XCHRX FULL LINK ENTERPRISES LTD. v. FRESHFIELDS (a Firm)

1998 No. A10723

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10723 OF 1998

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J U D G M E N T

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1. This is an appeal from the decision of Master Cannon made on 23rd November 1998 ordering that the Plaintiff's summons dated 20th July 1998 be dismissed. The Plaintiff's application by its summons dated 20th July 1998 made under O. 14 and O. 14A of the Rules of the High Court was:

(a) for final judgment against the Defendant for the amount claimed in the Statement of Claim with interest and costs; or alternatively,

(b) for an order under O. 14A of the R.H.C. that:

"the following question of law or construction be determined by the Court without a full trial of the action, namely whether on a proper construction of the correspondence as exchanged and pleaded in paragraph 2(4) of the Statement of Claim, the Defendant should repay the stakehold amount of HK$970,410.09 plus accrued interest to the Plaintiff or its solicitors Messrs. Kong, Wan, So & Cheng after the Plaintiff's successful appeal on 10th November 1997; and if the said question be answered in the affirmative then judgment be entered for the Plaintiff against the Defendant for the amount claimed in the Statement of Claim and costs or if the question be answered in the negative then this action be dismissed and that the Plaintiff do pay the Defendant's costs thereof."

2. Master Cannon dismissed both parts of the application made by the said summons. This is an appeal in respect of Master Cannon's decision on both parts of the application.

3. The background is that the Defendant is a firm of solicitors who act for Eaton Leonard Inc. ("Eaton Leonard") which brought HCA No. A8245 of 1996 ("the main action") against the Plaintiff herein, Full Link Enterprises Limited ("Full Link"). The main action was principally a claim for money paid under a mistake of fact. Full Link was Eaton Leonard's agent for the sale, distribution and after sale support of Eaton Leonard's products in China for which Full Link earned and received commission. Eaton Leonard claims that it overpaid commissions to Full Link. After taking into account further commission which was to qualify for payment to Full Link, Eaton Leonard claimed against Full Link for repayment of the balance of US$112,444.83, interest and costs in the main action.

4. Eaton Leonard applied for summary judgment under O. 14. That application was heard by Master Jennings on 24th February 1997. It appears that an application was also made orally under O. 14A and judgment was given by Master Jennings under O. 14A. It was adjudged that Full Link pay Eaton Leonard the sum of US$112,444.83 or its Hong Kong dollar equivalent with interest and costs. There was then an appeal which was eventually heard by Barnett J. on 10th November 1997 with judgment being given on 13th November 1997.

5. Before that appeal was heard, however, there was correspondence between the solicitors for the parties in the main action which resulted in the sum of HK$970,410.09 being paid by Full Link's solicitors, on behalf of Full Link, to Eaton Leonard's solicitors, namely the Defendant herein as stakeholder.

6. The Statement of Claim in this satellite litigation pleads the agreement that was made. This is in para. 2(4) of the Statement of Claim which is pleaded as follows:

"Following the Order 14A judgment and pending the Plaintiff's appeal, it was agreed by the Plaintiff and the Defendant on behalf of Eaton that the Plaintiff should pay HK$970,410.09 to the Defendant as a stakeholder so as to avoid the need for the Plaintiff to make an application for a stay of execution pending the result of the appeal. The agreement is contained in the following correspondence between Messrs. Ng & Lam, the then solicitors acting for the Plaintiff, and the Defendant:

(i) Letter dated 28 February 1997 from Ng & Lam to Freshfields;

(ii) Letter dated 7th March 1997 from Freshfields to Ng & Lam;

(iii) Letter dated 3rd April 1997 from Freshfields to Ng & Lam;

(iv) Letter dated 14th April 1997 from Ng & Lam to Freshfields;

(v) Letter dated 7th May 1997 from Freshfields to Ng & Lam;

(vi) Letter dated 22nd May 1997 from Ng & Lam to Freshfields;

(vii) Letter dated 23rd May 1997 from Freshfields to Ng & Lam."

