EMPIRE ENGINEERING CO LTD v. JOHN LOK AND PARTNERS LTD AND ANOTHER

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JUDGMENT

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Fuad, V.-P.:

1. This is an interlocutory appeal by the Plaintiff in this action against an order made by Sears, J. on 21st July 1989 in favour of the two Defendants striking out the Amended Statement of Claim under RSC O.18, r.19 and the inherent jurisdiction.

2. The Plaintiff, Empire Engineering Co. Ltd., is an electrical contractor. The 1st Defendant, John Lok and Partners Ltd., is a general contractor. The 2nd Defendant, Denton Hall Burgin & Warrens, is a firm of solicitors.

3. On 26th July 1978 Harbour City Ltd. entered into a contract ("the main contract") with the 1st Defendant to carry out building works for the construction of what became Harbour City. On 31st May 1979, the 1st defendant entered into a contract ("the sub-contract") with the Plaintiff under which the Plaintiff undertook to provide and install electrical equipment and services in the offices and apartments being built on the site.

4. The Plaintiff's action was instituted by a writ issued on 16th February 1988. A Statement of Claim was indorsed on the writ. Further and Better Particulars of the Statement of Claim were given on 22nd July 1988. Pursuant to an order dated 24th April 1989, the Plaintiff filed an Amended Statement of Claim on the following day. Then on 25th May 1989 the Defendants each took out a summons to have the Amended Statement of Claim struck out, and the action dismissed as against them. The applications to strike out were based on all the grounds provided for by O.18, r.19(1).

5. Although the learned judge struck out the entire Amended Statement of Claim, he did not accede to that part of the Defendants' applications which sought to have the action dismissed. Instead, he gave the Plaintiff liberty to issue a summons within 28 days for leave to serve a Re-Amended Statement of Claim and made an "unless" order that judgment be entered in favour of the Defendants dismissing the action if the necessary summons was not issued within time limited. That part of the order was effectively stayed pending appeal by Mayo, J.'s order of 15th August 1989.

6. In view of the issues raised by this appeal, it is necessary to examine the claim as pleaded before Sears, J. in considerable detail. The Amended Statement of Claim pleaded the existence of the main and the sub-contracts (paras.2 and 3) and set out in para.4 the terms of three clauses of the main contract: clause 9(1) which stipulated that errors of description etc. in the Bills of Quantities shall be rectified and treated as variations; clause 55(2) which required the architect to grant an extention of time for completion of the works and to certify sums fairly due to the contractor if the contractor suffered delay or incurred expenses because the employer failed to give possession as agreed; clause 59(l) which imposed a duty on the architect to grant extentions to the contractor for the completion of relevant sections of the works where he thinks extra work or additional work or other special circumstances justifies an extension; and clause 90 which provided that the retention money was due when the architect certified that the works had been maintained satisfactorily and that the maintenance period had expired with no outstanding claim by the employer against the contractor.

7. The pleading followed with the recital of certain terms in the sub-contract:

8. Clauses 7 (c) and 10 (b) were not set out or specifically referred to in the original Statement of Claim.

9. The following were averred in para.6 to be terms implied into the sub-contract; they had not earlier been pleaded:

10. The Amended Statement of Claim went on to aver (by para.7) that during the construction and after the completion of Phase I of Harbour City, substantial disputes had arisen between the employer, the 1st Defendant and a number of sub-contractors including the Plaintiff. These disputes had resulted, inter alia, in the institution of arbitration proceedings by the 1st Defendant against the employer, and in an action by the employer against the 1st Defendant and a number of sub-contractors including the Plaintiff. Then comes what was really the heart of the pleadings:

11. The Amended Statement of Claim continued by saying (in para.9) that in order to assist the 1st Defendant present its own claims and those of the Plaintiff in the arbitration proceedings, the Plaintiff and the 1st Defendant had on or about 7th March 1985, entered into a further written agreement ("the Supplemental Agreement"). The Supplemental Agreement was contained in or evidenced by a registered letter dated 7th March 1985 written by Mr. Gordon Chong on behalf of the Plaintiff and addressed to the 1st Defendant.

