NG CHUN KONG CALVIN t/a KO AND CO v. FIRST STAR DEVELOPMENT LTD

cacv 81/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 81 of 2006

(on appeal from HCA NO. 2450 of 2004)

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J U D G M E N T

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Hon Rogers VP:

1.  I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This is an appeal from the order dated 19 January 2006 of Deputy High Court Judge Mayo striking out the plaintiff’s statement of claim and dismissing the action for disclosing no reasonable cause of action and entering judgment for the defendant.  At the conclusion of the appeal hearing, judgment was reserved which we now give.

Background and chronology

3.  The plaintiff is a solicitor practising under the firm name of Ko & Co. a sole proprietorship.  The defendant is the developer of the development known as the Hunghom Peninsula (“the development”).  The plaintiff was retained under a retainer agreement (“the agreement”) constituted through the exchange of a series of letters the last of which was dated 1 February 2000 relating to the development.  The claim that was struck out was a claim for damages for breach of that agreement.

4.  The land grant by the Government to the defendant was for development pursuant to the Private Sector Participation Scheme (“PSPS”).  PSPS developments catered for buyers under the Home Ownership Scheme (“HOS”).  As a PSPS development, the defendant could not sell the residential units of the development on the open market: it was obliged to accept purchasers nominated by the Housing Authority and to sell at the stipulated price.  In the event of default by any of the nominated purchasers or in default of nomination within the prescribed period which was 20 months from the date of the consent for sale for the residential units, the Housing Authority would have to purchase those units at the guaranteed purchase price.

5.  The agreement came about in this way.  On 14 December 1999, the holding company of the defendant wrote to the plaintiff advising him that through the defendant, it had been awarded the PSPS project in Hung Hom Bay, that the development would include 2,470 residential flats, one kindergarten, commercial space of 3,000 square metres and 494 car parks, that the occupation permit was expected by January 2002 and consent for sale around October 2000.  The letter went on to say this:

“It would be our pleasure if you could send us your proposal for legal fee for arranging the conveyance and related legal process and giving advice on the development.”

The plaintiff replied on 15 December 1999.  In pertinent part the letter was as follows:

“	As requested, I set out hereinbelow our proposed legal fees for conveyancing transactions relating to the above.
		Documents	Fees
	1.	Agreement for Sale and Purchase and Assignment	$2,000.00
	2.	Legal Charge	$1,500.00
	3.	Certified copies of title deeds and Deed of Mutual Covenant and Management Agreement (estimated)	$1,000.00
	Should we be appointed as your solicitors, we shall be responsible for preparing the above documents on a complimentary basis and shall also provide you with our legal advice relating to the project free of charge.  This means that we would only collect the above charges from the purchasers.  If they decide to appoint their own solicitors, we will continue to act for you without charges.”

This was followed by a further letter two weeks later from the plaintiff setting out his legal fees for conveyancing transactions relating to the non-residential units namely the car parks and shops which concluded in the same vein as the earlier letter:

“As suggested in our previous letter dated 15^th of December 1999, we shall also be responsible for preparing the above documents on a complimentary basis and shall provide legal advice to you relating to the project free of charge.  We shall only collect the above charges from the purchasers.  If for whatever reasons the purchasers decide to appoint their own solicitors, we will continue to act for you without charges.”

6.  The defendant replied on 1 February 2000:

“Re: PSPS Project at Kowloon Inland Lot No. 11076

We are the registered owners of the above lot and the developers of the PSPS project to be erected thereon.

We refer to your letters to our related company, Wai Kee Holdings Limited, dated 15^th December, 1999 and 29^th December, 1999.

We have decided to instruct you as our solicitors for the purpose of effecting the conveyancing of the project flats and non-residential units to purchasers on the terms and conditions as set out in your said letters.

For record purpose, please kindly countersign a copy of this letter if you accept our instruction and confirm you agreement to the said terms and conditions.”

This letter was countersigned by the plaintiff on 8 February 2000.

