EDWIN JOHN PHILLIPS v. SA SA INTERNATIONAL HOLDINGS LTD.

HCA 5190/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5190 OF 2001

____________

(By Counterclaim)

____________

_______________

J U D G M E N T

_______________

1. This is an application to strike out the Re-Amended Statement of Claim filed by the Plaintiff (by original action) (the "Plaintiff") on 16 April 2002.

2. On 2 April 2002, I handed down a judgment in respect of the Defendant (by original action) (the "Defendant")'s application to strike out the Amended Statement of Claim and the Plaintiff's cross-application to re-amend the same. I gave leave to the Plaintiff to re-amend the Amended Statement of Claim in accordance with what I had indicated in my judgment. As I said, the Re-Amended Statement of Claim was filed on 16 April 2002.

3. I will not repeat what I have already set out and discussed in some detail in my judgment regarding the facts and issues involved in this action. In order to have a complete picture and in particular to be able to understand what I am going to deal with in this judgment, one needs to read my earlier judgment.

4. The Defendant is not happy with the Re-Amended Statement of Claim. In relation to the estoppel plea, the Defendant argues that in order to found an estoppel there must, inter alia, be a promise which is intended to affect the parties' legal relationship, that the promisor will not insist on his strict legal rights: Chitty on Contracts (28th ed) Vol. 1 paras 3-081 to 3-084. The Defendant argues that in the Re-Amended Statement of Claim, there is no pleaded promise that the Defendant would not rely on its rights under the Call Option Agreement, and in particular the entire agreement clause.

5. The Defendant argues that the Call Option Agreement and the other written agreements between the parties do not give the Plaintiff the rights he asserts. He requires the Overall Agreement to establish those rights. However, as a matter of law, because of the entire agreement clause, he cannot rely on the Overall Agreement. What the Plaintiff is, therefore, attempting to do is to create a cause of action, which he does not otherwise have. It is well established that an equitable estoppel cannot found a cause of action.

6. As I see it, the Plaintiff is suing on the Overall Agreement, in particular that part of the Overall Agreement whereby the Defendant agreed to acquire 75% of the shares in Lisbeth, by the purported exercise of an "option" to purchase under the Call Option Agreement, which the Defendant undertook to exercise within 12 months from the date of completion of the allotment of new shares and the purchase of some other shares referred to in the pleading, as and when required by the Plaintiff: paragraph 8B(1), (2) and (3) of the Re-Amended Statement of Claim.

7. The estoppel plea only comes into play because there is in the Call Option Agreement an entire agreement clause. The Plaintiff needs the estoppel argument in order to prevent the Defendant from relying on the entire agreement clause in the Call Option Agreement to argue that there was no agreement, undertaking or understanding that the Defendant had to exercise the option to purchase the shares and that any such agreement, undertaking or understanding previously made had been cancelled or superseded by the Call Option Agreement (as per the entire agreement clause).

8. If the estoppel can operate thus, the effect of the entire agreement clause will be nullified. In that case, there would be nothing to prevent the Plaintiff from arguing that the Call Option Agreement did not contain the entire agreement between the parties, and relying on this as an exception to the parol evidence rule, the Plaintiff could go on to adduce extraneous evidence to prove the existence and content of the Overall Agreement. Once that is done, the Plaintiff may sue on the Overall Agreement.

9. Thus analysed, I do not agree that the estoppel pleaded in the Re-Amended Statement of Claim is used by the Plaintiff as founding a cause of action.

10. Turning to the Defendant's argument that no specific promise (or representation) not to insist on the provisions in the Call Option Agreement (giving the Defendant an option to buy or not to buy the shares) and the entire agreement clause (superseding and cancelling all previous agreements, understandings and undertakings between the parties) is pleaded and, on the material available, can be pleaded, it should be examined at two levels.

11. First, in so far as this argument seeks to challenge, in substance, what I said in my judgment, it cannot be entertained. My judgment was handed down on 2 April 2002. The order was sealed on 23 April 2002. The Re-Amended Statement of Claim had been filed on 16 April 2002. The original Amended Defence was re-amended pursuant to the leave to make consequential amendment that I gave in my judgment and order, and the Re-Amended Defence together with a counterclaim was filed on 4 June 2002. There was no appeal against my judgment.

12. In those circumstances, what I said and decided in my judgment, giving leave to the Plaintiff to re-amend the Amended Statement of Claim and refusing to strike out the pleading, was and is binding on the parties, regardless of its correctness. In other words, even if what I said in my judgment were wrong for the sake of argument (which in my view, having had the benefit of re-reading my judgment, is not the case), the Defendant is not entitled to re-open what I have already decided.

