XCHRX JAPAN LIFE ASIAN LTD. v. TSANG SZE CHUNG and Others

1995, No. A571

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. In a summons dated 21 April 1995, the plaintiff asks for an order that a consent summons dated 20 April 1995 "be withdrawn on the grounds that the plaintiff's solicitors endorsed it as a result of a misrepresentation and material non-disclosure by the second named defendant's solicitors."

2. In a summons dated 27 April 1995, the second named defendant claims an order that, the matter having been settled between him and the plaintiff, that all further proceedings be stayed save for the purpose of carrying the settlement into effect.

3. There is also a summons dated 25 April 1995 in which the plaintiff asks for an extension of time in which to file defence to the second named defendant's counterclaim. This only arises if the action is to continue. If this is the case, Mr Houghton indicated that the extension requested was not opposed.

4. The plaintiff commenced action against the defendants by writ of summons dated 18 January 1995. The plaintiff claimed over $6 million in respect of payments received by the defendants on behalf of the plaintiff in respect of the sale of certain goods. It also claimed other relief. The second named defendant filed a defence and a counterclaimed for payment of a sum nearing $2 million.

5. On the same day, the plaintiff obtained a Mareva injunction against the defendants. Part of the order required the defendants to disclose "the full value of their respective or joint assets within the jurisdiction . . . identifying with full particularity the nature of all such assets and their whereabouts . . . such disclosures to be verified by affidavits . . .". This order was varied on 25 January 1995 to allow the release of some money to the defendants.

6. On 21 January 1995, the second named defendant filed an affidavit disclosing "all my assets". He said that "I do not have any other accounts or valuable assets . . .". On 1 April 1995, the second named defendant filed another affidavit, explaining his financial difficulties and asking for leave to sell his motor car.

7. In his affirmation dated 25 April 1995 filed in support of the plaintiff's application "for the consent summons . . . to be withdrawn", the plaintiff's solicitor says that this consent summons applied for an order that the second named defendant pay a lump sum of $400,000 to the plaintiff and that the plaintiff's claim be discontinued. He says -

"The plaintiff now wishes to withdraw the consent summons because it has discovered the following -

i) the second named defendant, when disclosing his assets pursuant to the Order . . . failed in contempt of Court, to disclose a major asset, namely a chose in action in the form of a claim against the firs named defendant herein arising out of the alleged misappropriation by the first named defendant of partnership funds . . .

ii) the second named defendant's solicitors may have made a misrepresentation followed by material non-disclosure in respect of the second named defendant's assets."

8. The affirmation exhibits the correspondence by which the settlement was reached. This commences with a letter marked "Without Prejudice" dated 21 February 1995 from the second named defendant's solicitors. This letter is three pages long. It explains the second named defendant's position in the partnership and his attitude to the plaintiff's claim. From the foot of the second page, the letter says -

"As we believe you are aware, our client's partner has misappropriated a considerable sum of partnership funds and we are instructed that out client only came to know of this misappropriation at the beginning of October 1994. After much discussions between the defendants, Stephen Tsang still could not come up with a satisfactory solution of how to reimburse the partnership. Thus, our client resigned from the partnership on 10 October 1994 and has commenced legal proceedings in January 1995 for the recovery of the money misappropriated.

Our client has not had any direct contact with Stephen Tsang since late last year. However, at the time of our client's resignation, he was assured by Stephen Tsang that he would resolve the matter to the satisfaction of the parties.

In the circumstances, it is clear that our client is also a "victim" and as appears from our client's affidavit of means, it is unlikely that your clients would recover any substantial amount from our client. Moreover, our client's remaining assets will soon be used up for legal costs and living expenses."

9. The letter then went on to make an offer of settlement involving a payment of $400,000 in 18 equal monthly instalments.

10. The plaintiff's solicitor says that the second named defendant's solicitor telephoned him on 23 February and asked his reaction to the settlement offer. He says he said that the offer was very low. The second named defendant's solicitor said that "his client simply does not have any money". The plaintiff's solicitor pointed out that "even if he does not have money at the moment, it is possible that he will have money in the future." "I went on to state that the second named defendant might inherit some money or win the 'Mark 6'". The second defendant's solicitor responded "by saying in a sardonic tone that I was very optimistic". The plaintiff's solicitor says that "The clear, deliberate and unambiguous implication was that contrary to my suggestion there was no likelihood whatsoever that the second named defendant would receive a valuable asset in the foreseeable future or that one of his existing assets might crystallise to provide funds."