7.  At the time of the exchange of correspondence, the defendant was a wholly owned subsidiary of Wai Kee Holdings Ltd (“Wai Kee”).  It would be convenient at this point to deal with the subsequent changes of control as regards the defendant.  It would appear from the company search records that by 21 May 2001, Wai Kee had disposed of 49% of the issued share capital of the defendant to the New World Group of Companies (“New World”).  The unchallenged evidence of the plaintiff was that as from September 2001, Wai Kee ceased to be responsible for the development although it held 51% of the issued capital and dealings thereafter were with New World.  On 27 March 2002 Wai Kee disposed of its remaining interest in the defendant (being 51 out of 100 issued shares) to a BVI company known as Asian Reward Development Ltd (“Asian Reward”) whose ownership is unknown.  On 8 August 2003, Asian Reward transferred one of the 51 shares registered in its name to a nominee company of New World so that New World and Asian Reward each owned 50% of the issued capital of the defendant.  Asian Reward was still shown as the registered owner of 50% of the shares as at 21 May 2004 when the registered office of the defendant changed to Sun Hung Kai Centre and Sun Hung Kai representatives were appointed to the board.  It is therefore not impossible that Asian Reward is a nominee company of the Sun Hung Kai Group (“Sun Hung Kai”).

8.  Be that as it may, the plaintiff’s evidence (which was not disputed) was that the letter of 20 February 2004 to Sun Hung Kai Properties Ltd resulted from the plaintiff having been told in February 2004 by representatives from New World with whom the plaintiff had been dealing since September 2001 that Sun Hung Kai had acquired Wai Kee’s remaining interest in the defendant.  It appears to be common ground that by February 2004 each of Sun Hung Kai and New World owned 50% of the defendant although, as noted above, Sun Hung Kai’s acquisition of an interest in the defendant could have been much earlier.  In any event, as from February 2004, Sun Hung Kai was the decision maker for the defendant.

9.  To resume the chronology, on 3 September 2001, the Government announced a moratorium on all sales of HOS flats until the end of June 2002 (“the 2001 statement”).  Nine months later, on 5 June 2002, the Government announced that the moratorium would cease to apply and that the sale of HOS flats would “resume in a cautious and considered manner” and that during the 12 months following the moratorium, two phases of HOS flats totalling 4,984 (details of which were annexed to the statement) would be put on sale (“the June 2002 statement”).  No part of the quota of 4,948 HOS flats was allocated to the residential units in the development.

10.  By then New World which had acquired a 49% interest in the defendant and had taken over the running of the development from Wai Kee was concerned as to the delay in the sale of the flats in the development due to the change in Government policy.  Its Chairman Cheng Yu Tung met with the Chief Secretary in late June.  This was followed by a letter dated 2 July 2002 signed by Mr Cheng on behalf of the defendant to the Chief Secretary floating the idea of a conversion of the development from a PSPS development into a private development together with proposals for the sharing of profits.

11.  On 13 November 2002, the Secretary for Housing, Planning and Lands and delivered a Statement on Housing Policy to Legco to the effect that:

“the production and sale of HOS flats will cease indefinitely from 2003 onwards.  For those HOS flats that are completed or under construction, these will be disposed of through market-friendly means.”

On 26 November 2002 the Housing Authority issued a memorandum elaborating on what this meant:

“9.   Subject to Members’ agreement to accept Government’s request to halt the production and sale of HOS/PSPS flats, we will dispose of the completed and other committed HOS/PSPS flats, estimated to be in the region of 20,000 units, through market-friendly means such as conversion into [Public Residential Housing], service apartments, hostels, re-housing of families affected by Urban Renewal Authority projects, sale to the Housing Society for rental purposes, etc.  The Department will establish a task force to consider all feasible options and coordinate the disposal of these surplus HOS/PSPS flats.”