12. The Supplemental Agreement was said (paras. 10 and 11) to contain two express terms, and to be subject to four implied terms, which are set out.

13. By para. 12 the Plaintiff then pleads, further or in the alternative, that by reason of clause 11 of the sub-contract, and/or the Supplemental Agreement, and in all the circumstances, the 1st Defendant, in prosecuting the Plaintiff's claims on behalf of the Plaintiff was acting as the Plaintiff's agent and as such owed a fiduciary duty to the Plaintiff. It is then said, by para.13, that in breach of clause 11 and the implied terms of the sub-contract, as well as the express and implied terms of the Supplemental Agreement, the 1st Defendant had, without reference to the Plaintiff, compromised the Plaintiff's claims under the sub-contract in return for no payment at all, or for a payment by the employer in settlement of HK$100,000, which was a derisory sum. These breaches of contract were also a breach of the fiduciary duty and by the 1st Defendant to the Plaintiff (para.14).

14. Turning to the claim against the 2nd Defendant, the Plaintiff pleads (para.16) that their firm was retained to advise the company and protect their interests in connection with disputes and their claims under the sub-contract. It was, therefore, (para.17) an implied term of the contract that the 2nd Defendant would exercise skill, care and diligence in the course of their employment by the Plaintiff. Moreover, the 2nd Defendant owed the Plaintiff a duty or care equivalent to the implied term earlier pleaded as well as a fiduciary duty (para.18).

15. The Amended Statement of Claim then states (para.19) that at all material times (and in particular between 9th November 1984 and 6th May 1985) the 2nd Defendant in addition to being employed by the Plaintiff was also retained by the 1st Defendant to advise the 1st Defendant in connection with its own claims against the employer, and to prosecute such claims. According to para.20, on or about 20th April 1985, for a consideration believed to be between HK$ 60 million and HK$100 million, the 1st Defendant had compromised its claims and those of its sub-contractors, including the Plaintiff, which had previously been made by and through the 1st Defendant against the employer. During negotiations and discussions leading to the compromise, the 2nd Defendant, as the 1st Defendant's solicitors, had assisted and advised the 1st Defendant in connection with the compromise, and had continued to be retained and employed by both the 1st Defendant and the Plaintiff up to, including and beyond the date of the compromise.

16. By such conduct, it is pleaded by para.21, the 2nd Defendant had acted negligently and in breach of the implied terms pleaded earlier, and in breach of its fiduciary duty to the Plaintiff. The following particulars are set out in the pleading:

17. The averments continue by stating (para.22) that by reason of these matters, the Plaintiff had lost all prospect of recovering its claims under the sub-contract from the employer and had thereby suffered loss and damage. Alternatively the Plaintiff had lost the opportunity to obtain a reasonable settlement of its claims under the Sub-Contract. In addition the Plaintiff had suffered special damages - the balance of the 2nd Defendant's professional charges after a deduction of the amount  received by the Plaintiff in respect of an Order for costs in its favour in High Court Action No. 13431 of 1983, amounting to HK$19,800.

18. The Plaintiff claims the following relief:

19. I have earlier mentioned the Further and Better Particulars of the Statement of Claim which had been supplied by the Plaintiff on 22nd July 1988. Regarding para.7 of the Statement of Claim (which became para.8 of the Amended Statement of Claim) the 1st Defendant requested particulars of the allegation that the Plaintiff had claims amounting to $9,046,066 arising out of rights and benefits provided by the main contract under clause 55 and retention monies under clause 90. The Plaintiff was asked to state the respective sums claimed as loss and expenses under clause 55 and retention monies under clause 90 and to give full particulars of all material facts relied upon in support of these claims to payments under clauses 55 and 90. The reply divided the total sure claimed into $8,315,251 and $730,755 due respectively under clause 55 and clause 90 and stated that the rest was a request form claim to which the 1st Defendant was not entitled.

20. On 25th October 1988, Sears, J. ordered the Plaintiff to give the particulars which had been sought "because" as he explains in the judgment appealed from "it appeared to me at that time that that was a vital part, an essential part of the claim. One of the ingredients of the cause of action was not necessarily the quantification of the claim which was being made, but the basis on which the Plaintiffs were asserting some legal liability would arise."