13. In my judgment, I was (and still am) of the view that on the assumed facts relied on by the Plaintiff, arguably - and I did not and do not put it any higher than that - an estoppel could arise to prevent the Defendant from relying on the provisions in the Call Option Agreement and in particular the entire agreement clause to deny the agreement and undertaking to purchase the Plaintiff's shares (comprising partly the Overall Agreement). See paragraphs 31 to 36 of my judgment. It is true that like the Re-Amended Statement of Claim which is really based on this part of my judgment, the judgment did not expressly identify any specific promise by the Defendant not to rely on its rights under the Call Option Agreement and in particular the entire agreement clause. But it should be clear from my judgment and in particular those paragraphs that I did not consider this as necessarily fatal to the plea of an estoppel. Rather, on the assumed facts, I considered that it was arguable that an estoppel could arise.

14. If I had considered that it was necessary to identify a specific promise by the Defendant that it would not rely on its rights under the Call Option Agreement and the entire agreement clause, I would not have concluded, as I did, in those paragraphs of my judgment, that there was indeed an arguable way on the assumed facts of this case to plead an estoppel.

15. For all these reasons, first, regardless of whether what I said in my judgment is right or wrong, and regardless of what I said there can stand together with the passages in Chitty that were cited to me at the present hearing or not, it was something that was decided by me in my judgment back in April this year, against which there was no appeal. In my judgment, it is not open to the Defendant to seek to, in substance, re-argue the issue in the present application.

16. Secondly, having re-visited the matter again, I remain of the same view that arguably - and I put it no higher than that - an estoppel may be mounted on the assumed facts. I am of the view that arguably, the agreement to conceal comprising part of the Overall Agreement, included by implication on the part of the Defendant a promise not to insist on the strict rights under the provisions in the Call Option Agreement and in particular the entire agreement clause, in so far as those rights were inconsistent with what had been agreed in the Overall Agreement. I consider it axiomatic that if two parties agree to conceal their true agreement from others by signing a written document which on the face of it does not fully reflect the true and secret agreement between the two, each party must be promising to the other by necessary implication that neither can and will insist on compliance with any provisions in the written document that are not consistent with the terms of their true yet secret agreement. Otherwise, nobody would have agreed to conceal his or her true agreement in that way.

17. Thirdly, I am further of the view that in any event, on the assumed facts, arguably an estoppel would arise, and there is no need to search for a specific promise not to insist or rely on the strict rights under the Call Option Agreement and the entire agreement clause. In the exercise of my discretion in this strike-out application, I am not prepared to deprive the Plaintiff of a chance to challenge what has been said in the passages from Chitty as laying down the final frontier of the law of estoppel.

18. The second level at which to examine the Defendant's argument is this: has the Plaintiff sufficiently pleaded a case of estoppel based on what I outlined in my judgment? Here, my main concern is whether the Re-Amended Statement of Claim has sufficiently pleaded that the entire agreement clause was included in the Call Option agreement as part of the effort to conceal the true agreement between the parties from the public, or put another way, the entire agreement clause was included in the Call Option Agreement not as a genuine attempt by the Defendant to retract from its earlier promise and undertaking to buy the shares as and when required by the Plaintiff.

19. As analysed in paragraph 27 of my judgment, an entire agreement clause like the present one could, and in fact in normal circumstances should, be taken at its face value, i.e. a retraction of all previous agreements, representations, understandings and undertakings etc that did not find their way into the written agreement eventually signed by the parties, which contained the entire agreement clause. How can one tell whether the present case was not such a case? Why should one conclude that the present case was in fact a case falling within the example I gave and discussed in paragraph 32 of my judgment?

20. Having considered the Re-Amended Statement of Claim as a whole, and particularly the opening words in paragraph 8C, the opening words in paragraph 12, paragraph 12(1A), the opening words in paragraph 21, and paragraph 21(c) and (d), I am of the view that a sufficient case has been pleaded by the Plaintiff in the Re-Amended Statement of Claim. In my judgment, the Plaintiff has sufficiently pleaded that the entire agreement clause was included not as an attempt by the Defendant to retract the previous agreements, understandings and undertakings that were not included in the Call Option Agreement, but was included "pursuant to" and "in performance of" the Overall Agreement which comprised, amongst other things, the agreement and undertaking to purchase the shares and the agreement to conceal from the public the true agreement between the parties. The Re-Amended Statement of claim clearly pleads that the entire agreement clause was not intended to apply to the agreement and undertaking to purchase the shares as and when required by the Plaintiff, and it was only intended to apply to other (immaterial) pre-contractual representations, assurances and so on.

21. In conclusion, on the estoppel point, I am not with the Defendant.

22. Turning to the mistake/rectification plea, the Defendant's argument in the present strike-out application is that whilst the Plaintiff has now pleaded a case of common mistake, namely, that both sides mistakenly thought that the entire agreement clause did not affect and was indeed compatible with the secret agreement and undertaking to buy the shares, the Plaintiff has pleaded no basis for that assertion in so far as the alleged mistake related to the Defendant (and its solicitors).