The statement and memorandum are hereafter collectively referred to as “the November 2002 statement”.  I pause here to observe that any ‘market-friendly’ disposal of the residential units in the development would involve the Housing Authority/Government buying back first which it could be forced to do after the expiration of 20 months from the date of the issuance of the consent for sale.

12.  The consent for the sale of the residential units was given on 20 November 2002, the occupation permit having been granted on 6 August 2002.  On 21 November 2002, the certificate of compliance was issued.

13.  As will become apparent, there were negotiations between the Housing Authority/Government and New World.  These commenced in January 2003 but broke down in March 2003.  Nothing having come of its proposals to Government concerning the conversion of the PSPS development into a private development, the defendant took out proceedings (HCA 2761/2003) on 25 July 2003 against the Housing Authority and the Government for damages for delay in the sale of the flats caused by the change in Government policy.

14.  Having heard from New World that Sun Hung Kai had acquired Wai Kee’s interest in the defendant in early 2004, the plaintiff wrote to Sun Hung Kai on 20 February 2004, inter alia, seeking instructions on the development.  This elicited a reply from one of its group companies referring to their “intended purchase” from Wai Kee, requesting bills for all services rendered by the plaintiff and stating that as they had their own panel of lawyers, the plaintiff’s service was not required.  Upon the plaintiff clarifying its position regarding the agreement dated 1 February 2000 by letter dated 26 February 2004, the defendant wrote on 18 March 2004 stating that the plaintiff’s services were no longer required and requested that bills be issued on a quantum meruit basis.

15.  Unknown to the plaintiff when it wrote the letter dated 26 February 2004, on that very day, a modification letter was issued by Government converting the development from the PSPS development into a private residential development at a premium of $864 million.  It is apparent from the memorandum for the Housing Authority dated 16 February 2004 setting out the background and outcome of the negotiations between the Housing Authority/the Government and the defendant culminating in the conversion (“the 2004 memorandum”) that had the dispute not been settled with the defendant, in addition to facing a claim for damages, the Housing Authority would have had to come up with over $1.9 billion, that being the guaranteed purchase price of the residential units for which it was contractually liable under the grant.  It is to be noted that despite the reference in the November 2002 statement to disposal through ‘market-friendly’ means, according to the 2004 memorandum the Housing Authority/Government did not consider that those flats could be disposed of through ‘rational’ means.  The 2004 memorandum referred to the Government commencing preliminary negotiations with the developer in January 2003.  However, it made no reference to the meeting in late June 2002 referred to in paragraph 10 above or to the defendant’s letter to the Chief Secretary of 2 July 2002.

16.  After receipt of the termination of its retainer, the plaintiff accepted the repudiation and eventually issued the writ in the present proceedings in October 2004.

The proceedings below

17.  The matter came before the judge on the defendant’s application for judgment pursuant to Order 14A or alternatively for striking out under Order 18 rule 9.  The summons sought the determination of the court as to whether the agreement contained the implied term as pleaded in paragraph 5 of the statement of claim:

“5.   It was also an implied term of the Agreement based on the mutual intention of the parties or as a matter implied by law or to give the same business efficacy that the Defendant would not terminate Ko and Co.’s retainer so as to deprive Ko and Co. of the opportunity of earning its fees arising out of the sale and purchase of the residential units and the non-residential units of the Development.”

18.  The judge considered that it would be appropriate for him to entertain the Order 14A application on the ground that there was no dispute on the facts such as would require adjudication after hearing viva voce evidence.  He said:

“16.   The terms of the contract are in writing and fairly clear.  Also the announcements made by the Hong Kong Government are in the public domain and can be readily understood.”

He proceeded to hear the application on whether or not the agreement contained the implied term as pleaded and found in favour of the plaintiff, holding that the defendant should be held to its bargain.  He then went on to consider the question of frustration and found that the agreement had indeed been frustrated in November 2002 when the Government announced the termination of PSPS and that the sale of HOS flats would cease indefinitely from 2003 onwards.