21. The further particulars supplied by the Plaintiff on 16th November 1988 again divided the $9,046,066 into the amounts previously given and continued:

22. In reviewing this response in his judgment, the judge referred to the number of pages of the documents to which reference had been made in paragraph (2) (a) (i), (ii) and (iii). These I have inserted above for ease of reference. He then observed "So it appeared to me that the particulars as then given, clearly did not answer the order which I made that the Plaintiffs had to identify with particularity the legal basis of the claim that was being made. What was apparently thought was that from the many hundred of pages of detailed matters it could be discovered what their claim really was."

23. The judge went on to remark that the matter had became more complicated in the light of some of the amendments made in the Amended Statement of Claim - firstly the Plaintiff had added a recital of other terms of the sub-contract said to be material and a number of allegedly implied terms. Moreover, noted the judge, in the paragraph that became para.8, the words "under clause 7(c) of the sub-contract" had been inserted. In the judge's view this was now a categorical reliance on clause 7(c), that is to say these were claims of the kind triggered off by a written application where the sub-contractor had been involved in direct loss and/or expense for which he would not have been reimbursed by a payment, etc. in circumstances in which the main contractor would be entitled to recover under the main contract, and the main contractor would request the architect to ascertain the amount of that direct loss and expense. He felt that the relief sought in the Amended Statement of Claim was rather unusual - a series of declarations in the most generalized manner, asking for first, a declaration that the 1st Defendant was in breach of clause 11 of the sub-contract. By amendment, clause 11 had been deleted, with the result that the claim by virtue of the amendment to para.8 (the old para.7), and the deletion of the words "clause 11" in the first declaration sought, clearly indicated, in his judgment, that the Plaintiff had shifted its ground and was now claiming under a right which it said it had under clause 7(c) of the sub-contract.

24. The judge indicated that he understood Counsel for the Plaintiff (Mr. Bell) during argument before him to be specifically resiling from a claim under clause 7(c) and replacing it with a claim under clause 11. He referred to some of the "lost chance" cases cited to him and said that he was unable to accept the submission that by analogy with that line of authority it was not necessary to plead facts and matters - it was sufficient merely to plead the lost opportunity to sue. In his view this doctrine was, in essence, a doctrine that went to the quantification of damages, but only after some cause of action had been established; it was not necessary, for example, when suing a solicitor who had failed to pursue a claim in negligence, to set out the facts and matters of the original claim that was made. Nevertheless, facts and matters had to be pleaded to show that the solicitor had been negligent and that there was a claim. Unless some lawfully ascertainable cause of action had been put forward, there was no liability at all.

25. After reminding himself of the principles applicable to applications of the kind before him, he held that it was a necessary ingredient of the Plaintiff's claim against the 1st Defendant, that the facts and matters relied upon for the assertion of a claim amounting to HK$9m were pleaded. In his judgment this, the Plaintiff, had totally failed so to do. On that ground he would strike out the Amended Statement of Claim.

26. The judge went on to say that he would also strike out the Amended Statement of Claim on three other bases:-

27. As regards the Plaintiff's claim against the 2nd Defendant, the judge observed that the Amended Statement of Claim had pleaded the employment of the solicitors and their retention for the purpose of advising the Plaintiff as to the cairns it said it had. A variety of particulars of negligence had been pleaded. The same particulas had been sought for this Defendant as had been sought for the 1st Defendant. The answers given for the 2nd Defendant had been the same as those given for the 1st Defendant. The claim against the 2nd Defendant would be struck out for the reasons earlier given.

28. The judge explained why he would exercise his discretion not to go so far as to dismiss the Plaintiff's claims but would provide an opportunity for pleading them against each of the Defendants in such a manner that the pleading was not amenable to be struck out.

29. At the conclusion of his judgment, the judge added "as a postscript":

"..... the relief claimed, in my judgment, does not relate to what the Plaintiff is really after. They seek a variety of declaratory reliefs in the widest possible form, and I say, in my inherent jurisdiction that it would be impossible for a judge to make the sort of declarations sought here. They are in, as I have said, the widest terms: they do not appear to assist anyone; what in essence is sought in this case, as I understand it, is damages ....."

