HUTCHVISION ASIA LTD v. ASIA TELEVISION LTD

[Released by the Judge for publication]

1992, No.A6757

Headnote

[A defence will not be struck out merely because the story told may be improbable or even false; it must be shown to be a sham or dishonest defence, or otherwise entirely without substance]

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In these proceedings, in which the pleadings are closed and discovery and inspection have been completed, Hutchvision Asia Limited ("HAL") asks this court to declare binding on Asia Television Limited ("ATV") an agreement expressed to be made between them on 28th April 1991 ("the agreement"), under which ATV agreed to supply programmes to HAL for exhibition on HAL's Star TV Chinese Channel.

2. The agreement was signed for ATV by one Stanislaus Tsao ("Mr Tsao") who was at the time the Deputy Chief Executive Officer of ATV; but ATV repudiates the agreement. It claims that it did not authorise Mr Tsao to sign it. If, however, it be held that Mr Tsao did have authority to sign the agreement, then ATV claims that it is entitled to rescind the agreement; because it was procured by misrepresentations made to it on behalf of HAL. (One of the alleged misrepresentations is said to have been made by a Mr K S Li, against whom ATV is claiming damages on that score.)

3. HAL does not accept ATV's claim that Mr Tsao did not have authority to sign the agreement on behalf of ATV, and says that in any event ATV has, by its subsequent conduct, affirmed or ratified the agreement. It denies the alleged misrepresentations, and says that whatever may have been said (1) was not intended to have contractual effect; and (2) was in any case not in fact relied on by ATV. (Mr K S Li also rejects, on the same grounds, the allegations of misrepresentation made against him and adds that in any case the claim for damages made against him personally is misconceived.)

4. HAL contends that these defences, want of authority and misrepresentation, are bound to fail. Accordingly it says that ATV's defence raising these defences should be struck out as an abuse of the process of the court; and, further, that it is entitled to summary judgment against ATV. If I am against HAL on this, so that the proceedings remain alive, I have to go on to consider applications originally made by ATV before HAL launched its own applications for striking out and summary judgment (1) for security for its costs of the proceedings (HAL being a company incorporated in the British Virgin Islands and kept alive only by support from its shareholders); and (2) for fortification of an undertaking ("HAL's undertaking") which HAL has given to this court to obey any order this court may make as to damages if it considers that ATV shall have sustained any, by reason of an undertaking ("ATV's undertaking"), which HAL ought to pay. (ATV's undertaking is an undertaking to refrain until further order from dealing with certain Taiwanese interests, from which undertaking ATV asks to be released if such fortification is not ordered).

5. I deal first with HAL's contention that ATV's defence ought to be struck out, because it is bound to fail.

6. The court does have jurisdiction to take this course, in order to prevent abuse of its procedure. But it is a jurisdiction which ought to be very sparingly exercised and only in very exceptional cases. Its exercise is not justified merely because the story told is highly improbable, and one which it is difficult to believe could be proved: see Lawrance v. Lord Norreys (1890) 15 App. Cas.210, per Lord Herschell, at p.219 (itself an extremely unusual and strong case, not to be taken as a precedent of general application, although one in which the jurisdiction was in fact invoked to strike out a claim which was entirely without substance).

7. In my judgment, the court will be particularly careful in exercising this very exceptional jurisdiction when the pleading sought to be struck out is a defence, though it will do so if satisfied that the defendant "has not a shadow of defence" : see Reichel v. Magrath (1889) 14 App.Cas. 665, again per Lord Herschell, at p.669. That was a case in which the defendant was seeking to litigate again a question which had already been decided against him in other proceedings by the plaintiff's predecessor in title. The ground of the decision was that to set up the defence, and attempt to prove it, was an abuse of the process of the court.

8. There is (so far as I am aware) only one other case in the books in which the court has struck out a defence as an abuse of its procedure. That is Remmington v. Scoles [1897] 2 Ch.D.1. In that case, a defendant delivered a defence in which he either denied, or refused to admit, each of the allegations in the statement of claim, but set up no case of his own. In previous proceedings in another action he had admitted upon oath several of the material statements which he now denied, and had not denied any of the others. It was held by the judge (Romer J.) and by the Court of Appeal that although the court would not on affidavit evidence order a pleading to be struck out on the ground that the statements in it were false, the circumstances in that case showed the defence to be frivolous and vexatious, and one which ought to be struck out as being an abuse of the procedure of the court.