11. In the attendance note prepared by the plaintiff's solicitor in relation to this conversation, the plaintiff's solicitor records that "I pointed out that although Justin Ng may feel a victim, he was a partner . . ." His use of the word "victim" in the context must have made it clear to a listener that he had read the letter of 21 February 1995.

12. On 24 February 1995, the plaintiff's solicitor wrote to the second named defendant's solicitor rejecting the second named defendant's offer in terms that made it appear that the writer had read the letter of 21 February 1995.

13. On 13 April 1995, the plaintiff's solicitors wrote to the second named defendant's solicitors "without prejudice" saying that they were instructed to settle the matter by the second named defendant paying $500,000 to their client.

14. On the same day, the second named defendant's solicitors replied "without prejudice" making a counter-offer of $400,000 payable within 21 days.

15. On 20 April 1995, the plaintiff's solicitors responded "without prejudice" saying that - "In view of the fact that your client appears to have very limited assets, we have been instructed to accept the settlement offer contained in your letter. Accordingly, we enclose the agreed consent summons and letter from your client."

16. The consent summons asks for an order by consent that upon payment of the amount agreed, the plaintiff's claim be discontinued and barred and other relief. It is signed by the plaintiff's solicitors. It was also "endorsed by the second named defendant and was filed at Court just before 4:00 p.m. on 20 April 1995." The plaintiff's solicitor says that shortly after this, as a result of a Land Registry search, he discovered that the second named defendant had obtained a charging order against the first named defendant and this had been registered in priority to a charging order in favour of the plaintiff. He goes on to say that the second named defendant did not disclose his claim against the first named defendant in his affidavits made as directed by the Mareva order. He says that, prior to the Land Registry search, he did not know that the second named defendant had commenced proceedings against the first named defendant, and goes on to claim that, in fact, the second named defendant's solicitor misrepresented the position to him in oral exchanges.

17. There are no surprises in the affirmation of the second named defendant's solicitor in response. He points out the obvious; that the plaintiff's solicitors were told of the proceedings by their client against the first named defendant quite specifically. He suggests that what the plaintiff is really peeved about is that the second defendant registered his charging order in priority to that of the plaintiff.

18. The plaintiff's solicitor filed another affirmation on 2 May 1995. Unfortunately, this affirmation does not explain clearly why the disclosure in the letter of 21 February 1995 was ignored, although there is, perhaps, a hint that it was overlooked or was too sketchy. If, of course, the plaintiff's solicitors wanted further information about the proceedings, they could have asked. They did not do so.

19. Mr Whitehead says that I cannot make a consent order because the plaintiff does not consent. Whatever may have been the position before the hearing, Mr Whitehead made it perfectly before me that the plaintiff no longer consents to an order. It is, of course, quite clear that I cannot make a consent order if the parties do not consent to it, and that means consent to it at the time of the making of the order. The cases cited to me in this context are not relevant. There the question was whether or not a party could withdraw a consent to a consent order after the order had been made but before it was perfected. That is not the situation here. In any event, of course, the defendant is not asking me to make an order by consent; it is asking me to stay the proceedings because the action has been settled.

20. It is, perhaps, convenient at this point to deal with a letter written by the plaintiff's solicitors to the second named defendant's solicitors dated 29 April 1995. This letter refers to the letter by the second named defendant's solicitors dated 21 February 1995 in which the proceedings against the first named defendant were disclosed, and says that, in view of this, they wish to withdraw their summons so that the consent summons may proceed. The letter makes a proposal regarding costs. There was argument as to whether or not this letter was privileged, although it was not marked "without prejudice". I do not think it much matters. The only relevance of the letter is to show that the plaintiff again consented to the order, but, as I have said, I cannot make a consent order unless it is by consent, and it cannot be by consent if one of the parties tells me it does not consent at the time I am asked to make it.

