XCHRX CHAN HUNG TUEN v. THE DAIWA BANK LTD.

HCA750/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.750 OF 2000

--------------------

-----------------------

J U D G M E N T

-----------------------

1. This is an appeal against the Order made by Master Mary Yuen on 30 November 2000, whereby the Master "dismissed" the plaintiff's Statement of Claim on the grounds that it disclosed no reasonable cause of action against the defendant. Although the word used in the Order was "dismissed" (the defendant's initial application to the Master by summons was to strike out the Statement of Claim under Order 18, rule19), nothing turns on this and all parties, at the hearing of this appeal before me, understood that to mean "struck out".

Background

2. This matter concerns a property known as Unit 2103, 21st Floor, Riley House, 88 Lei Muk Road, Kwai Chung, New Territories, Hong Kong ("the Property"). At all material times, the registered owner of the Property was Well Drive Trading Limited ("Well Drive"). On 28 February 1995, Well Drive mortgaged the Property to the defendant and executed a legal charge in respect thereof which was registered in the Land Registry. Under the legal charge, the defendant was given the power to sell the Property pursuant to the provisions thereof.

3. On 16 November 1998, Well Drive, as the Vendor, entered into a Provisional Sale and Purchase Agreement in respect of the Property with the plaintiff, as the purchaser, in which completion was scheduled for 18 February 1999. Pursuant thereto, in about late December 1998, with the consent of Well Drive, the plaintiff entered into possession of the Property. Thereafter, the plaintiff operated a business at the Property by the name of Grace Home Design & Engineering Co. Ltd ("Grace Home"). Well Drive defaulted in the said mortgage. The sale of the Property by Well Drive to the plaintiff fell through because Well Drive was prohibited from completing the sale under an injunctive order made by the court in HCA2299/1999.

The plaintiff's Statement of Claim

4. The background stated above was pleaded in paragraphs 1-6 inclusive of the plaintiff's Statement of Claim. Apart from being background, nothing of great significance turns on these first six paragraphs. The Statement of Claim then goes on to plead that since about March 1999, the defendant became aware of the presence of the plaintiff and/or Grace Home in the Property. It is also further pleaded by the plaintiff that at a meeting on 24 August 1999 attended by the plaintiff, a representative of Well Drive, as well as three officers of the defendant, an oral agreement was arrived at between the plaintiff and the three officers of the defendant, whereby the defendant agreed/promised to sell the Property to the plaintiff. The express terms of that oral agreement was pleaded as follows :-

(a) the defendant would sell the Property as mortgagee and the plaintiff would purchase the Property at its open market value to be ascertained;

(b) as soon as practicable after the market price is ascertained, the parties would enter into a Written Sale and Purchase Agreement. Completion of the sale and purchase would take place within three months from the signing of the Written Sale and Purchase Agreement; and

(c) the defendant would allow the plaintiff, in the meantime, to occupy and use the Property for operating the business of Grace Home on condition that the plaintiff or Grace Home would :

(i) pay the management fees in respect of the Property as soon as the plaintiff is ready to complete; and

(ii) maintain, decorate and upkeep the Property in a good tenantable condition.

5. The Statement of Claim then further pleads that the defendant refused to indicate the open market value of the Property despite the plaintiff pressing for same. It further pleads the plaintiff's part performance of the oral agreement with the defendant by paying management fees and by maintaining and redecorating the Property. Lastly, it is pleaded that the plaintiff was at all times ready, willing and able to perform its obligation under the oral agreement but because of the defendant's breach of the oral agreement by denying such agreement and/or refusing to complete, the plaintiff now claims against the defendant for specific performance of the oral agreement for the sale and purchase of the Property, an order for accounts and inquiries, damages for breach of the oral agreement in lieu of or in addition to specific performance, as well as any other relief.