This appeal

Order 14A and the implied term

19.  The first question which arises is whether the construction of the agreement, specifically, the existence or otherwise of the implied term, is a matter that was suitable for determination without a full trial of the action under the Order 14A procedure.  As noted above, the judge was of the view that no dispute of fact was involved.

20.  At the hearing below, the plaintiff’s position was that in the present case the interpretation of the agreement and a determination of its terms were fact-sensitive and therefore not matters that were suitable for summary disposal.  Mr Chan SC who appeared for the plaintiff maintained that position before this court.  Not surprisingly, Mr Yu SC who appeared for the defendant took an opposing view.  He submitted that as the agreement was in writing (consisting of a short series of correspondence) and as it was not being alleged that there were any oral terms that could add to the contract, then provided this court is satisfied that all matters relevant to the construction of the agreement are before it, there is no reason why the true construction of the agreement is not a matter suitable for summary disposal.

21.  What can be gleaned from the correspondence set out in paragraphs 5 and 6 above is that the plaintiff undertook to provide legal services on a complimentary basis to the defendant relating to the development which was of a considerable size.  The services envisaged included legal advice on the development and all related conveyancing involved for the defendant in respect of the non-residential as well as the residential units.  The plaintiff’s reward lay in the fees that would accrue to it from third parties, namely from purchasers of the flats and commercial units engaging the plaintiff to act for them which, in the normal course of events, would not happen until a considerable time after the date of the agreement and after a great deal of work had been done for the defendant for which the defendant would not have to pay.  So far as the plaintiff was concerned, the defendant’s obligation was to give the plaintiff the opportunity to earn his commission by acting for the purchasers.  The defendant viewed its contractual obligations differently and considered that it was to procure the purchasers to engage the plaintiff as their solicitor in the purchase of the units in the development although in the course of the hearing a watered-down version, namely, limiting the obligation to not putting the purchasers off instructing the plaintiff, was floated as an alternative.

22.  The implied term as pleaded by the plaintiff raises the issue of the ability of the defendant to terminate the plaintiff’s retainer under the agreement.  The plaintiff contended that under the agreement he was to be given the opportunity to earn his remuneration by acting for the purchasers of the development, be it PSPS or not.  The defendant’s stance was that on its true construction the agreement was limited to a PSPS development and the defendant’s contractual obligations under the agreement came to an end when the November 2002 statement announced the indefinite suspension of the sale of HOS flats.  It was said that from the date of that statement onwards, there was simply no PSPS buyer on the horizon and, viewed realistically, none would materialize.

23.  The agreement although in writing was not a formally drawn document.  Rather, it consisted of four brief letters addressing the broad parameters of the engagement involving a solicitor-client relationship in a project for the development of land that, on any view, was to subsist for a considerable period of time.  It can be gleaned from special condition (6)(a) of the grant that the development had to be completed and made fit for occupation within 32 calendar months from the date of possession but there was no evidence as to whether the plaintiff had had sight of the grant at the time of the correspondence.  Although the plaintiff would not be remunerated by the defendant, at least not directly, for the legal services he had undertaken to provide in relation to the development, his reward would come much later with undertaking conveyancing work for the purchasers.  Whilst the purchasers were not obliged to instruct the plaintiff, and in that sense the plaintiff was assuming a risk, his expectation from past experience was that he would be instructed by as much as 95% of the purchasers. 

24.  It was in this context that the judge had to determine whether the existence or otherwise of the implied term was appropriate for summary disposal.  Given the brevity of the letters, not surprisingly, many contingencies that could arise in this relationship were simply not alluded to or addressed.

25.  Apart from the issue of the client’s ability to terminate the solicitor’s retainer, the implied term as pleaded raises another issue and that is whether the agreement was contingent or conditional on the development being a PSPS development.  That again would depend on the true construction of the agreement but it was not an exercise that appeared to have been undertaken by the judge in the context of deciding the implied term issue although in the context of frustration (which he went on to consider), he came to the conclusion that the fact that the development was a PSPS development “went to the very root of the subject matter of the contract”.