9. The judge said that the plaintiffs were entitled to state the circumstances which showed that the defence was merely an abuse of the process of the court, though they were not entitled to show by evidence generally the untruthful statements in the defence. He found that the defendant clearly had no defence whatsoever to the action and that no substantial defence was shown by the statement of defence. He held that this was not a real defence at all, but merely an abuse of the process of the court, and he ordered it to be struck out. He added this (at p.5) :

"This decision will, in no way, as suggested on behalf of the defendant, render it possible in ordinary cases for a plaintiff to set aside a defence by trying by evidence or motion to show the untruth of statements in the statement of defence. This is not a case of a plaintiff trying to show by affidavits that a defendant's statements in its defence are untrue, and that the defence ought to be set aside".

10. On appeal, Lindley L. J., remarked that what the judge had done was very unusual. He said that the judge was quite right in recognizing that in a case of this kind the court would not try whether the statement of defence is true or false. He said that the judge had proceeded on the ground that the defence was a mere sham. Its character could be seen through and was stamped by the first three paragraphs, which denied what the defendant had stated on oath in the formal proceedings. Bearing that in mind, he said the judge had not gone wrong when he said, as he did, that that was a defence which ought never to have been put in, and was a mere sham defence - not an honest defence, but framed with a view to gain time. If the defendant had an honest defence - which probably he had not - he was at liberty to put it in.

11. Lopes L. J. was of the same opinion. He too thought that the case was an exceptional case. He said that he desired to say that to induce the court to exercise this jurisdiction it was not enough to satisfy the court that the allegations of fact in a statement of defence or a statement of claim, as the case might be, were improbable or false, for to enter upon the question of their truth or falsehood would be trying the action prematurely.

12. Finally, Rigby L.J. said that he did not wish in any way to infringe upon the salutary rule that a defendant had a right to put in issue any allegations in the statement of claim that he pleased and to have it tried in the regular manner; therefore the court would not, although it might be reasonably satisfied or quite satisfied so far as the affidavits went that the evidence was untrue, strike it out for that reason. But if the court could on the facts that were not in dispute ascertain that the actual defence put in was really a defence which had no relation to the merits of the case, in other words that it was a sham defence, then the court ought to exercise the jurisdiction which it undoubtedly had and order that sham defence to be struck out.

13. It is significant that, in the present case, Mr Robert Tang, Q.C., for HAL, when I drew his attention to this authority, felt himself unable to accept that the principles there mentioned were the principles by which I ought to be guided. He suggested that, in some way, the modern practice was to entertain more readily applications of this sort. It is significant because Mr Tang was in effect forced to accept that, if the rule to be applied now was the same as that which fell to be applied in 1897, he really could not discharge the burden it imposed on him.

14. In fact, the rule has not changed at all since 1889. What unfortunately has happened is that more and more often practitioners have attempted, in proceedings for striking out and/or summary judgment, to persuade the court to embark on a mini-trial by affidavits of the allegations made respectively by the plaintiff against the defendant and vice versa.

15. I cannot too strongly protest against this practice, which too many practitioners, apparently but unjustifiably deriving encouragement from a decision of the local Court of Appeal in Murjani v. Bank of India [1990] 1 HKLR 586 (where the alleged defence was plainly advanced dishonestly) have embraced with misguided enthusiasm. It is one of the reasons why the lists are clogged with interlocutory applications and why trials which would otherwise have taken place much sooner are unnecessarily delayed. It is time to make it clear that is only when a pleading can be shown to be of such a character (e.g. because it is a sham, entirely without substance) that to rely on it must be an abuse of the process of the court, that this very unusual jurisdiction will be exercised in favour of striking it out. In the case of a defence it must appear (as in proceedings for summary judgment) that the defendant plainly has no bona fide defence.

16. Mr Tang, Q.C. took me through several ring binders full of documents from which he was able to demonstrate that the negotiations for the agreement were initiated by the then Chief Executive Officer of ATV; that the agreement itself had not only been signed by ATV's Deputy Chief Executive Officer, but had been witnessed by one of its directors; that ATV (apparently) had been party to a press release of 26th June 1991 headed "Hutchvision signs agreement with ATV" announcing the conclusion of the agreement; that ATV's solicitors were closely involved with the negotiation and apparent conclusion of the agreement; and that for months after it was signed ATV had acted on the basis that the agreement was binding on it, suggesting otherwise only on 7th August 1991.

17. That is a formidable case, no doubt. But any lawyer with any experience of private practice will be able to remember, only too well, those cases which appeared to be certainties but which, to his surprise, nevertheless failed and, by the same token, those cases which seemed bound to fail but which, to his surprise, nevertheless succeeded. It is for just this reason that the court will not embark, at this stage of an action, on a consideration whether the case of one side or the other is true or false. It will consider only whether the nature of the defence is such that it has to be characterised as an abuse of the process of the court, which is something else altogether.

18. If HAL had been able to demonstrate that Mr Tsao had been authorized to sign the agreement by a resolution of the directors of ATV, this would have been such compelling proof that I would not have allowed to go to trial an allegation that the agreement had been signed by Mr Tsao without authority. But, no doubt, if there had been such a resolution, the point on authority would never have been taken. The fact that there appears to have been no such board resolution is not, of course, otherwise of any particular importance. When a person enters into a contract with a company, he will almost invariably do so in reliance on the fact that the person apparently put up by the company to sign the contract is a person who by virtue of his office would usually have the authority to do so. It may well be here that at the trial HAL will succeed in persuading the judge either that ATV held out Mr Tsao to HAL as a person having the authority to conclude the agreement; or that in any event the conclusion of such an agreement was within the usual authority of Mr Tsao as Deputy Chief Executive Officer of ATV. But these are not matters into which it is appropriate for the court to go at this stage of the action.

19. For these reasons, I refuse to accede to HAL's application to strike out ATV's defence so far as the authority point is concerned.

20. So far as the alleged misrepresentations are concerned, again HAL has a formidable case. One alleged misrepresentation relates to advertising budget; the other relates to foundation (or guaranteed) revenue. Neither was so much as hinted at until ATV put in its defence.

21. As to advertising revenue, ATV complains that Mr K S Li promised to procure the transfer to ATV of some HK$60 to 70 million worth of advertising of his Hutchison group of companies away from ATV's competitors. But, as Mr Tang, Q.C. pointed out, this alleged misrepresentation was made months before the agreement itself; and the agreement itself contained (in clause 24) the following provision :

"24. Entire agreement

This agreement constitutes the entire agreement between the parties hereto with respect to the matters dealt with therein and supersedes any previous agreement between the parties hereto in relation to such matters".

It cannot possibly, says Mr Tang, Q.C., be said the alleged misrepresentation was intended to have contractual effect or that ATV relied on it.

22. But, however formidable HAL's case may be, I cannot possibly treat ATV's defence, nor its claim against Mr K S Li, based on this alleged misrepresentation as an abuse of the process of the court. (Mr K S Li's legal argument that ATV can have no claim against him either at common law or under the Misrepresentation Ordinance, Cap 284 would take hours or even days to consider and is not one which should be entertained in interlocutory proceedings such as these: see Home and Overseas Insurance Co. Ltd v. Mentor Insurance Co. [1990] 1 WLR 153, per Parker L.J. at p.158.

23. Nor can I do so in relation to the other alleged misrepresentation, about foundation (or guaranteed) revenue, an essential element (so it is said) of the business plan on the basis of which the agreement was made. Although, as Mr Tang, Q.C. was able to demonstrate, this was a matter which featured on the first draft of the agreement and never re-appeared, it is not an abuse of the process of the court for ATV to claim that a misrepresentation on this matter was made to it and that it did rely on it.

24. Accordingly, I am satisfied that ATV's defence in these proceedings (which is not even alleged to be a sham, or dishonest defence), must be allowed to go to trial in the ordinary way.

25. I turn next to ATV's application for security for costs. Bearing in mind, on the one hand, that HAL is a company incorporated in the British Virgin Islands and is kept alive only by support from its shareholders, and, against that on the other hand the fact that HAL appears to have a formidable case, I am satisfied that on balance this is a proper case for an order for security for costs. The manner of providing the security, and the amount, may be left for the parties to agree; and in default of agreement it can be settled by the court.

26. As to fortification of HAL's undertaking, I take the same view for the same reasons. The damage which will have been suffered by ATV if, despite HAL's apparently formidable case, ATV finally succeeds in these proceedings, will be substantial. I am of the opinion that ATV ought to be released from ATV's undertaking, which was given as part of a holding operation pending further order, unless HAL is prepared to give fortification for its cross-undertaking in damages. This again can be left to the parties to agree; again, in default it can be settled by the court.

27. So far as costs are concerned, I consider as at present advised that ATV is entitled to all the costs of the various summonses before me; but if HAL wishes to contend otherwise, the case may be restored to the list for further argument as to costs.