21. There is no doubt that the plaintiff and the second named defendant reached an agreement under which their dispute was settled. I have to decide if this was a binding and enforceable agreement. The plaintiff suggests it was not because of mistake, misrepresentation and material non-disclosure. The mistake, which is said to be that the plaintiff did not know that the second named defendant was taking proceedings against the first named defendant, cannot possibly be a ground for rendering the agreement unenforceable. In any event, I am not at all sure that it can be said that the plaintiff did not "know" of this fact. It is clear that the plaintiff's solicitor read the letter in which this fact was disclosed; he refers to it and quotes from it. He says it was only "half a sentence", but this is not so. The situation facing the second named defendant is described in some detail over three paragraphs. It can only be that he did not pay particular attention to it because he thought it was unimportant. The probability is that he realised that the proceedings by the second named defendant against the first named defendant were of some importance to his client only when he became aware that the second named defendant had a charge ranking in priority to his client's charge. Certainly, this is not the kind of mistake recognised by the law or equity as sufficient to enable a person to avoid the consequences of an agreement seriously entered into. There was, equally, no misrepresentation by the second named defendant or his solicitors. This allegation is totally unfounded. The plaintiff places great emphasis on the fact that the second named defendant did not disclose the chose in action in his affidavits as to his assets. It is so that he did not do so, but the purpose of these affidavits is to identify assets that may be dissipated. It is not surprising that, with this is mind, the second named defendant and his advisers were not conscious of the need to mention an asset that, certainly at that stage, could not have been disposed of. The fact that the second named defendant was not making any attempt to conceal this asset is abundantly proved by the fact that, contemporaneously, he disclosed it quite clearly to the plaintiff in the letter of 21 February 1995. In so far as the plaintiff relies on conversations with the second named defendant's solicitor, it must be so that the solicitor was entitled to assume that the plaintiff's solicitor had read the letter in which it was expressly mentioned that the second named defendant was taking proceedings against the first named defendant, especially when that letter is referred to by the plaintiff's solicitor and he quotes from it. In these circumstances, how can it possibly be suggested that the second named defendant's solicitor was misrepresenting the position? In my view, there can be no question here that there was any misrepresentation in this case.

22. There is also some suggestion that the plaintiff's solicitors signed the consent summons because of some material non-disclosure by the second named defendant's solicitors. There is, of course, no duty of disclosure during negotiations for the settlement of this sort of action, but, so far as it may be relevant, I reject the allegation that there was such non-disclosure on the same basis as I reject the suggestion of misrepresentation.

23. I conclude, therefore, that the settlement reached between the parties is binding and enforceable. But how is it to be enforced? Mr Whitehead says that the defendant may rely upon it in the proceedings, but this seems to me to be very unsatisfactory. The matter has been settled. Am I to allow the matter to proceed, with further costs incurred, when the proceedings should be brought to an end?

24. Mr Whitehead cites the decision in the case of McCallum v Country Residences Ltd [1965] 2 All E.R. 264 as authority for the proposition that I have no jurisdiction to make a Tomlin order in the absence of consent to make the order, as distinct from consent to the settlement agreement. But that case is different from this one. In McCallum, Lord Denning, M.R. said - "In the absence of a consent to the order, as distinct from a consent to the agreement, I do not think the court has jurisdiction to make an order. . . . Of course, if there could have been found a consent to the order being made, it would be a different matter. But there was none." Danckwerts, L.J. dissented because he thought there was an implied consent to a Tomlin order. Winn, L.J. differed from Danckwerts, L.J. because he did not think that there was "a common intention that a Tomlin order should be entered into." The judges were referring to a consent to the order being made earlier than the hearing because, at that hearing, it was expressly said that the defendants did not consent to the order. As I read this decision, all three of the judges believed that, if in addition to the settlement agreement, there was an agreement that the settlement should be embodied in an order of the court, this would be done.

25. In the case before me, there was, of course, a clear consent to an order in the nature of a Tomlin order, signed by the solicitors for both parties.

26. So, it seems to me, that the course I propose to adopt is not only in accord with common-sense, but also with high judicial authority.

27. There will be an order in terms of the second named defendant's summons dated 27 April 1995. The plaintiff's summons of 21 April 1995 is dismissed.

28. There seems no reason why the plaintiff should not pay the costs of both summonses, to be taxed if not agreed, and I make an order nisi accordingly. There was some mention in the correspondence of the second named defendant claiming indemnity costs in this matter. For the guidance of the parties, and without the benefit of argument, I am inclined to think that, on balance, this is not the case for such an order.