KING PROSPER TRADING LTD v. TENBASE TRADING LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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DECISION

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1. This is an application by summons by the Defendant for an order that all further proceedings in this action be stayed on the basis that the parties have concluded an agreement to compromise the action.

2. The writ in this action was issued on 8 January 1996. The claim is for the unpaid balance of the purchase price of certain vehicles in the sum of $6,200,000 plus interest of approximately $207,000.

Was there a binding agreement?

3. Negotiations for a settlement commenced on 29 January 1996 when Lau Kwan and Liu Geng Yan on behalf of the Plaintiff and the Defendant respectively signed a memorandum in Chinese which stated that the parties had agreed to settle the matter out of court, that "there will be a part payment of a sum of HK$1,536,000 which will be paid first in respect of the outstanding sum, balance of which shall be repaid by installments pending re-negotiation." Proposals for the payment of the balance were made by the Plaintiff through its solicitors by a letter dated 7 February 1996.

4. On 8 February 1996, the Defendant's solicitors wrote to the Plaintiff's solicitors in the following terms:

5. This prompted a reply on the same day from the Plaintiff's solicitors as follows:

6. The Defendant's solicitors replied by letter dated 9 February 1996 :

7. By letter dated 12 February 1996, the Plaintiff's solicitors responded in the following terms:

The Consent Order that was attached to the letter, headed in the matter of the action, was in the following terms:

8. The 12 February letter together with the Consent Order was delivered by hand. It appears from the "receipt" chop that it was received by the Defendant's solicitors on 13 February 1996 at 10:55 am. Approximately an hour or so later at 11:59 am on 13 February, the Defendant's solicitors received a letter dated 13 February 1996 from the Plaintiff's solicitors as follows:

The timing of the receipt of these two letters is not disputed.

9. Notwithstanding the letter dated 13 February from the Plaintiff's solicitors, a cashier order in the sum of HK$1,530,000 payable to the Plaintiff was sent to the Plaintiff's solicitors under a covering letter in the following terms:

The cashier order was received by the Plaintiff's solicitors on 14 February 1996 at 5:18 pm. This was subsequently returned to the Defendant.

10. Having regard to this sequence of events, the Plaintiff's solicitors' letter of 8 February 1996 constituted an offer of settlement. The letter of 9 February 1996 from the Defendant's solicitors proposing payment by 14 February constituted a counter-offer to the Plaintiff for settlement. In my judgment, this counter-offer was unequivocally accepted by the Plaintiff through its solicitors' letter of 12 February 1996 enclosing the Consent Order, thereby creating a binding agreement between the parties to compromise the action.

11. Counsel for the Plaintiff contended that the Defendant's counter-offer of 9 February was qualified in that any acceptance by the Plaintiff was subject to the Defendant's approval of the terms of the Consent Order and that no binding agreement could have come into being before such approval was given. But where as was the case here, the Consent Order was merely to encapsulate the terms upon which the parties had agreed to settle the Plaintiff's acceptance and the coning into being of a binding agreement was not contingent upon any "approval" by the Defendant of the terms of the Consent Order. In other words, unless the Consent Order contained any provision that was outside the ambit of the counter-offer made by the Defendant, the Defendant could not withhold approval. Paragraphs 2 and 3 of the Consent Order were no more than logistics or necessary procedural steps to effectuate the settlement agreement reached by the parties.

12. Accordingly, I find the existence of a binding settlement agreement to be beyond reasonable doubt.

Was the settlement agreement subsequently rescinded?

13. In paragraph 16 of its affirmation. the managing director of the Plaintiff Mr Lau Kwan deposed to (1) an agreement reached between himself and Mr Huang Jing Ming, managing director of the Defendant, in a telephone conversation on 13 February 1996 to discharge or rescind any agreement that might have been reached in correspondence between the parties' respective solicitors and that the parties would resume settlement negotiation and (2) a further telephone conversation on 16 February 1996 confirming what had been agreed on 13 February.

14. Counsel for the Defendant submitted that the existence of such a subsequent discharge agreement is not only not borne out by but is inconsistent with the contemporaneous correspondence and events. First, in their "withdrawal" letter of 13 February, the Plaintiff's solicitors referred to "instructions to withdraw all our client's offers for settlement". There was no allegation of any discharge agreement having been entered into by the parties through Mr Lau and Mr Huang. Second, the conversation between Mr Lau and Mr Huang did not take place until after 4 p.m. on 13 February, several hours after the letter of 13 February was written and delivered. Third, on 15 February the Plaintiffs solicitors simply reiterated the position stated in the 13 February letter. Again there was no allegation of any subsequent discharge agreement having been entered into. Fourth, there is a letter from Mr Lau dated 14 February to Mr Liu Geng Yan at China Foreign Trage Guangzhou Economic Development Corporation. It would appear that the Defendant is an affiliate of the Corporation. In any event, Mr Liu who was a signatory to the Chinese memorandum of 29 January 1996 was an authorized representative of the Defendant. The letter stated that the Plaintiff had not authorized its lawyers to fix the hearing dated in the High Court and sought Mr Liu's acceptance of an apology. There was then a reference to the parties proceeding in accordance with their agreement concluded on "19th" January. Again the discharge agreement was not referred to in this letter. It was not until 17 February, some four days after the alleged subsequent agreement, that any allegation was made by way of correspondence as to the existence of a discharge agreement.

15. In these circumstances, the Plaintiff's prospects of successfully establishing the existence of any subsequent discharge agreement between the parties as alleged is "practically moonshine" : see Codd v. Delap (1905) LT 510 per Lord Lindley at 511 cited in Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225 at 228.

