XCHRX YUEN KWOK KEE and Another v. LO SAI WAH and Another

1995 No. A12704

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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INTRODUCTION

1. This is an appeal from the dismissal by Master Cannon on 15th October of the Defendants' summons to strike out the Plaintiffs' Statement of Claim. The summons sought the striking out of the Statement of Claim on the grounds that

(a) the Statement of Claim discloses no reasonable cause of action;

(b) the Statement of Claim is frivolous; and

(c) the Statement of Claim prejudices, embarrasses or delays the fair trial of the action.

2. However, having read the Defendants' outline submissions, it was plain to me that the only ground relied upon was that the Statement of Claim discloses no reasonable cause of action. That was realistically confirmed to me today by Mr. Martin Liao for the Defendants. No evidence is admissible when it is claimed that a Statement of Claim should be struck out on the ground that it discloses no reasonable cause of action. Accordingly, I had not read any of the six affirmations filed in support of, and in opposition to, the summons from which this appeal is brought.

THE PLAINTIFFS' PLEADED CASE

3. The Plaintiffs' pleaded case is that by an agreement in writing dated 24th March 1994 the 1st Defendant agreed to sell a flat in Tai Sun Back Street, Cheung Chau, to Liu Chau Fu for $1m. They orally agreed at the time that the flat could be assigned either to Mr. Liu himself or to members of his family depending on what arrangements were made with the bank which was going to finance the purchase. Various sums totalling $350,000.00 were paid to the 1st Defendant by way of deposit and part- payment towards the price of the flat.

4. On 13th September 1995, a second agreement in writing was entered for the purchase of the flat. Under that agreement, the Defendants agreed to sell the flat for $1m. to the Plaintiffs. The 1st Plaintiff is Mr. Liu's brother-in-law, and the 2nd Plaintiff is the 1st Plaintiff's sister. Mr. Liu consented to the flat being sold to them in his place. The date fixed for completion of the sale was 31st October 1995. But when the date for the completion of the sale arrived, the Defendants refused to sell the flat to the Plaintiffs, and they denied the validity of the second agreement. Other repudiatory breaches of the second agreement by the Defendants are also alleged. The Plaintiffs accepted the Defendants' repudiatory breach of the second agreement, and they claim (a) the return of the $350,000.00, and (b) damages for breach of the second agreement. Damages are claimed under two heads of loss: the Plaintiffs have not had the use of either the $350,000.00 or the flat since the date when the sale would have been completed, and they have incurred wasted legal costs in connection with the sale.

5. Although the Statement of Claim does not make it clear, the claims for the return of the $350,000.00 and for damages for breach of the second agreement must be alternative claims. Damages for breach of contract are designed to put a plaintiff into the position in which it would have been if the contract had been performed. The claim for the return of the $350,000.00 is based on the Plaintiffs' wish to be put into the position in which they would have been if they had not agreed to buy the flat in the first place. It is a claim, therefore, for the return of money paid on a consideration which has wholly failed. That part of the claim for damages which relates to the Plaintiffs' complaint that they have been deprived of the use of the $350,000.00 is in the same category. It is in effect a claim for interest on the restitutionary claim for the $350,000.00.

THE ATTACK ON THE STATEMENT OF CLAIM

6. The Defendants' attack on the Statement of Claim is not so much that the Statement of Claim does not disclose a reasonable cause of action. A cause of action for breach of the second agreement is clearly pleaded. What is alleged is that, on the pleaded facts, there is no basis on which the Plaintiffs can claim either the return of the $350,000.00 or damages, and therefore their claim has to be limited to a claim for a nominal sum only.

THE RETURN OF THE $350,000.00

7. In relation to the return of the $350,000.00, the point taken by the Defendants is that the Plaintiffs cannot claim that sum from the Defendants because the $350,000.00 was paid

(a) by Mr. Liu, not by the Plaintiffs,

(b) to the 1st Defendant, not to the Defendants, and

(c) under the first agreement, not the second.

Accordingly, the $350,000.00 could only have been claimed, it is said, by Mr. Liu from the 1st Defendant under the first agreement.

8. I cannot go along with that argument. The $350,000.00 can be claimed by the Plaintiffs against the Defendants under the second agreement if the effect of the second agreement in law was to treat the $350,000.00 as having been paid by the Plaintiffs to the Defendants under the second agreement. As it is, the Plaintiffs pleaded in para. 7 of the Statement of Claim that that was the effect of the second agreement. Para. 7 reads:

" It is a further implied term of the Second Agreement that the sum of $350,000.00 paid by Mr. Liu and/or his family members and received by the 1st Defendant was to be set off against the purchase price of the Second Agreement, and became the deposit and part payment from the Plaintiffs to the Defendants under the Second Agreement."

