XCHRX STEWART WILLIAM GEORGE ELLIOTT AND ANOTHER v. SLIPFORM ENGINEERING LTD. AND ANOTHER

HCA9960/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9960 OF 2000

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J U D G M E N T

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1. This is an appeal by the plaintiffs from the order of Master Jones given on 13 June 2001. Whereby the Master struck out the plaintiffs' Statement of Claim upon the defendants' application on the grounds that the claim, in particular the First Agreement and the Second Agreement pleaded by the plaintiffs in their Statement of Claim were frivolous and vexatious and an abuse of process.

The plaintiffs' claim

2. The plaintiffs bring this claim against the defendants essentially based on two oral agreements - referred to in the Statement of Claim as "the First Agreement" and "the Second Agreement".

3. The 1st plaintiff enjoyed a very close working relationship with Sir Gordon Wu, the founder of the 2nd defendant, since 1972 and has held the position of Managing Director in the 1st defendant since 1976 as well as the position of Executive Director of the 2nd defendant from 1980. The 1st plaintiff also held positions in other companies associated to or related to the 2nd defendant.

4. In late 1996, when the group headed by the 2nd defendant, was experiencing a financial crisis, and as a result of which an ongoing project in Malta involving the redevelopment of the Grand Hotel Excelsior there was so badly affected that work had to stop, an oral agreement ("the First Agreement") was reached between the 1st plaintiff and Sir Gordon that the plaintiff could invest as much as he wanted into that project. That loan would be repayable on demand and that the 1st plaintiff was also given the option to convert the loan into equities in a company, Grand Hotel Excelsior Ltd ("GHE") which held the hotel premises.

5. Another company, Slipform Engineering (Malta) Ltd ("SEM") had been set up in Malta to carry out the redevelopment and construction works.

6. Pursuant to the First Agreement, the 1st plaintiff caused an unsecured and interest-free loan of HK$77.50 million to be made to GHE by Mediterranean Group Limited ("MGL"), a company under the control of the 1st plaintiff.

7. On 18 November 1996, the 1st plaintiff met with Sir Gordon at Sir Gordon's office at which meeting, it was orally agreed ("the Second Agreement") that the 1st plaintiff would acquire all of the interests of the defendants in the Grand Hotel Excelsior project, take over the completion of the project and in return would not require the repayment of the loans or implementation of the option. The Second Agreement included the following material terms :

(a) Both defendants would sell to the plaintiffs all of the shares which they held in GHE and SEM at cost and the plaintiffs would assume the defendants' responsibilities to complete the project;

(b) Pursuant to the terms of the sale, the defendants would not require immediate repayment of the outstanding development funding provided to GHE but would leave the loans in GHE. The plaintiffs would cause GHE to repay to the defendants the principal amounts which the defendants had provided to GHE in order to fund the project, over a period of 10 years and at a rate of interest of 5% per annum on the outstanding amount. The defendants would not apply any notional interest on the amounts of such loans in respect of the period before the sale (so affording a "discount").

8. That in consideration of the terms stated in (a) and (b) above, GHE and the defendants would be discharged from liability under the First Agreement.

9. The plaintiffs now claim that the defendants are in breach of the First Agreement and the Second Agreement in that the defendants have failed to sell or transfer to the plaintiffs any of the shares held by the defendants in GHE or SEM or their interests in the project.

The defence

10. The defence raised, in so far as the First Agreement is concerned, was that there was no such agreement entered into between the parties although the defendants do not dispute that an unsecured interest-free loan of HK$77.50 million was made by MGL to GHE.

11. As for the Second Agreement, the defence is that while it is accepted that there were negotiations and discussions ongoing between the parties as to the sale of the defendants' interests in the project to the 1st plaintiff, the defendants say that there has never been any concluded agreement reached between them.

The application to strike out

12. As already stated above, the application to strike out the plaintiffs' claim was brought under Order 18, rule 19 on the grounds that the claim is frivolous, vexatious, tends to prejudice, embarrass and delay the fair trial of the action and is an abuse of Court's process. Upon such grounds, the defendants were entitled to and did adduce evidence by affidavit in support.

