WONG WAI LUNG AND ANOTHER v. BONDFIELD DEVELOPMENT LTD AND ANOTHER

cacv 214/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 214 of 2006

(on appeal from DCCJ NO. 5617 of 2005)

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J U D G M E N T

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Hon Le Pichon JA:

1.  This is an appeal by the plaintiffs from the order dated 22 May 2006 of HH Judge Chow.  The judge had three applications before him: (1) the plaintiffs’ application for summary judgment; (2) the plaintiffs’ application to strike out the counterclaim; and (3) the defendants’ application for leave to amend the defence.  The judge dismissed the plaintiffs’ applications and granted the defendants leave to amend.  The judge also made an order for costs in favour of the defendants save that they were ordered to bear the costs of and incidental to the application to amend.  At the conclusion of the appeal judgment was reserved which we now give.

Background

2.  The underlying action was a claim by the plaintiffs under a contract dated 12 of November 1999 entered into by the plaintiffs and the first defendant for the sale and purchase of the second floor together with the roof of a three-storey small house (“the property”) to be erected on a piece of land in Tai Po (“the land”) for the sum of $2.2 million.  Pursuant to the contract the plaintiffs paid the first defendant a deposit of $480,000.  No house has ever been built on the land which is registered in the name of the second defendant.  The plaintiffs seek to recover the deposit paid.

3.  It is relevant to note that the second defendant is not a party to the contract.  In fact, he is not mentioned in it at all.  As regards the obligations of the first defendant, clauses 4 and 8 of the contract merit attention.  They provided as follows:

“4. When signing this Agreement, [the first defendant and the plaintiffs] understand that this property is an uncompleted small house and application is made to the Lands Department, and that it takes time for the approval from the Lands Department; therefore the parties shall not rescind the contract unilaterally and [the plaintiffs] shall not use any reason to demand for the return of deposit of the property or claim for compensation.

8. If the captioned property is not approved by the Lands Department for the construction of development (to be evidenced by correspondence of the Lands Department), [the plaintiffs] shall be entitled to exchange for a similar property in the same or other district.  If [the first defendant] has no other property available for [the plaintiffs] to do exchange, [the first defendant] shall return the deposit paid by [the plaintiffs] in respect of the property without interest.”

This appeal

Summary judgment

4.  Was the judge correct in dismissing the summary judgment application?  First, it is necessary to examine the juridical basis of the plaintiffs’ claim.  In paragraph 3 of the statement of claim, it was pleaded that a Mr Ching Lin Chuen, a director of the first defendant made a representation to the plaintiffs that he was and is the attorney and/or agent with authority and/or power to deal with the second defendants estate an interest in the land.  Paragraph 4 read:

“By a contract dated 12^th November 1999 (“the Contract”) made between the Plaintiffs on the one part, and the 1^st Defendant as the agent of the 2^nd Defendant or alternatively in the 1^st Defendant own right on the other part, the 1^st Defendant and/or the 2^nd Defendant agreed to sell the 2^nd Floor together with the roof thereof of a 3-storey small house to be erected on the Land to the Plaintiffs at the price of HK$2,200,000.00.”

Whilst the plaintiffs have put their case in the alternative, counsel for the plaintiffs informed the court that for the purposes of the summary judgment application, the sole basis of the claim is total failure of consideration and that no reliance was being placed on the alternative claim for breach of warranty of authority.

5.  For my part, I do not see how they can succeed against either of the defendants on the summary judgment application.  The second defendant was not a party to the contract.  It is also accepted that the monies were never paid to him.  That being the case, I fail to see any possible basis for granting summary judgment against the second defendant.  As against the first defendant, the plaintiffs’ case before this court was that in entering into the contract, he acted as agent for the second defendant who was his principal.  The cause of action against him was thus for breach of warranty of authority.  But for the purposes of the summary judgment application and this appeal, counsel for the plaintiffs specifically disavowed any reliance on the breach of warranty claim.  In any event, the issue whether there had been a breach of warranty as alleged is not a matter fit for summary judgment.  I therefore do not see on what basis the first defendant could be held liable to the plaintiffs.