9. Mr. Liao attacks para. 7 on a number of fronts:

(i) He points out that "set off" is only available in respect of debts due between the same parties. That is true, but it is not to the point. What Mr. Liao was referring to was the defence of "set off". The words "set off" in para. 7 of the Statement of Claim do not refer to the defence of "set off" at all. They refer to an agreement which is alleged to have been reached between the Plaintiffs and the Defendants that the Plaintiffs needed only to have paid a further $650,000.00 for the flat because they would be treated as having already paid $350,000.00 towards it.

(ii) Mr. Liao points out that Mr. Liu was not a party to the second agreement. Since he is not bound by its terms, it would be open to him to sue the 1st Defendant for the return of the $350,000.00. However, on the facts pleaded in the Statement of Claim, Mr. Liu would in fact have been bound by the terms of the second agreement. The facts pleaded in the Statement of Claim amount to a collateral agreement between Mr. Liu and the 1st Defendant that in the event of the owners of the flat agreeing to sell the flat to members of Mr. Liu's family, Mr. Liu would not himself seek to recover the $350,000.00 already paid to the 1st Defendant.

(iii) Mr. Liao claims that there is no basis for implying the term pleaded in para. 7 of the Statement of Claim. It is true that the facts and matters relied upon to support the alleged implication are not pleaded, but that is not a ground for striking out a Statement of Claim under Ord.18 r.19. It is only a ground for seeking particulars under Ord.18 r.12.

THE ENFORCEABILITY OF THE SECOND AGREEMENT

10. Mr. Liao argues that there is an additional reason why neither of the claims in the Statement of Claim can stand. That is because both the claims in the Statement of Claim can only succeed if the second agreement was capable of being enforced. It would only have been capable of being enforced if the first agreement had been cancelled. The first agreement, he submits, was not cancelled. That is because section 5(1)(a) of the Conveyancing and Property Ordinance (Cap.219) provides that no equitable interest in land can be disposed of except in writing signed by the person disposing of it or his agent. Since Mr. Liu had an equitable interest in the flat by virtue of the first agreement, and since there is no averment in the Statement of Claim that he signed any document disposing of that interest, his interest in the flat remains, and it therefore could not have been sold to the Plaintiffs under the second agreement.

11. That argument equates Mr. Liu's inability to dispose of his equitable interest in the flat otherwise than by writing with the cancellation of the first agreement. I do not think that that equation is necessarily correct. It is at the very least arguable that the survival of Mr. Liu's equitable interest in the flat by virtue of section 5(1)(a) does not mean that the agreement which created that interest cannot be treated as having been cancelled. Once that is regarded as arguable, no question of the striking out of the claims in the Statement of Claim can arise. Since no particular form is required for cancelling an agreement, the cancellation of the first agreement can be implied from the conduct of the parties. The facts pleaded in the Statement of Claim are sufficient to warrant in law the conclusion that Mr. Liu and the 1st Defendant cancelled the first agreement. Of course, the survival of Mr. Liu's equitable interest might have meant that the Defendants were not able to convey the flat to the Plaintiffs, but as I have said it is arguable that that does not prevent the first agreement from being regarded as having been cancelled. It is well-known that it is only in plain and obvious cases that recourse should be had to the summary process of striking out under Ord.18 r.19. I do not think that the correctness of Mr. Liao's argument is so plain and obvious that I should strike out the Plaintiffs' claim.

CONCLUSION

12. For these reasons, I think that Master Cannon was correct to dismiss the Defendants' summons, and this appeal must therefore be dismissed.

(After further argument)

13. The Defendants' summons first came before Master Cannon on 20th May. By that time, the Defendants had filed evidence in support of the summons. The Plaintiffs' evidence in reply was served so soon before the hearing on 20th May that the Defendants applied for an adjournment to consider it. Master Cannon granted the Defendants that adjournment, and ordered the Plaintiffs to pay the Defendants' costs of the hearing. However, it was only subsequent to that, i.e. during the substantive hearing of the summons, that the Plaintiffs' solicitors discovered that the relief being sought on the summons would be limited to a ground on which evidence is inadmissible. Had Master Cannon known that the subsequent stance of the Defendants was going to make the evidence inadmissible, I do not suppose that she would have granted the adjournment, and she would not have made the Plaintiffs pay for it. Against that, it is said that it was only because of the contents of the Plaintiffs' evidence that the Defendants decided, once they had had the opportunity to consider it without the pressure of an imminent hearing, to limit the grounds on which they were going to seek relief to the failure of the Statement of Claim to disclose a reasonable cause of action.

14. In all the circumstances of the case, and with the advantage of hindsight which is the one thing which Master Cannon did not have, I think that the appropriate order as to the costs thrown away on 20th May should be in the cause. For those reasons, I grant the Plaintiffs leave to appeal out of time from Master Cannon's order of 20th May, I order that the Plaintiff's obligation to file a Notice of Appeal be dispensed with, I allow the appeal, and I vary para. 5 of the order of 20th May so as to provide that the costs of the hearing on 20th May be in the cause with certificate for counsel.