13. The defendants in this application rely upon a large amount of documentary evidence in support in an attempt to show that there was no concluded agreement arrived at between the parties on 18 November 1996.

14. However, much if not all of the documentary exhibits relied on by the defendants relate to events and happenings subsequent to that date. At least two draft Sale and Purchase Agreements have been exhibited, neither have been signed. The defendants say that it was because the parties have not yet agreed all the terms that need to be agreed.

15. The plaintiffs on the other hand say that the failure to sign any of the draft Sale and Purchase Agreements was because the defendants had, subsequent to what had been agreed between them on 18 November 1996, insisted on additional and totally new terms to be incorporated into those draft Sale and Purchase Agreements which the plaintiff could not agree to. These new and additional terms include : -

(a) a personal guarantee to be given by the 1st plaintiff guaranteeing the repayment of the loans made by the defendants for the funding of the project;

(b) veto rights be given to the defendants as to who manages and operates the hotel when it is completed.

16. The thrust of the defendants' case, however, is that the payment terms had not yet been agreed between the parties and in any event, because there needs to be repayment of the loans to the defendants spread over many years, much details still had to be agreed between them before any agreement could be concluded.

17. In so far as the First Agreement is concerned, the defendants also seek to rely on the fact that MGL has, in December 2000, commenced proceedings in Malta against GHE for the recovery of the loan. The defendants say that by so doing, the 1st plaintiff have elected not to exercise the option which the 1st plaintiff says he had been given under the First Agreement, if such be the case. Therefore the 1st plaintiff is not entitled to claim damages in respect of the First Agreement as though he had exercised the option. In any event the defendants point out that it has not been pleaded that the option has been exercised by the 1st plaintiff.

18. In all the circumstances the defendants say that the plaintiffs' claim is clearly unsustainable and therefore should be struck out.

Decision

19. There is no dispute between the parties that an application to strike out a claim should only be granted in plain and obvious cases where the claim must be obviously unsustainable. The burden is on the defendant and it is a heavy one.

20. In so far as the Second Agreement is concerned, there is here seriously disputed facts as to what was or was not agreed between the 1st plaintiff and Sir Gordon at their meeting on 18 November 1996.

21. I do not propose in this judgment to go into each and every one of the documents which I had been taken through in counsel's submissions for in the words of Dankwerts LJ in the case of Wenlock v. Maloney [1965] 1 WLR 1238 at page 1246 : -

"But this summary jurisdiction of the court was never intended to be exercised by a minute and protracted examination of the documents and the facts of the case, in order to see whether the plaintiff really has a cause of action. To do that is to usurp the position of the trial judge, and to produce a trial of the case in chambers, on affidavits only without discovery and without oral evidence tested by cross examination in the ordinary way."

22. It suffice for me to say here that those documents emanating from the 1st plaintiff and relied on by the defendants, on the face of them, appear to indicate that there were matters not yet in agreement by the parties, but, on closer examination, it can be seen that they refer to those matters which, on the plaintiffs' case, were new and additional terms not agreed to at the 18 November meeting. It is the plaintiffs' case, as it is put by the plaintiffs, which I have to consider to determine whether what is put by the plaintiffs at the highest is clearly unsustainable.

23. I accept Mr Bleach's submission that on the plaintiffs' case as it is pleaded in relation to the Second Agreement, it is at least arguable that there was a concluded agreement between the parties as to the material terms of the contract so as to make it workable leaving only minor details to be sorted out but which will not affect the workability of the contract upon the terms which the 1st plaintiff says have been agreed.

24. Accordingly, until a finding is made as to what was or was not said by them at that meeting, it is not possible to decide whether there was or was not any concluded contract between them. That is a matter for the trial judge after hearing evidence and cross-examination, and not for me dealing with an application to strike out.

25. I turn now to deal with the First Agreement.

26. In the Statement of Claim as it initially stood at the start of this hearing, it is pleaded by the plaintiffs that there was a breach of the First Agreement in that the defendants have failed to transfer or cause to be issued to the plaintiffs shares of GHE in proportion to the amount of the loans and therefore in breach of the option term pleaded (paragraph 9(a) of Statement of Claim refers). However, it has never been pleaded by the plaintiffs that the option had ever exercised by them or either of them.