The defendant's application to strike out

6. The defendant applied, by summons dated 7 September 2000, to strike out the plaintiff's Statement of Claim under Order 18, rule 19 and/or under the inherent jurisdiction of the court on the ground that :

(i) it discloses no reasonable cause of action against the defendant;

(ii) it is frivolous and vexatious; and

(iii) it is an abuse of the process of the court;

and for the plaintiff's action against the defendant to be dismissed. This was the summons heard by the Master and from whose Order this appeal is brought.

7. It became clear during the submission of the defendant that the basis upon which the defendant says that the plaintiff's claim herein is frivolous, vexatious and an abuse of the court's process is due to the fact that there is another set of proceedings, being HCMP5192/1999, brought by the present defendant against Well Drive as the defaulting mortgagor in respect of the Property. In those proceedings, the defendant had already obtained an Order for Possession in respect of the Property on 23 December 1999. However, the present plaintiff applied on 24 March 2000 to be joined as a party to those proceedings in HCMP5192/1999, and because of that, the execution of the Order for Possession obtained by the defendant in those proceedings have been stayed pending the outcome of the present proceedings. On that basis, the defendant says that the present proceedings taken out by the plaintiff is an abuse of court's process, alternatively, it is frivolous and/or vexatious.

8. I am, however, unable to share that view of the defendant. If the plaintiff has a genuine interest in the Property, what the plaintiff did in HCMP5192/1999 by joining as a party thereto and by bringing the present proceedings against the defendant were, in my view, the only ways in which the plaintiff could protect his interest. Whether or not the plaintiff has a good or genuine case can only be determined by the outcome of their dispute in these proceedings.

9. Moreover, the very fact that the defendant has seen fit to plead a counterclaim in its defence in these proceedings further lends support to the view that the present proceedings are not in themselves frivolous, vexatious or an abuse of court's process.

10. Accordingly, I am of the view that the only valid ground for the present application to strike out is whether or not the plaintiff has a reasonable cause of action against the defendant on its pleadings.

11. If the plaintiff's pleaded case was what it was before the Master, I would have had no hesitation in dismissing this appeal for the following reasons : Firstly, on the pleadings as it stood before the Master, there can be no concluded contract pleaded, in that, neither the price nor the completion date had been agreed upon. Secondly, even on the plaintiff's own pleaded case, the alleged agreement was oral and there was nothing in writing as required by section 3(1) of the Conveyancing and Property Ordinance, Cap.219. Thirdly, under those circumstances, where there is not even a concluded contract, the plaintiff would not be entitled to rely on the doctrine of part performance as provided for by section 3(2) of the Conveyancing and Property Ordinance.

Application to amend

12. Shortly before the appeal was heard by me, the plaintiff issued a summons, dated 13 March 2001, asking for leave to amend the Statement of Claim and enclosing thereto a draft amended Statement of Claim. The proposed amendments to the Statement of Claim incorporates a new paragraphs 10A, 16 and 17, in which the plaintiff seeks further to rely on proprietary estoppel as a further cause of action. In that respect, it is pleaded that the plaintiff, relying upon the defendant's promise to sell the Property to him, made certain improvements to the Property with the acquiescence and/or the encouragement of the defendant. On that basis, the plaintiff says that he has acquired an equity over the Property, and further claims a declaration to that effect, alternatively, compensation for such improvements and/or a declaration that the plaintiff is entitled to remain in occupation of the Property under an irrevocable licence for such a period as the court deems fit.

13. Objection has been taken to the proposed amendments by the defendant on two grounds. Firstly, the amendments are objected to on the grounds that this is a new cause of action which was neither pleaded nor relied upon before the Master. Secondly, it is submitted by the defendant that since the Master has already struck out the plaintiff's Statement of Claim, there is therefore no basis upon which the plaintiff can make their proposed amendments.