Stay of proceedings

16. Having reached the conclusion that there is a binding settlement agreement between the parties, the question which arises is whether it would be appropriate to make an order that all further proceedings in this action be stayed. It is accepted by both parties that the jurisdiction to stay exists but the parties differ as to whether there is merely one source of jurisdiction, namely the court's inherent jurisdiction, or whether as the Defendant would have it, there are three sources of jurisdiction, namely (1) the court's inherent jurisdiction, (2) jurisdiction under s. 16(3) of the Supreme Court Ordinance and (3) under 0.18, r. 19 of the Rules of the Supreme Court.

17. Section 16(3) of the Supreme Court Ordinance merely preserves the inherent jurisdiction of the court to stay proceedings. It is in substance the same as s.49(3) of the Supreme Court Act which re-enacted in substance the provisions of proviso (a) to s.41 of the Supreme Court Judicature (Consolidation) Act 1925. It would appeal that s.16(3) did not confer any new jurisdiction on the court: see The James Westoll (1905) P47 at 51 CA, per Sterling LJ. Jurisdiction conferred by the rules is distinct from the court's inherent jurisdiction. The two sources of the court's power exist side by side and may be invoked cumulatively or alternatively : see Davey v. Bentinck (1893) 1 QB 185 at 187-188. It is well settled that where the parties have concluded an agreement for the compromise or settlement of a pending action, the court has power to stay proceedings: see Eden v. Naish (1878) 7 Ch 781 and 37 Halsbury Laws of England, 4th Edn. at para. 442.

18. Although the compromise agreement was reached a year ago, the application by the Defendant for a stay of proceedings was only made by summons dated 30 December 1996. Since the date of the agreement the following events have occurred:

19. Counsel for the Plaintiff submitted that this is not an appropriate case where a stay of proceedings should be granted: the appeal against the decision of Leong J. is due to be heard on 28 February and during the two prior hearings before the Registrar and Leong J., the Defendant never sought a stay on the grounds of compromise.

20. Because a stay of proceedings interrupts in a fundamental way the right that a party has to have his case tried on the basis of substantive merits, the general practice is that a stay of proceedings should not be imposed unless the proceedings beyond all reasonable doubt ought not to be allowed to continue: see per Vaughan Willims LJ in Shackleton v. Swift [1913] 2 KB 304 at 312. But where there is no real doubt that the parties did conclude an agreement to settle pending proceedings, prima facie, a stay ought to be granted. The only question is whether the Defendant's delay in seeking a stay is a valid reason for refusing to exercise the discretion in its favour which would otherwise be exercised.

21. Counsel for the Plaintiff submitted that if the court were to find a binding agreement. it should grant the stay because such an agreement would have discharged all proceedings. In so far as it is suggested that the court has no discretion in the matter, it is untenable whether in the context of the court's inherent jurisdiction or under O.18, r. 19. The exercise of the court's power in either case is plainly discretionary. See Gleeson v. J. Wippell & Co. Ltd. [1977] 1 WLR 510 and the Supreme Court Practice 1997 at para. 18/19/19.

22. As to when an application for a stay should be made, the view has been expressed that it should be made promptly, as soon as practicable after the grounds for making it have arisen or come to the knowledge of the applicant: see 37 Halsbury's Laws at para.439. Delay could result in the application being refused: see, for example Cross v. Earl Howe (1892) 62 LJ Ch 342 which involved an application for a stay on the ground that the action was frivolous and vexatious. The application was made after pleadings had closed and the action set down for trial although the requisite knowledge was acquired more than 12 years before the action was brought. In those circumstances, a stay was refused. In my judgment, delay is plainly a factor that is to be taken into account when considering whether the discretion ought to be exercised.

23. Where there is settlement or pending proceedings, its effects are (1) to put an end to the proceedings that there are thereby spent and exhausted: per Sarjant J. in Re Hearn [1913] 108 LT 452 at 454; (2) to preclude the parties from taking any further steps in the action: Green v. Rozen [1955] 1 WLR 741; and (3) to supersede the original cause of action altogether: see Green v. Rozen (supra). See generally 37 Halsbury's Laws, para. 437.

24. Given the effects of a compromise and the fact that this is a clear case where no real doubt can be entertained, the compromise should be given effect. In the present case, the delay is not such as should result in the court refusing a stay. The two earlier hearings took place only 3 months or so prior to the stay application being made.

25. But in exercising its discretion, the court has power to impose terms : see Saunderson v. Consolidated Credit and Mortgage Corporation Ltd. (1890) 6 TLR 404 and Henderson v. The Underwriting And Agency Association (1892) 65 LT 732, a case where the defendant having made a payment under what was thought to be a binding agreement, repudiated the compromise agreement which repudiation was accepted by the plaintiff. The Court of Appeal held that it would be a breach of faith for the plaintiff to retain the sum received under the abandoned compromise agreement and at the same time to proceed with his action and that the action was properly stayed until he paid into court, or secured, that sum. Thus, whilst I am minded to grant the stay, it should be conditional upon payment by the Defendant of the sum of $1.53 million to the Plaintiff pursuant to its obligations under the compromise agreement. If the action is stayed on the basis of a valid compromise agreement, the Defendant's concomitant obligation to pay must be discharged without requiring the Plaintiff to commence proceedings to recover what is due to it under that agreement. Good faith requires that the sum due under the compromise be paid if the proceedings are to be stayed.

26. The fact that one of the consequences of a stay is that the pending appeal to the Court of Appeal would be stayed is not a reason that would deprive this court of its jurisdiction to stay proceedings where the existence of a binding agreement is not a matter to be adjudicated upon by the Court of Appeal.

27. Accordingly, I order that the action be stayed upon the Defendant paying into court the sum of HK$1.53 million. I also make an order nisi that the Plaintiff do pay the Defendant the costs of this application.