26.  Mr Yu SC submitted that the parties must have been contracting on the basis of PSPS for if it were a private development, there would be no constraints on the defendant as to what it should do with the development.  It would not be under any obligation to sell the residential units: it could decide to lease them in which event the plaintiff would receive no remuneration.  Even assuming Mr Yu SC’s contention to be correct that the agreement, properly construed, was confined to the development being a PSPS development, that would not necessarily be the end of the matter.  Although the defendant considers that its contractual obligations were limited to procuring the purchasers of the HOS flats to engage the services of the plaintiff or, at a minimum, not to positively discourage them from so doing, if the agreement were to cease to have any effect upon the development ceasing to be a PSPS development, I can well see that an argument could be raised that implicit in such an agreement is an obligation on the defendant not to do any act that would put the status of the development as a PSPS development in jeopardy and or to alter or affect that status.

27.  It is well settled that the court must construe a written agreement in the light of the circumstances surrounding its making.  What this means was explained by Lord Wilberforce in his speech in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995H-996A:

“No contracts are made in a vacuum: there is always a setting in which they have to be placed.  The nature of what is legitimate to have regard to is usually described as ‘the surrounding circumstances’ but this phrase is imprecise; it can be illustrated but hardly defined.  In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

His conclusion (at 997C) was this:

“…what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were.”

28.  There is no conceptual limit to what can be regarded as background.  It includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man and which he would have regarded as relevant save that previous negotiations of the parties and their declarations of subjective intent are excluded.  See Investors Compensation Scheme v West Bromwich Building Society [1998] 1WLR 896 at 912H-913A and BCCI v Ali [2002] 251 at para. 39.  Evidence of background that is admissible is limited to objective facts.  

29.  It is to be noted that at the relevant time the defendant was owned and controlled by Wai Kee.  Philip Kwong, its then general manager, conducted the correspondence on behalf of the defendant with the plaintiff.  What admissible background facts were within the knowledge of those in the position of the defendant at that time is not known as there is no evidence from Mr Kwong or other officer involved.  Nor is there any evidence of Wai Kee’s knowledge or experience of PSPS developments (which were introduced as far back as 1977) or of the scope and extent of its business in property development.

30.  There is evidence filed by the plaintiff evidence concerning “practice and custom” in support of the implied term.  The defendant has put that in issue by filing evidence regarding “the common or customary practice for the first-hand sale of property in new private developments” to the effect that “by and large” purchasers would not be required to pay legal costs for the agreement or assignment.  However, the defendant’s evidence appears to be based on the practice of New World and Sun Hung Kai.  At the very least, the deponent was not seeking to speak on behalf of other developers such as Wai Kee.  I make a reference to this because although there is no reference in the pleadings to ‘practice and custom’, it is not a new point and it would be open to the plaintiff to seek leave to amend its pleading if so advised.  That factual issue needs to be resolved and that can only be done at trial.

31.  At this stage, I am far from satisfied that all relevant facts are before this court for the summary determination of the implied term or of the parties’ respective contractual obligations under the agreement.  For my part, I have no hesitation in concluding that this is a matter that should go to trial.

Frustration

32.  The relevant test for a deciding whether or not a contract has been frustrated is to be found in Lord Simon’s speech in National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 at 700F:

“Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.”

33.  So there must be three elements: (1) the supervening event must very significantly change the nature of the outstanding obligations; (2) such changes must be outside what the parties could reasonably have contemplated at the time of the agreement; and (3) it would be unjust to hold them to the bargain in the new circumstances.  Logically, until the agreement has been construed and the parties’ respective obligations under it determined, it would be premature to consider the question of frustration.  If, therefore, the parties’ obligations can only be determined at trial, it would hardly be appropriate for the court to decide whether or not the agreement had been frustrated at this stage.

