTHER AND BETTER PARTICULARS OF THE STATEMENT OF CLAIM

REQUEST

1. Under paragraph 7 of the allegation that :

"The 2nd defendant was at all material times the wife of the 1st defendant and his agent. Further the power of sale was not exercised bona fide by the 1st defendant in the First Sale in 1968 for the purpose of recovering money due under the mortgages."

Please state :

(1) All facts and matters and each and every particular thereof upon which the plaintiff intends to rely in support of the allegation that 2nd defendant was at material times the agent of the 1st defendant; and

(2) All facts and matters and each and every particular thereof upon which the plaintiff intends to rely in support of the allegation that the power of sale was not exercised bona fide for the purpose of recovering money due under the mortgages in the First Sale.

ANSWER

1(1) The matters relied on by the plaintiff are firstly that the 2nd defendant was merely a housewife with no independent income of her own, and secondly, she was involved in similar transactions concerning two other properties owned by the plaintiff and/or the plaintiff's wife, Leung Fung Chun.

First Property : No. 432 Shanghai Street :

(a) This property (a four-storey building) was registered in the name of Leung Fung Chun, the plaintiff's wife. The plaintiff and his wife spent HK$50,000.00 in acquiring the property and $70,000 to obtain vacant possession from the tenants. A further HK$189,100 was paid to the Government as land premium for redevelopment.

(b) In May 1963, the property was mortgaged to Hang Seng Bank Limited to obtain a loan of HK$120,000. The loan was repaid in November 1964 and a reassignment was obtained from the Bank. The plaintiff obtained the title deeds from the Bank. In early 1965, when the 1st defendant advanced loans to the plaintiff (in respect of the suit property and the Yau Yat Chuen property), he asked the plaintiff to give him the title deeds as security.

(c) In around Easter time, 1965, the 1st defendant told the plaintiff that his wife had to go to the solicitor firm to sign some security documents.

(d) The plaintiff later discovered that what his wife had signed was a mortgage of the property for the sum of HK$200,000. In fact neither the sum of HK$200,000 nor any part thereof was advanced by the 1st defendant to the plaintiff or his wife.

(e) On 5th July 1968, the 1st defendant purportedly exercised the power of sale as mortgagee and sold this property to his wife, the 2nd defendant, at the price of HK$51,000 or 25.5 percent of the mortgage amount.

Second property : No. 5 Osmanthus Road, Yau Yat Chuen :

(a) This property was purchased by the plaintiff in November 1960 at the price of HK$272,500. In December 1960 a mortgage loan of HK$120,000 was obtained from Overseas Trust Bank ("OTB"). In September 1964 a further loan of HK$80,000 was obtained from OTB by way of a further charge.

(b) In February/March 1965, the property was mortgaged to the 2nd defendant purportedly for the sum of HK$400,000. However, save for the amount of HK$200,000 repaid to OTB to secure the reassignment from the Bank, neither the 1st defendant nor the 2nd defendant paid any of the balance of HK$200,000 to the plaintiff. The remortgage was arranged by the 1st defendant who informed the plaintiff that the balance of HK$200,000 was to be treated as security for interest payable.

(c) In April 1968, the 1st defendant asked the plaintiff to execute an assignment of the property in favour of the 2nd defendant. The plaintiff subsequently discovered that the property was purportedly reassigned by the 2nd defendant to him on 10 April 1968 and then assigned by him to the 2nd defendant on 11 April 1968, purportedly for the sum of HK$340,000. The plaintiff neither received any money from the 1st or 2nd defendant nor received any account from either of them in respect of the mortgage.

(d) From the land records, the property was sold by the 2nd defendant to one Young Han Chien in April 1969 at the price of HK$340,000.

(2) The facts and matters relied on by the plaintiff for the assertion that the power of sale was not exercised bona fide for the purpose of recovering money under the mortgage in the First Sale were as follows :

(a) As the 1st defendant was only a housewife with no independent income of her own, a sale to her would not increase the funds at the disposal of the 1st defendant. There would not be any improvement in the cashflow of the defendants by the First Sale.

(b) The 1st defendant was the son of Madam So Yin Kee who had looked after the plaintiff for 4 years when he came to Hong Kong at the age of 15 and whom the plaintiff called "elder sister". The 1st defendant knew that the plaintiff respected and felt indebted to his mother and would be reluctant to enter into litigation with him in her lifetime. Madam So died in October 1992.

(c) The 1st defendant (and his wife) became mortgagees of the various properties in 1965 when they offered to the plaintiff and his wife terms more favourable to the plaintiff than the banks. In light of the close relationship between the plaintiff and the 1st defendant (and his mother) the plaintiff and his wife did not pay much attention to the formalities and had executed mortgage deeds for amounts greater than that which was actually advanced or accounted to them. Then in 1968 the 1st defendant demanded the plaintiff to repay the money on all the mortgages and when the plaintiff was unable to do so, he or his wife purportedly exercised the power of sale and sold or otherwise (as in the case of the Yau Yat Chuen property, through a fresh assignment) caused the properties to be transferred to the name of the 1st or 2nd defendant.

(d) In October 1968, the 1st defendant caused a (4th) property (No. 89 Sai Yee Street, Shop A, Ground Floor) registered in the name of the plaintiff's wife and mortgaged to the Chung Khiew Bank for HK$200,000, to be sold to him for HK$200,000 by the Chung Khiew Bank exercising the mortgagee's power of sale. This property was initially acquired in February 1966 at the price of HK$335,000 and mortgaged to Wing Lung Bank for HK$120,000.00. In February 1967 through the introduction of the 1st defendant, the property was remortgaged to the Chung Khiew Bank in the sum of HK$200,000.

REQUEST

2. Under paragraph 8 of the allegation that "Further or in the alternative the First Sale was at an undervalue."

Please state :

(1) The market value of the properties in the First Sale at the time of the First Sale;

(2) The price at which the properties in the First Sale could have been sold by public auction at the time of the First Sale; and

(3) All other facts and matters upon which the plaintiff intends to rely in support of the allegation that the First Sale was at an undervalue.

ANSWER

2(1) The plaintiff has commissioned a surveyor to report on the market value and will tender the report as evidence when the same is available. His own opinion (as a developer) of the value of the properties at the time of the First Sale is that the properties are worth around HK$l,800,000.

2(2) The plaintiff repeats (1) above. In his opinion, a discount of 20 percent may perhaps be allowed in the case of a sale by auction.

2(3) Apart from the matters already stated, the plaintiff will (in particular) rely on the fact referred to in 1(2)(d) above, that the 1st defendant purchased the 4th property (No.89 Sai Yee Street, Shop A, Ground Floor) from Chung Khiew Bank (the mortgagee) on 31 October 1968, 2 weeks after the First Sale. This showed that the 1st defendant did not hold a pessimistic view of the property market at the relevant time but was keen to acquire property owned by the plaintiff or his wife under "forced sale" circumstances. Furthermore, he paid the full mortgage amount to acquire the 4th property (where Chung Khiew Bank was the mortgagee) but sold the suit property at one-third of its mortgage value to his wife, the 2nd Defendant, all within 2 weeks' time.