6.  Mr Hung submitted that his case was based solely on a total failure of consideration.  But that has to be viewed in the context of the contract in question and not in a vacuum.  It is common ground that the contract contained no stipulation as to time for the performance of the first defendant’s obligations.  Time is not of the essence of the contract and no notice has ever been given requiring the first defendant to perform the contract within a reasonable time.  It follows that no question of any total failure of consideration can possibly arise until such notice has been given and a reasonable time has elapsed thereafter.  In my view, Mr Hung’s submission has no merit.

Leave to amend

7.  The judge granted the defendants leave to amend the defence.  The amendment related to the deletion of paragraph 18 which read as follows:

“Further or alternatively, the Contract as pleaded by the Plaintiffs is unlawful and unenforceable because performance according to its terms necessarily involves the swearing of false declarations and the making of misrepresentations to the Government.”

8.  I do not accept, as suggested by Mr Hung, that paragraph 18 amounted to an admission that the defendants could not, and were unable to, build the house in question without committing an illegal act.  What was admitted was that the contract as pleaded by the plaintiff would have been illegal.  It was asserted in paragraph 4 of the statement of claim, (as an alternative basis of claim) that the contract was entered into by the plaintiffs with the second defendant (who was the registered owner of the land) for the sale of the property.  But the defendants have specifically denied those assertions.  It is clear from the defence and counterclaim that the defendants’ case is that performance of the contract would not entail the performance of any illegal act, specifically, the swearing of any false declaration.

9.  In any event, paragraph 18 was nothing more than the pleader’s opinion of the legal position of the contract.  In support of its application to amend, the defendants’ handling solicitor had filed an affirmation to the effect that paragraph 18 had been drafted “without due regard to the Court of Appeal’s decision in Li Pui Wan v Wong Mei Yin and the terms of the [contract]”.  It was thus a matter for the judge whether or not to accept the defendant’s explanation.  I can see no basis for interfering with the exercise of the judge’s discretion.

The strike out of the counterclaim

10.  There were no time stipulations for the performance of the contract and no notice has been given making time of the essence.  Further, in view of clause 8 of the contract, it cannot be said that it would now be impossible for the first defendant to perform the contract.  In my view, the judge was right to have rejected the plaintiffs’ application to strike out the first defendant’s counterclaim for specific performance.

11.  As regards the second defendant’s counterclaim, there is again no basis for striking it out since, on the face of the contract, the second defendant was not a party to it.

The costs orders

12.  The judge dismissed the order 14 application with costs in favour of the defendants.  Mr Hung initially submitted that the plaintiffs would never have sought summary judgment but for paragraph 18 of the defence.  It was submitted (in my view, wrongly,) that paragraph 18 amounted to an admission of illegality.  It was said that since granting the defendants leave to amend the defence amounted to granting an indulgence to the defendants enabling them to save their case, costs should have been awarded to the plaintiffs, or, alternatively, reserved to the trial judge.  It was subsequently put that the defendants became entitled to unconditional leave to defend only because leave had been granted to amend the defence thus cutting the ground from beneath the plaintiffs’ feet and that therefore the costs of the summary judgment application should have been in the cause.

13.  For my part, whether or not leave had been given to amend the defence was irrelevant to the merits of the summary judgment application.  For the reasons already stated, this was not a suitable case for summary judgment.  In my view, the application was misguided and misconceived.  The judge was right in dismissing the summary judgment application and awarding costs to the successful party.

14.  I further take the view that the judge was right in ordering the costs of the strike out to follow the event, and there is no basis for interfering with the costs order thus made.

15.  As to the costs incurred in terms of the application for leave to amend the defence, the judge made the usual order where an application for leave to amend has been resisted but is allowed, namely that the costs of and occasioned by the amendment were awarded to the other side but the costs of the hearing before the court were awarded to the party who was ultimately successful in obtaining leave.  See the commentary at 20/8/51 of Hong Kong Civil Procedure 2006.  Whilst the judge does have a discretion to depart from the usual order where he considers it not unreasonable for the application to be resisted, in the present case, he did not exercise that discretion.

16.  Nowhere in the judgment below was any mention made of the fact that the amendment application was only issued the day prior to the hearing itself.  Faced with this last-minute application when counsel had already been instructed by the plaintiffs in respect of the other two summonses issued, it can hardly be said that the plaintiffs were acting unreasonably in resisting the amendment application.  The judge appears to have given no consideration to that fact.  In the circumstances of this case, had that matter been taken into account, the costs of the hearing itself should also have been awarded to the plaintiffs.  I would therefore vary the costs order in respect of the amendment application to that extent.