30. In my view, the crucial issue which divides the parties to this appeal is whether the judge was right in holding that it was necessary for the Plaintiff to plead the facts and matters upon which it relied to support the assertion that it had claims arising out of its employment as sub-contractor, worth over $9 million, which the Defendants had failed to pursue, a failure variously pleaded, as we have seen, as being in breach of contract, express or implied/breach of fiduciary duty/negligence (2nd Defendant only).

31. The contention Mr. Bell advanced before us, which did not find favour with the judge, seems to me to amount to a proposition that the Plaintiff should somehow be absolved from the necessity of obeying perhaps the most fundamental rule of pleading, enshrined in O.18, r.7(1) (that each party must plead the material facts upon which he relies) by reason of the fact that the claims against each Defendant are for damages for the loss of the chance to obtain what it was entitled to in the arbitration. Mr. Bell submitted that where such claims were involved it was sufficient to plead particulars of the mere existence of the original claim to perfect a cause of action. It was not necessary to plead, or even to give particulars of, the details of the original claim. Such details were at most particulars.

32. When Mr. Bell first addressed us (and indeed in his skeleton arguments) his contention was that the cases clearly established that the loss of a chance was a cause of action in itself. Despite the fact that, in reply, he acknowledged that this proposition was not sound in law, he still felt able to argue that the facts and matters on which the original claim was based were immaterial to the existence of a cause of action in an action of the kind before us and were relevant only to the chances of the original claim succeeding, and therefore went only to the question of damages.

33. With very great respect, one would need binding authority to accept so startling a proposition. When one goes back again to first principles and reminds oneself of the function of pleadings, one can see at once how handicapped the Defendants (and later the Court) would be if this were so and the Amended Statement of Claim, as presently formulated, stood alone. I make no apology for quoting from p.3 of 1975 Edition of Bullen and Leake:

"[Pleadings] are the means by which the parties are enabled to state and frame the issues which are in dispute between them, without embarking at that stage on the evidence which each party may adduce at the trial. The system of pleadings operates to define and delimit with clarity and precision the real matters in controversy between the parties upon which they can prepare and present their respective cases and upon which the court will be called upon to adjudicate. between them. In thus serves the two-fold purpose of informing each party what is the case of the opposite party which he will have to meet before and at the trial, and at the same time informing the court what are the issues between the parties which will govern the interlocutory proceedings before the trial and which the court will have to determine at the trial."

34. Mr. Bell relies on the "loss of chance" cases, for example, Kitchen v. Royal Airforce Association [1958] 1 WLR 563, for his submission that the Court in such cases is not concerned with the question whether or not liability in respect of the original claim is established, the only question being "has the Plaintiff lost some right of value, some chose in action of reality and substance" (per: Lord Eversned, M.R. at p.575).

35. I am bound to say that I have no difficulty in rejecting Mr. Bell's submission. Reason and good sense point the other way. I would respectfully adopt the way Mr. Ribeiro, who appears for the 1st Defendant, put it in his skeleton arguments:

"The doctrine ['of loss of a chance'] is one which permits the Court to arrive at the quantum of damages to be awarded where liability has independently been established but where the measurement of damages is dependent upon multiple contingencies making the extent of loss uncertain. It cannot supply missing factual and legal elements required to establish liability".

36. If authority were needed to demonstrate the fallacy of Mr. Bell's approach, it is to be found in Hotson v. East Berkshire Area Health Aughority [1987] 3 WLR 232, per Lord Ackner at p.247C-D and F-G.

37. Mr. Bell submits, in the alternative, that if the facts and matters relating to the original claims were essential elements of the present causes of action, the Plaintiff had in fact given sufficient further and better particulars. These, supporting the Amended Statement of Claim, enabled the Defendants to know precisely what case they had to meet at the trial.