34.  There are further reasons why frustration cannot be decided on a summary basis.  Given the events outlined in paragraphs 9, 10, 13 and 15 above, whether the frustrating event was “self-induced” is another relevant consideration.  There are significant deficiencies in the evidence since, apart from the letter of 2 July 2002, such evidence as there is comes from Government announcements only.  There is no direct evidence from the defendant about this.

35.  Finally, there is the question of the relevance of the parties’ conduct since November 2002 even on the hypothesis that the November 2002 statement constituted the supervening event.  Mr Chan SC referred to the following passage in the speech of Lord Roskill in Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 which concerned a strike making it impossible to load cargo and its effect on the charterparty.  At 754A-C Lord Roskill said:

“It was argued that both parties had treated the contract as a going concern throughout the summer and early autumn of 1979 [i.e. after the supervening event], and that by allowing the respondents to use the ship for their own purposes in August and September 1979, the charterers had shown how anxious they were to maintain the 1979 adventure in being.  It was argued that there was no change in that position by the time the arbitration was held on September 26, 1979.

            “My Lords, these are powerful arguments.  I see nothing to suggest that the arbitrator did not consider them carefully.  In my judgment he made his findings of fact with reference to considerations of that kind, and he duly reached his conclusion.  Another arbitrator might have reached a different conclusion for clearly there were many points which had to be taken into consideration both ways.  But I am quite unable to say that the conclusion which Mr. Davies reached was one which he was not, on the facts which he found, fully entitled to reach.”

It supports Mr Chan’s submission that the parties’ conduct after the event said to frustrate the agreement cannot be ruled out as being irrelevant.

36.  For these reasons, I would allow the appeal, and order that the judgment below be set aside.  Suitable directions no doubt can be agreed for the future conduct of the case.  I would also propose that there be an order nisi of costs both here and below in favour of the plaintiff.

Hon Stone J:

37.  I have had the advantage of reading in draft the judgment of Le Pichon JA.

38.  In deference to the argument I wish to add a few words of my own.

39.  Faced with that which the defendant clearly considers to be a wholly unmeritorious claim, there is always a strong desire to land a clear-cut ‘knock out’ blow at the interlocutory stage.

40.  The instances in which this properly can be achieved, however, are, few and far between, and the majority of attempts achieve no more than a signal waste of time and costs when better would have been to have driven the case to trial as quickly as possible.

41.  Consistent with this view I confess that when I read these papers it struck me that there was a strong argument that this case should be permitted to proceed to trial in normal course; against this backdrop, it is perhaps testament to the persuasive powers of Mr Benjamin Yu SC, appearing on behalf of the defendant/respondent, whose attractive address made some headway towards justifying the favourable result he had achieved in the court below.

42.  At the end of the day, however, I agree with Le Pichon JA that in all the circumstances this is not a case susceptible to such summary determination.

43.  On behalf of the plaintiff/appellant, at the outset of this appeal Mr Edward Chan SC informed this court that he had submitted below that this was not a suitable case to embrace an application for an Order 14A determination, and in my judgment, in the circumstances prevailing, he was correct to have taken that view.

44.  The question posed pursuant to the defendant’s Order 14A application before the learned judge below focused on the presence of an implied term (in terms as pleaded within paragraph 5 of the Statement of Claim) within the retainer agreement, and, if such question was to be answered in the negative, that the plaintiff’s claim should be dismissed and the defendant thus be permitted to enter judgment.

45.  In this regard Mr Yu’s attractive submission was that the learned judge seized with this application, and, for that matter, on appeal this court also, was in as good a position as any trial judge ultimately would be likely to be to decide the issue of the implied term; what else, he asked rhetorically, was needed to determine the point, save to construe the pleading and the relevant correspondence said by the plaintiff to have comprised the contractual retainer?

46.  Moreover, said Mr Yu, if he was able to get home on the implied term point he would have no need of the ‘frustration issue’, which had been argued under the parallel Order 18, rule 19 application which also was before the court on the application below.