17.  As to the costs of this appeal, since the variation to the costs of the amendment application had minimal impact on the appeal itself.  I would make an order nisi that they be to the defendants.

Hon Stone J:

18.  I have had the advantage of reading in draft the judgment of Le Pichon JA.

19.  I agree that, for the reasons she gives, the plaintiff’s application for summary judgment clearly was an application too far, and that the learned judge below was correct to dismiss it, with costs.

20.  The fact that the plaintiff ultimately may prove successful at trial in terms of recovery of the deposit monies is nothing to the point in terms of a case in which there are too many loose ends and unanswered questions for a court realistically to contemplate Order 14 relief, even putting to one side the fundamental problem that, on its face, the 2^nd defendant is not even privy to the contract sued upon. 

21.  After the jurisprudence on the point in recent years, it comes as something of a surprise that a lengthy (and no doubt costly) detour to summary judgment apparently remains favoured over the straightforward expedient of the direct route to trial wherein the judge will be in the position to make findings of fact upon key issues (eg., that of the authority of the 1^st defendant) in what is, at bottom, a simple case; it is fully a decade since Godfrey JA in Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225, at 228, observed, with words which have equal resonance today:

“I would express the hope that those practitioners, of whom there are too many, who appear to be prepared to advise every client with what seems to be a good case to invoke this extraordinary procedure, without reflecting on the fact that, if the attempt fails, the result will be to keep the plaintiff out of the judgment to which he may well be entitled for far longer than would have been the case if they had concentrated, instead, on bringing the matter to trial, will in future think twice before giving such advice”.

22.  Looking at this case in the round, I suspect that the plaintiff was tempted to attempt to obtain summary relief, in terms both of Order 14 and the correlative strike out of the 1^st defendant’s Counterclaim, by reason of the inclusion in the Defence of paragraph 18 (quoted by Le Pichon JA at paragraph 7 above), which, at first blush at least, was antipathetic to the counterclaim for specific performance.

23.  If indeed this is the case, this course was certainly misconceived in terms of the pursuit of Order 14 judgment, which in my view never was attainable in light of the circumstances and triable issues in this case, and on reflection I have come to the view that the judge also was correct in the exercise of his discretion to dismiss the strike out application, with costs; on analysis I am not satisfied that the amendment to delete paragraph 18 of the Defence properly can be regarded as the sole reason for the failure of the strike out in light of the terms of the contract sought to be thus enforced, and in particular the provisions of paragraph 8 thereof.

24.  I am further unable to see any proper basis for interfering with the exercise of the discretion of the judge below in permitting the eleventh hour amendment to excise the then existing ‘illegality’ plea within paragraph 18, although I do have sympathy with Mr Hung’s submission that, having permitted the amendment, his clients should not have had to bear the costs of the hearing of the application to amend.

25.  As to these costs, I agree with the observations of Le Pichon JA.  I also would be prepared to interfere with the discretion of the learned judge as to the costs of the application to amend, and to award these costs to the plaintiffs.

26.  I further agree that the strike out against the 2^nd defendant’s Counterclaim was misconceived for the like reason that the Order 14 application against the 2^nd defendant also was bound to fail; as Le Pichon JA has emphasized, on the face of the contract asserted by the plaintiffs, the 2^nd defendant does not appear to have been privy thereto. 

27.  Accordingly, with this relatively minor variation to the costs’ order relating to the amendment, namely, that the costs of the application to amend be to the plaintiffs in any event, to be taxed if not agreed, I too would reaffirm the the judge’s order below.

28.  I agree with Le Pichon JA that this modification to the costs’ order does not have any real impact on the costs of this appeal, which canvassed far broader issues, and thus that there should be an order nisi that the costs of the appeal be to the defendants, to be taxed if not agreed.

Hon Le Pichon JA:

Order

29.  The Order of the Court on this appeal is thus as follows:

(i) The appeal be dismissed, save and except that the order below be varied in relation to the costs of the application to amend, which are to be to the plaintiffs, such costs to be taxed if not agreed.

(ii) There be an order nisi that the costs of this appeal be to the defendants in any event, to be taxed if not agreed.