38. Mr. Bell took us through the further and better particulars the Plaintiff had supplied. I have set out some of them earlier. I will now refer to others. In response to a request for further and better particulars of the expression "the Plaintiff's claims under the sub-contract" occuring the present para. 11 of the Amendment Statement of Claim (setting out the implied terms of the Supplemental Agreement dated 7th March 1985 between the Plaintiff and the 1st Defendant) the 1st Defendant was told on 22nd July 1988:

39. Among the particulars given on 16th November 1988 were the following, in respone to a request concerning the basis of the claims amounting to $9 million mentioned in the originao para.7 of th pleading, now para.8:

40. Mr. Bell examined with us the documents mentioned in para.2 (a) of the particulars given on 16th November 1988 and he was quite unable to point anywhere to a claim advanced in that mass of papers by the Plaintiff falling under clause 55 or clause 90 of the main contract, which, therefore, should have been diligently pursued on its behalf. It will be recalled that clause 55(2) imposes duties upon the architect and confers rights upon the contractor but only "if the Contractor suffers delay or incurs expenses from the failure on the part of the employer to give possession in accordance with the terms of this Clause". And clause 90 states that the retention money shall be due and payable when the architect certifies that the works have been maintained satisfactorily and the period of maintenance has expired.

41. With regard to clause 55, such documentation as there is indicates plainly enough that the Plaintiff's claims in relation to what is termed "late access" and which fall under that clause were fully met. I need only refer to the following documents:

42. As regards clause 90, nothing is said about clause 90 claims in the documents shown to us; nor is it specifically alleged either that the architect had certified or ought to have certified. There was an affidavit before the judge (dated 3rd July 1989) to the effect that the architect under the main contract had at no time certified in writing either that the works had been maintained satisfactorily or that the period of maintenance had expired.

43. I must indicate my disquiet that those advising the Plaintiff thought it right to respond to the judge's order regarding particulars dated 25th October 1988 in the manner discussed above. It was, in my respectful opinion, so ill-judged a response, that nothing further need be said about it, except to express the hope that no attempt is made in the future to obey an order for particulars in this almost contumelious way.

44. In my judgment it is clear that no sustainable cause of action has been properly pleaded against either of the Defendants, even with all the particulars supplied, and the Amended Statement of Claim was, therefore, vulnerable to attack.

45. Having reached this conclusion I do not think it to be necessary to consider whether or not the judge was right in his interpretation of the pleading that "... the Plaintiff had changed its stance and was now claiming under clause 7(c)" and ... "the claim has altered from what appeared to be a clause 11 situation until specifically pleaded that it arose under clause 7(c)", and his understanding that during argument before him the Plaintiff had resiled from a cause of action under clause 7(c). Mr. Bell explained that the expression "under Clause 7(c) of the Sub-Contract" which now occurs in para.8 of the Amended Statement of Claim was inserted to indicate with more precision the nature of the original claims, that is to say that they had been initiated under clause 7(c). There had never been an averment that the 1st Defendant had been in breach of that clause. Mr. Bell told us that in the averment which now read: "The Plaintiff had claims under clause 7(c) of the Sub-Contract", the use of the word "had" was a sufficient indication that this part of the averment was merely "historical" or "descriptive". He submitted that it did not matter whether or not the Plaintiff had valid claims under clause 7(c) - it was enough that its claims had been advanced under that clause.

46. All I would say about all this is that I am not surprised that the judge was confused and uncertain about the true formulation of the Plaintiff's claims - once para.8 referred to clause 7(c), the terms of clause 7(c) had been pleaded as material and the reference to clause 11 had been deleted from para.(i) of the prayer for relief.

47. In the light of the nature of the complaints justifiably made by the Defendants about the pleading and particulars, in my view the judge was fully justified in ordering the whole Amended Statement of Claim to be struck out, other than parts of it, as has been suggested on behalf of the Plaintiff. The defects were due to a fundamental misconception by the pleader of what he had to plead. Once that misconception, which permeates the entire pleading, is removed and the claims are properly pleaded it might well be that the Statement of Claim would have to be wholly re-cast.

48. With due respect, I cannot for one moment accept, in the light of the history of these proceedings, that the judge erred in the exercise of his discretion by making the order he did, rather than another order for further and better particulars.

49. For these reasons I would dismiss the appeal.

Hunter, J.A.:

50. I agree.

Liu, J.:

51. I also agree.

Fuad, V.-P.:

52. In handing down these judgments we make an order nisi that the Plaintiff shall pay the Defendants their costs of this appeal.