27. Paragraphs 10(a) and (b) go on to plead the loss and damage suffered by the plaintiffs as a result of the breach of the First Agreement.

28. Quite apart from the fact that the exercise of the option has not been pleaded by the plaintiffs, the plaintiffs' pleaded case is that in return for agreeing to the Second Agreement, the plaintiffs will not require the implementation of the option in the First Agreement by the defendants (paragraph 7(b) of Statement of Claim refers).

29. Had there been no application for amendment by the plaintiffs, the pleas by the plaintiffs as to breach of the option term or the loss and damage suffered as a result would undoubtedly have been frivolous, and I would have ordered paragraphs 9(a), 10(a) and 10(b) of the Statement of Claim to be struck out.

30. I accept that the proceedings in Malta are between different parties to this case and are brought by MGL against GHE for the recovery of the loan. To that extent, it is not inconsistent with the plaintiffs' claim on the First Agreement here.

The application to amend the Statement of Claim

31. At a very late stage of the hearing, when Mr Bleach was making his submission in reply, an application was made by the plaintiffs to amend the Statement of Claim. The matter was adjourned to allow the plaintiffs to formulate the proposed amendments which have now been lodged. I further gave directions for defence counsel to indicate if he desired to make further submissions after the proposed amendments had been formulated by the plaintiffs. No indication having been received from the defendants' counsel that he wished to be heard further on the proposed amendments.

32. Essentially, the proposed amendments plead a new paragraph 9(i)(b) and (c) to the effect that the defendants have wrongly renounced and/or repudiated the First Agreement (which repudiation the plaintiffs accept) in that the defendants have evinced an intention no longer to be bound by the First Agreement in late July or early August 2000 when they entered into discussions with third parties to sell the entire interests in the Grand Hotel Excelsior. A further new paragraph 10(b) pleads that the said wrongful repudiation by the defendants of the First Agreement caused to the plaintiffs the loss of opportunity for exercising the option.

33. In my view, the amendments, although somewhat late, appears to have salvaged to some extent the situation for the plaintiffs - at least in so far as the contemplated striking out of the original paragraphs 9(a), 10(a) and 10(b) of the Statement of Claim was concerned.

34. However, the proposed amendments have given rise to a further difficulty in that the proposed amendments may possibly be inconsistent with what had been pleaded in paragraph 7(b)(iii), depending on how one reads that sub-paragraph in the way that it has been pleaded.

35. I therefore requested further submissions from both parties on that matter.

36. The parties came back before me on 10 January 2002 at which hearing Mr Bleach for the plaintiffs indicated that the plaintiffs wished to make further amendments to paragraphs 7(b)(iii), as well as to the proposed amendments in the new paragraph 9(i)(b) and (c). These further amendments were specifically formulated by Mr Bleach and were not objected to by the defendants subject to the question of costs.

37. In the circumstances I shall grant leave to the plaintiffs to make the proposed amendments and the further proposed amendments to the Statement of Claim as formulated.

38. In my view the proposed amendments and further proposed amendments sufficiently cure the defects upon which I would have struck out paragraphs 9(a), 10(a) and 10(b) of the Statement of Claim as it stood initially. They also remove the further difficulty of the possible inconsistent plea referred to above.

39. For all the reasons indicated above in this judgment, I shall allow the appeal against the order of the Master, set aside that order of the Master and dismiss the defendants' application to strike out the plaintiffs' claim. I shall further order that the Amended Statement of Claim be filed and served seven days from the date of this judgment and leave be granted to the defendants to consequentially amend their Defence, such Amended Defence to be filed and served 21 days thereafter.

40. In so far as costs is concerned, as already indicated to the parties, I shall invite written submissions from both counsel as to the costs orders to be made, including such costs orders arising from the amendments to the Statement of Claim. In this respect, the plaintiffs' written submission as to costs to be lodged with my clerk within seven days from the date of this judgment and the defendants' written submissions to be lodged seven days thereafter. The plaintiffs' written reply to be lodged seven days after the defendants' submissions. Liberty to either party to apply for further attendance on the question of costs should it become necessary.