23. In relation to this contention, paragraphs 37 to 45 of my judgment set out in some detail what was argued last time and what led to the present amendment.

24. I think it fair to say that it was realised throughout that whilst there was evidence before the Court to the effect that the Plaintiff's solicitors and therefore the Plaintiff himself made the alleged mistake relating to the entire agreement clause in question, there was no direct material to prove that the Defendant and its lawyers were under the same mistake. However, it was also realised that the absence of such direct material of proof should not necessarily be fatal, particularly in a strike out/amendment context, because on the assumed facts, one of the possible explanations for the inclusion of the entire agreement clause in the Call Option Agreement notwithstanding the true agreement between the parties (as alleged by the Plaintiff) was that not only the Plaintiff and his lawyers, but also the Defendant and its lawyers, made the same mistake relating to the meaning and effect of the entire agreement clause.

25. As I say, there is no direct proof of that. But it is not, in my judgment, a wholly incredible or impossible inference to be drawn. It is not necessary that this constitutes the only inference that can be drawn, or that it stands the highest chance of being accepted as the correct inference to draw amongst the possible inferences that one may draw. In my judgment, it is an arguable inference to be drawn. That is quite sufficient for the purpose of amendment or resisting a strike-out.

26. During submission, one could easily sense the implicit indignation on the part of those representing the Defendant that a solicitors' firm as reputable as theirs would have made a mistake relating to the true meaning and effect of an entire agreement clause that was included in a legal document prepared by them. That is understandable. But on the facts and material before me, one solicitor has already admitted having made a mistake relating to the ambit of operation of the entire agreement clause. It would be pre-mature for me to conclude, and indeed presumptuous for anyone to assume, that no one else would have made a similar mistake. It would depend on the entirety of the evidence to be presented before the trial judge. I am not sitting in the present application as a trial judge.

27. Perhaps the only criticism that can legitimately be mounted against the Re-Amended Statement of Claim in this regard is the failure to plead or supply particulars on why the Plaintiff says, by way of inference, that the Defendant (including its solicitors) must have made a similar mistake relating to the scope of operation of the entire agreement clause. Had, say for instance, particulars been included in the Re-Amended Statement of Claim along the lines of the argument of Mr Tang, appearing for the Plaintiff on this occasion as well as the last one, that I summarised in paragraph 39 of my judgment, there could be no valid criticism whatsoever.

28. However, this would only be a matter of particulars. The mistake on the part of the Defendant has been specifically pleaded in paragraph 22C of the Re-Amended Statement of Claim. Particulars of the mistake are required essentially for the purpose of informing adequately the Defendant what the Plaintiff's case is in this regard; they would also serve to prevent surprises and to tie the hands of the Plaintiff.

29. However, given the peculiar background or history leading to the Re-Amended Statement of Claim, I do not think there can be any genuine doubt as to the genesis and basis of the plea of a mutual mistake in the Re-Amended Statement of Claim. One need only read paragraphs 37-45 of my judgment and paragraph 22 of the Re-Amended Statement of Claim together to find out all that. Needless to say, the Defendant, being a party to the earlier hearing, was and is fully aware of the circumstances under which the re-amendment relating to the plea of mistake/rectification came to be made.

30. Therefore, regarding the concern that the Defendant should be made aware of the true basis of the pleaded case of a mistake on the part of the Defendant (and its lawyers), I see nothing in it. As regards any concern to prevent surprises or to tie the Plaintiff down to his case, this concern may be adequately addressed by a suitable request for particulars. It does not justify a full-scale strike-out application. Certainly in the exercise of my discretion, I do not see fit to strike out the mistake/rectification plea for this reason.

31. The attack on this part of the pleading smacks of a challenge, in substance, to what I have already decided in paragraph 41 of my judgment in relation to the mistake/rectification argument. There I pointed out that it was possible to plead a case of common mistake on the assumed facts of the present case. Indeed I gave leave to the Plaintiff to do so. In so far as the Defendant is now suggesting that there is no or insufficient material to support a case by inference that the Defendant and its solicitors were suffering under a similar mistake, so that the plea of a common mistake is really frivolous or vexatious, in my judgment, this is in substance a challenge to my judgment, against which there has been no appeal. This cannot be allowed.

32. So for all these reasons, I reject the Defendant's argument in relation to the mistake/rectification plea in the Re-Amended Statement of Claim.

33. In conclusion, I dismiss the present application. I order that the costs of and occasioned by this application be paid by the Defendant to the Plaintiff forthwith, such costs to be taxed if not agreed.