7. It is also pleaded in para. 3 of the Statement of Claim as follows:

"A sum of HK$970,410.09 was paid by the Plaintiff to the Defendant on 24th May 1997 as stakeholder pending the result of the Plaintiff's appeal pursuant to the aforesaid agreement. It was, inter alia, a term of the said agreement that the Defendant shall pay out the stakeholder sum and accrued interest 'in accordance with the outcome of the appeal to the Judge in Chambers to be heard on 27th June 1997 after the expiry of the time in which a Notice of Appeal must be lodge (i.e. within 14 days following the sealing of the Judgment')."

8. The appeal by Full Link in the main action was determined by Barnett J. in his judgment given on 13th November 1997 whereby he set aside Master Jennings' order and gave Full Link leave to defend. There was no appeal from that order. Notwithstanding that Barnett J.'s decision was given almost 2 years ago, the main action has not progressed very far. I am told by counsel for Full Link that the stage which has been reached in the main action is that pleadings are closed.

9. In this satellite litigation, Full Link claims the sum of HK$970,410.09 plus interest from the Defendant herein. Full Link alleges that in breach of the stakeholder agreement the Defendant failed to pay Full Link the said sum. The claim is for money had and received by the Defendant to Full Link's use.

10. It is important to see the way that Full Link has pleaded the agreement. It is said to be contained in the 7 letters pleaded in para. 2(4) of the Statement of Claim as set out above. This is very much in dispute between the parties. The Defendant's case is that the letters preceding the letter of 23rd May 1997 from the Defendant to Messrs. Ng & Lam, Full Link's solicitors, do not form part of the agreement made between the Defendant and Full Link through its solicitors. The Defendant's case is that the agreement is contained solely in that one document, namely, the said letter of 23rd May 1997 from the Defendant to Messrs. Ng & Lam. Thus, there is a clear dispute of fact between the parties as to what the agreement is and where it is contained.

11. In the letter of 23rd May 1997, the Defendant stated that it would pay out the sum held by it as stakeholder with interest in the following circumstances:

"1. in accordance with the outcome of the appeal to the Judge in Chambers to be heard on 27th June 1997 after the expiry of the time in which a Notice of Appeal must be lodged (i.e. within 14 days following the sealing of the Judgment); or

2. if a Notice of Appeal is lodged, in accordance with the outcome of the further appeal; or

3. if leave to defend is granted, in accordance with the outcome of the hearing of the matter; or

4. in the event that a settlement is reached between the parties, in accordance with the terms of the settlement agreement and on the instructions of both parties."

12. The hearing of 27th June 1997 was adjourned to 10th November 1997 when it was determined by Barnett J.

13. It is the Defendant's case that the proper construction of clause 3 set out above is that if leave to defend is granted, as was the case, then the amount held would be paid out in accordance with the outcome of the hearing of the whole case, i.e. final disposal of the main action. The Defendant contends that is how the word "matter" should be construed in clause 3. Full Link, on the other hand, contends that the word "matter" means the matter of the appeal before the judge in chambers or any further appeal from that decision and not the outcome of the main action.

14. It is clear that in construing a written agreement the court should look at all the surrounding circumstances and the factual matrix in which the agreement was set to ascertain the objective intention of the parties to the agreement. However, before the court can even begin to construe a written agreement, it must first determine what the agreement is and where it is contained. There is, in my judgment, clearly a triable issue raised as to this entitling the Defendant, in my view, to unconditional leave to defend the action.

15. In my view, this is not a proper case for a determination under O. 14A as sought by Full Link in paragraph (b) of its summons dated 20th July 1998. This is not the type of case where the court is asked to determine, on undisputed facts, a pure question of law or a pure construction of a document or documents. As I have said, the facts are very much in dispute between the parties, particularly as to what the agreement is and where it is contained.

16. In my judgment, Master Cannon was correct to dismiss paragraph (b) of the summons which was made under O. 14A. However, as to paragraph (a) of the summons made under O. 14, I am of the view that instead of dismissing it, she should have given unconditional leave to the Defendant to defend the action. To that extent, the appeal is allowed and I set aside Master Cannon's order as regards paragraph (a) of the summons and order that the Defendant be given unconditional leave to defend the action. That being so and as the matter will have to be resolved at trial, I do not think that it is desirable that I should express a view on the submissions of counsel on the strength of his client's case and the weakness of his opponent's case.

[After hearing submissions]

17. Costs of the hearing before Master Cannon should be costs in the cause. