CHAN WAN CHUEN SNAKY also known as CHAN WAN CHUEN v. EXPRESS TOURIST BUS CO LTD AND OTHERS

CACV 524/2018

[2020] HKCA 471

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 524 OF 2018

(ON APPEAL FROM HCA NO 1875 OF 2015)

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J U D G M E N T

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Hon Kwan VP:

1.  I agree with the judgment of Yuen JA.

Hon Cheung JA:

2.  I agree with the judgment of Yuen JA.

Hon Yuen JA:

3.1.  This is the plaintiff’s appeal from a Judgment of DHCJ Fee (“the judge”) given on 21 September 2018 (“the Judgment”) striking out the Statement of Claim in HCA1875/2015 (“the HCA”) against the 4^th defendant on the ground that it was an abuse of the process of the court[1] for the plaintiff to continue to pursue the action after these parties had reached a settlement by signing a Co-operation Agreement on 25 November 2017.

3.2.  At the hearing of this appeal on 13 June 2019, counsel for the parties[2] indicated that their respective clients wished to conduct further negotiations with a view to settling the matter.  Accordingly, the court adjourned the appeal sine die with liberty to restore not earlier than 3 months from the date of the hearing.

3.3.  The parties were unable to settle the matter and returned to court on 5 June 2020. They have supplied the court with a further bundle of documents containing solicitors’ correspondence exchanged in the course of negotiations.  However, in light of the issues in the appeal, the court has decided not to consider the correspondence.

Background

4.  The appeal arose against the following factual background

5.1.  By a written Tenancy Agreement dated 6 March 1990 (“the Tenancy Agreement”), a piece of land in Shaukeiwan (“the Property”) was leased by the Government to the plaintiff as tenant for a period of 7 years commencing on 20 February 1990 and thereafter annually.  The purposes for which the Property may be used were “ship or boat building or ship or boat repairing or both”. 

5.2.  It was a term[3] of the Tenancy Agreement that the plaintiff should not[4] assign, underlet, or part with possession of or otherwise dispose of the Property or any part thereof or any interest therein without the prior consent of the District Lands Officer who may give or refuse consent at his absolute discretion.

6.1.  The plaintiff carried on the business of shipbuilding and repair at the Property under the name of Sun Shing Hing Shipyard[5].    

6.2.  On 12 August 1994, the plaintiff entered into a written agreement (called a “Caretaker Agreement”) with a person called Liu Man Bun under which the plaintiff licensed, permitted and required[6] Mr Liu as “caretaker” to occupy the Property for so long as the plaintiff shall remain the tenant under the Tenancy Agreement.  In consideration of the occupancy of the Property and the hire of its contents, Mr Liu paid $1.5 million to the plaintiff[7].

6.3.  The plaintiff emigrated to Canada and returned to live permanently in Hong Kong only after 2014.

7.1.  During that period, on 3 June 1998 Mr Liu entered into a written agreement (“the Licence Agreement”) with Pacific Marine Construction Services (“PMCS”), which the 4^th defendant said he controlled[8], under which Mr Liu[9] as “caretaker” granted a licence to PMCS as “licensee” to occupy the Property and to use it as its workshop to the exclusion of others (including but not limited to the “caretaker”) for as long as the plaintiff shall remain the tenant of the Property under the Tenancy Agreement[10].  There is no evidence that the plaintiff was aware of this. 

7.2.  On 1 June 2002, the 4^th defendant registered a company also called Sun Shing Hing Shipyard which operated a business of ship repair at the Property[11]. 

8.1.  The plaintiff returned to Hong Kong permanently in 2015.  On 2 April 2015, he also registered a business called Sun Shing Hing Shipyard[12].  On 8 April 2015, he demanded that the 1st-4th defendants vacate the Property on the ground that they had entered upon it without his consent.

8.2.  On 18 August 2015, the plaintiff issued HCA1875/2015 (“the HCA”).  Judgment against the 1^st and 2^nd defendants (the 4^th defendant’s tenants) was entered by consent, and default judgment was entered against the 3^rd defendant, the 4^th defendant’s wife, on 5 November 2015[13].

The Co-operation Agreement

9.1.  It is common ground that on Saturday 25 November 2017, the plaintiff and the 4^th defendant signed a document written in Chinese entitled “Co-operation Agreement”. 

9.2.  It begins by reciting that “Chan Wah Tat [the 4^th defendant] … and Chan Wan Chuen [the plaintiff] … [14] have now reached agreement on 25/11/2017” (Emphasis added).

9.3.  In the body of the document, the parties agreed as follows:

Clause 1

Sun Shing Hing Shipyard Co Ltd [“SSHSL”] would be established, with each party holding 50%; this company would be responsible for managing, operating and maintaining 13 Tam Kung Temple Road Shaukeiwan (Tenancy Agreement No. EHX-034) and would take over all the business of the former Sun Shing Hing Shipyard.  

Clause 2

All previous legal proceedings in relation to the right to use the shipyard (13 Tam Kung Temple Road) shall be withdrawn, and each party shall bear his own legal costs, and shall not claim costs against the other party.

Clause 3

The plaintiff confirms, and does not oppose, the 4^th defendant as the joint user of the above lot (13 Tam Kung Temple Road Shaukeiwan) (Tenancy Agreement No. EHX - 034), who can enjoy and benefit from all proceeds of the above lot and shipyard.

Clause 4

Once the agreement is signed, both parties shall no longer dispute or litigate about the right to use the above lot.  Otherwise, that would be regarded as breach of agreement, and abandonment of all rights to use and manage the above lot (13 Tam Kung Temple Road Shaukeiwan, Tenancy Agreement No. EHX-034) and its proceeds.

Clause 5

After the establishment of the new company (SSHSL), in relation to all documents signed by the plaintiff with the District Lands Office including short term tenancy for renewal, apart from the original leaseholder being the plaintiff, the plaintiff shall notify the District Lands Office that the name of the original Sun Shing Hing Shipyard has been changed to the newly established company (SSHSL), and in relation to all signed documents, he shall inform the partner the 4^th defendant and obtain his consent before putting them into effect.

Clause 6

[deleted]

Clause 7

The plaintiff undertakes that (without the 4^th defendant’s consent) he may not transfer the use of the lease (EHX-034) of the shipyard to a third party.

Clause 8

Without the other party’s consent, both parties may not transfer their shares, or change the name on the shares, or increase the share capital.   

9.4.  The document was initialed by the plaintiff and the 4^th defendant on each page, and their signatures were witnessed by a third party.

10.1.  It is clear from the contents of the document that substantively, it disposes of the primary dispute between the plaintiff and the 4^th defendant as to who is entitled to use the Property.  It provides that both would equally enjoy the benefits of the Property through a new company SSHSL and it wipes the slate clean in respect of the HCA (including costs). 

10.2.  It is important to bear in mind the purpose and effect of the document in resolving the dispute between the parties when we come to consider the ground of appeal based on the lack of certainty of terms relating to SSHSL. 

The Representation

11.1.  According to the plaintiff, the 4^th defendant had made a representation to him before he signed the Co-operation Agreement.  At the hearing before the judge, the plaintiff’s counsel clarified that the representation was “the conduct[15] on the part of the 4^th defendant in telling the plaintiff that he was ‘free to take a copy to consult with his lawyers before a formal agreement was entered into’”[16] (“the Representation”).  The plaintiff then signed the Co-operation Agreement.      

11.2.  The 4^th defendant denies having made that Representation[17].  The judge quoted a passage in a judgment in Ming Chik Property Investment Co Ltd v Good Team Investment Ltd & Anor[18]in which Au - Yeung J quoted a passage from Hong Kong Civil Procedure 18/19/4 which said disputed facts are to be taken in favour of the party whose pleading is sought to be struck out.

12.1.  Pausing there, that passage should be understood in the context of the requirement that it is only in plain and obvious cases that a court would order a strike-out. The passage does not mean that in an application to strike-out on the ground that the claim is an abuse of the process, the same approach should be taken as on an application to strike - out on the ground that the claim does not disclose a reasonable cause of action (when no evidence is admissible anyway[19]). 

12.2.  On an application to strike-out on the ground of abuse of process, the court need not proceed on the assumption that the pleaded facts are true.  The court would still undertake an evaluative process of the evidence adduced by the party whose claim is the subject of the strike-out application, but with the overarching consideration that the claim should only be struck out where it is “plain and obvious” that such an order should be made.

Subsequent events

13.1.  Returning to the facts, on the Monday (27 November 2017) after the Co-operation Agreement was signed, the 4^th defendant’s solicitors wrote to the plaintiff’s solicitors enclosing a copy of the Co-operation Agreement, and asked the plaintiff’s solicitors to arrange for the HCA to be dismissed.

13.2.  A week later, on 5 December 2017 the plaintiff’s solicitors replied to the 4^th defendant’s solicitors alleging that the Co-operation Agreement (1) was not binding for want of consideration and (2) contrary to the terms of the Tenancy Agreement and thus in breach of public policy.  There was no mention of the Representation.  Nor was it contended by the plaintiff that the Co-operation Agreement was void for uncertainty.       

4^th defendant’s summons to strike-out or stay the claim

14.1.  On 15 March 2018, the 4^th defendant issued a summons to strike out the Statement of Claim, alternatively for a stay of the HCA. 

14.2.  On 23 May 2018, the plaintiff made an affirmation in which he alleged that the 4^th defendant had made the Representation.

Issues before the judge

15.  The judge identified the issues as follows[20]:

(1)  whether extrinsic evidence of the Representation was admissible;

(2)  if yes,

(a)  whether the Co-operation Agreement was not intended to be immediately binding in view of the Representation; and

(b)  whether the Co-operation Agreement is voidable for misrepresentation in view of the 4^th defendant’s denial in making the Representation;

(3)  whether the Co-operation Agreement is void for uncertainty.

The judge’s Judgment

16.  The judge held that:

(1)  extrinsic evidence was admissible[21] (the 4^th defendant has not cross-appealed this ruling);

(2)   (a)  the Co-operation Agreement was intended to be immediately binding notwithstanding that the Representation had been made[22];

(b)  the Co-operation Agreement was not voidable for misrepresentation[23] (the plaintiff has not pursued this issue on appeal);

(3)  the Co-operation Agreement was not void for uncertainty[24].

Appeal

17.  The plaintiff’s grounds of appeal may be summarized as follows:

(1)  in holding that the Co-operation Agreement was intended to be immediately binding, the judge had erred in failing to give proper consideration to the Representation in that:

(a)  the plaintiff was told that even if he signed the Co - operation Agreement, he could consult his lawyers before a formal agreement was to be entered into;

(b)  if the Co-operation Agreement was binding without further formal execution, any legal advice sought after its signing would be irrelevant; and so

(c)  this would be inconsistent with the judge’s acceptance that the Representation was made and/or render the Representation wholly meaningless;

I shall call this the “absence of contractual intention” point;

(2)  the judge should have found that the Co-operation Agreement was void for uncertainty, as it could not be assumed that undecided matters could be decided by reference to reasonableness because:

(a)  it does not follow from the parties’ equal shareholdings that they would agree on equal representation on the board;

(b)  the 4^th defendant might not restrict the type of business to be carried out by the new company to those permitted under the Tenancy Agreement, and there was no objective criteria in this regard;

(c)  the extent of financial commitment could not be imposed on either party by objective standards of reasonableness;

I shall call this the “void for uncertainty” point;

(3)  the judge erred in construing Clause 4 of the Co-operation Agreement to mean only forfeiture of the plaintiff’s rights under the Co-operation Agreement and not his rights under the Tenancy Agreement as well;

I shall call this the “construction” point.

Discussion

18.  Ground (1) the “absence of contractual intention” point is a complaint that the judge had failed to give “proper consideration” to the Representation. 

19.1.  The plaintiff cannot argue that the judge had failed to give the Representation any consideration because the judge had expressly said in his Judgment that “for the purposes of the Application, the Representation is regarded as made despite the 4^th defendant’s denial”[25] and “the Co - operation Agreement was intended to be immediately binding despite the Representation”[26].  So the complaint can only be of the weight that the judge had given to the Representation, or in other words, the judge’s evaluation of the evidence. 

19.2.  However, when a party is appealing against an evaluation of evidence, the approach on appeal should be closely analogous to that in appeals against exercise of discretion[27].  The plaintiff would have to show that the judge’s evaluation was plainly wrong.  

20.1.   It should first be noted that it is not the plaintiff’s case that the Co-operation Agreement was subject to contract.  This was confirmed by Mr Wong.  

20.2.  Second, it is well-established that the onus of proving absence of contractual intention is on the party asserting it, and the onus is high when the parties are business people who are dealing with commercial matters[28]. 

21.1.   Here, the plaintiff’s own evidence was only that he had “expressed [his] reservations”[29] – without indicating at all what were the “reservations” he expressed.  Of course one would not expect a person to be able to repeat verbatim words said months ago, but one would expect him to at least set out the substance of what he had said.  It is notable that the plaintiff did not claim to have said that he was not willing to be bound until he received legal advice. 

21.2.  As such, the judge was entitled to find that the plaintiff had failed to prove something which would have objectively made the 4^th defendant aware of his (the plaintiff’s) subjective intent not to enter into a binding agreement[30].  

22.1.   Further, on the plaintiff’s own case, the 4^th defendant’s Representation was only that he was “free to take a copy to consult with his lawyers before a formal agreement was entered into”.  (Emphasis added). 

22.2.  The fact that parties expected to consult lawyers for a “formal” agreement to be drafted does not render their home-made agreement any less binding, provided the law’s requirements for a contract are satisfied.  The mere fact that the parties intended that there would a formal, legally - drafted agreement does not negate the intention to be bound, which is shown by the opening words of the Co-operation Agreement, the careful way that it was initialed at the bottom of every page, and the fact that a third party was asked to (and did) attest it.  If there was no intention to be bound, there would have been no need to sign it at all, let alone add those further safeguards for verification, as the document would not be worth the paper it was written on. 

22.3.  In contradistinction, clause 4 made it crystal clear that once the Co-operation Agreement was signed, neither party could dispute or litigate about the right to use the lot. Of course, if the parties subsequently agreed on a “further, formal agreement”[31], the Co-operation Agreement could be thereby superseded.

23.  Further, it is notable that the plaintiff did not raise the point that he had not intended to be legally bound until some 6 months later, even though he was legally represented and even though his solicitors had raised a number of arguments to try to negate the effect of the Co-operation Agreement including arguments which are no longer pursued. 

24.  Be that as it may, for the reasons set out in §§21 and 22 above, even if the Representation had been made, the judge was entitled to find on the plaintiff’s own evidence viewed objectively, that he had failed to discharge the onus of proving that there was no contractual intention, and it could not be said that the judge was plainly wrong on his evaluation of the evidence.

25.  Ground (2) has been couched by the plaintiff as a “void for uncertainty” point. However, it is clear that the parties had reached agreement on essential matters: i.e. the disposal of the dispute over occupation of the property, the ensuing litigation and costs, and the future disposition of the property through a new company in which they would hold equal shares. 

26.1.   In respect of the first, the right to occupy the property was to be vested in SSHSL, in which both parties were to enjoy equal beneficial ownership. 

26.2.  In respect of the second matter, they would “drop hands” in respect of the litigation with each party to bear his own costs.

26.3.  In respect of the third matter, the property would in future be used by SSHSL, the company in which both parties would have equal shares.  

27.  As summarized in §17(2) above, Mr Wong has argued that the following were essential matters on which the parties had not agreed.

28.1.  First, he argued that the Co-operation Agreement did not contain an agreement on the number of directors and the parties may not agree on having an equal number of directors.  However, being a corporate entity, clearly SSHSL would be governed by the rules of company law.  It would be for the shareholders of SSHSL to vote in general meeting to appoint directors pursuant to the Companies Ordinance Cap.622. 

28.2.  As for the argument that the parties may not agree on the type of business that SSHSL would be engaged in, this would be a matter for the board of SSHSL. Of course, as far as the business to be operated on the lot is concerned, the board would be constrained by the terms of the lease.  

28.3.  As for the argument based on financial commitment, Mr Wong first argued that there was no agreement on working capital. However, that would again be a matter for the board of directors of SSHSL to decide how much would be needed and how it should be raised.

28.4.  Mr Wong also argued that Clause 8 of the Co-operation Agreement prohibited SSHSL from increasing its share capital.  With respect, when the entire clause is read in the context of the Co-operation Agreement, it is clear that what the clause meant was that one party may not seek to dilute the other’s 50% shareholding.  

29.1.   It is true that the parties had not entered into a sophisticated shareholders’ agreement, but they had agreed in the Co-operation Agreement that they would be promoters of SSHSL, a vehicle in which they would have equal shares, by which they would enjoy the benefit of the Property. 

29.2.  Taken to the highest, the most that the plaintiff could have contended is that the agreement could have contained more details of the type found in legally-drafted shareholders’ agreements.  However, an agreement is valid as long as the essential matters are agreed, even if there may be further negotiations or agreements between the parties[32]. 

29.3.  In Donwin Productions Ltd v EMI Films Ltd [33], Lord Loreburn’s judgment in Love and Stewart (Ltd) v S Instone & Co (Ltd)[34]was quoted as follows:

“It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that was the intention of the parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain”.

29.4.  Thus, as was held in Donwin, “as a matter of law there is no reason why one cannot have a partial binding agreement pending the completion of the full agreement”.

30.  And even then, if parties have left other points open, “the court may then imply a term that they are to negotiate in good faith so as to settle outstanding details which are to be incorporated in the formal document setting out the full terms of the contract between them”[35].  In the present case however, neither party is suggesting that the court needs to imply such a term, and it is not necessary to consider this further.

31.  Finally as to Ground (3), I agree with the judge’s construction of Clause 4.  As the clause applies to both parties, the reference to the forfeiture of benefits must mean those under the Co-operation Agreement, not the Tenancy Agreement. Under the latter agreement, only the plaintiff has rights, and so the mutuality referred to in the clause could not apply.

Order

32.  For the reasons set out above, the appeal is dismissed with costs to the respondent.  We do not consider it appropriate to certify that this appeal was fit for two counsel.