14. I take the view that in so far as the first objection is concerned, whilst proprietary estoppel may be a new cause of action which the plaintiff intends to argue, albeit at a late stage, the facts which the plaintiff relied upon for this new cause of action are basically the same facts that were relied upon by the plaintiff in the original pleadings. Therefore, factually speaking, the plaintiff's case has not significantly changed save that he has raised for the first time the legal banner of "proprietary estoppel". As for the second ground of objection, although it is true that the Master has, by her Order appealed from, struck out the plaintiff's Statement of Claim, nevertheless, it is conceded by both sides before me that this appeal, being from a Master's Order, is by way of a complete rehearing. At such, it can only be proper that in rehearing this matter de novo, I put the parties back into the position that they were before the Order was made by the Master below, thus the Statement of Claim is still very much alive. That being the case, I cannot see either of these two grounds of objection by the defendant to be valid.

15. I did indicate to both parties at the hearing of the appeal that I would deal with the application for amendment de bene esse with the appeal proper itself.

Decision

16. I have already indicated above that without the proposed amendments, I would have been disposed to dismissing the plaintiff's appeal and to re-affirm the Order of the Master from which this appeal arose since the cause of action before the Master was specific performance based on an alleged oral but inconcluded contract for sale of the Property and a plea of part performance upon the inconcluded contract.

17. Proprietary estoppel however raises different legal considerations. While it has much similarities with the doctrine of part performance, there are also differences between them. One important difference is that proprietary estoppel is not dependent upon the existence of a valid contract and there is no requirement in relation to proprietary estoppel that the detrimental acts should point to any arrangement between the parties because none may exist (see 13-003 Megarry, The Law of Real Property, 6th edition).

18. Secondly, I further note that unlike estoppel which may only be used as a shield but no as a sword, proprietary estoppel may operate positively and found a cause of action (see 13-002, Megarry, The Law of Real Property, 6th edition).

19. One of the points argued by counsel for the defendant was that mere inaction or silence cannot be the basis founding an estoppel and the defendant relies on the judgment of the House of Lords in the case of Moorgate Mercantile Co. Ltd v. Twitchings [1977] AC 890. However, there the House of Lords came to that decision on the basis that the finance company had no duty vis-à-vis the car dealer to register the hire purchase agreement, therefore, the failure to do so by the finance company cannot estop them from asserting their title thereunder. That is very different from the present case for under the law relating to proprietary estoppel, even if the "mistake" was in no way induced by the landowner, he might be prevented from taking advantage of it, particularly if he "stood by" knowing of the mistake, or actively encouraged the mistaken party to act in reliance on his mistaken belief (see 3-310 Chitty on Contracts, 28th Edition).

20. Indeed, in certain parts of her submission, counsel for the defendant appeared to be arguing that the plaintiff has a very weak case. It is not for this court to consider the strength or weakness of the plaintiff's case on an application to strike out on the grounds of no reasonable cause of action. What I have to decide is whether on the pleaded case (or on the proposed amendments for that matter), there is or is not a reasonable cause of action as pleaded by the plaintiff. Here, I think that there is just barley enough to constitute such a reasonable cause of action. For these reasons, I will allow the appeal and set aside the Order of Master Mary Yuen dated 30 November 2000. The fact that the plaintiff has succeeded on this appeal due to the very late amendments to their Statement of Claim will be a matter that will be reflected in costs.

21. Accordingly, there will be leave to the plaintiff to amend the Statement of Claim in the manner as per the draft Amended Statement of Claim annexed to the plaintiff's summons dated 13 March 2001, the Amended Statement of Claim to be filed and served within three days from the date of this order. The cost of and occasioned by such amendments be to the defendant in any event.

Costs Order

22. As already indicated, the plaintiff has succeeded on this appeal only because of their very late proposed amendments to the Statement of Claim. Had proprietary estoppel been pleaded from the outset, it seems most unlikely that the defendant would have taken out such an application to strike out on the grounds of, inter alia, no reasonable cause of action. In those circumstances, I shall make a costs order nisi that the costs of the hearing before the Master, as well as the costs of this appeal, be borne by the plaintiff in any event with Certificate for Counsel both in the appeal and before the Master.