47.  As to this he was of course correct.  The implied term is the key to this case; as presently pleaded, absent such implied term the plaintiff’s case in contract falls at the first hurdle, subject always to any residual quantum meruit argument.

48.  The problem, however, is that notwithstanding Mr Yu’s persuasive efforts to convince to the contrary – I have in mind in particular his submission that the defendant now is seeking to convert a PSPS retainer into one of “general application”, and thus, as he put it, “to get the benefit of that” – in my view it presently is not sufficiently clear or certain (or plain and obvious) whether this solicitor’s retainer indeed was so limited to a PSPS development, and, in light of the conclusion on the point, what were/are the  practical consequences for the aggrieved plaintiff.

49.  Accordingly, the issue of the true contractual ambit is not something which, without more, safely can be gleaned merely on the face of the existing papers; as Le Pichon JA has emphasized, the court must construe an agreement in light of the circumstances prevailing when it was made, and whether the retainer could be so impliedly limited or ‘conditioned’ in these circumstances is a matter best left to the trial judge to evaluate in light of all the evidence as ultimately is placed before him.

50.  Whilst I have a degree of commercial sympathy for Mr Yu’s submissions – he pointedly has asked for an order that this appeal be dismissed, but not the action itself, and further, if thought appropriate, that leave should be given to the plaintiff to amend the Statement of Claim to plead an additional quantum meruit claim, the intrinsic merit of which his client recognises, and is the subject of an offer to the plaintiff – I am driven to the conclusion that this Order 14A application should not have been acceded to on the application below.

51.  Tempting as it must have been to proceed thus, ultimately this is not a matter which lends itself to summary disposition; the fact that in his argument Mr Yu expressly recognized that there exists an alternative cause of action open to be pleaded by the plaintiff and which, absent agreement or settlement thereon, may result in the necessity for trial underscores the principle that the trial judge is not to be constrained by an Order 14A determination, which attracts the status of res judicata, as to the existence of such alleged implied term.

52.  Within the context of the implied term argument, the defendant’s alternative application to strike out under Order 18, rule 19 is the logical obverse of the Order 14A application; as goes the ‘implied term decision’ so must go the like point raised pursuant to the strike out application.

53.  In this latter connection, however, Mr Yu had another string to his bow.

54.  As he had successfully submitted at first instance, Mr Yu argued that the retainer contract had been ‘frustrated’ by reason of the change in November 2002 Government policy, the promulgation thereof being cumulatively referred to by Le Pichon JA as ‘the November 2002 statement’.

55.  It was this frustration argument which had held sway with the learned judge on the hearing of this application, who, after deciding in the plaintiff’s favour on the ‘implied term’ issue, nevertheless concluded (at paragraph 53 of his judgment) “that the contract between the parties was indeed frustrated”, and as a consequence decided to grant summary judgment to the defendant.

56.  With respect, it seems to me that, at the least, to conclude thus was inappropriate at the interlocutory stage.

57.  The construction of the relevant contract, as found, forms the necessary precursor to any consideration of frustration; this dictates that the matter now proceed to trial for there to be a specific finding as to the scope of the retainer (Mr Chan submits that there can be no question of frustration even if the terms of the retainer are to be limited to a PSPS development), and thereby, in light of such finding, to enable the trial judge to rule upon the factual applicability of the frustration test adumbrated in Lord Simon’s celebrated speech in National Carriers Ltd v. Panalpina Ltd, op cit.

58.  If this be correct, clearly it would be neither appropriate nor helpful  for this court now to say anything more about the merits of the frustration issue, and thus it follows, for the purpose of this appeal at least, that Mr Yu’s “belt and braces” frustration argument similarly must be rejected.

59.  In my judgment, the plaintiff’s appeal must succeed, and I respectfully agree with the terms of the Order as proposed by Le Pichon JA.

Hon Rogers VP:

60.  There will therefore be an order in terms of paragraph 36.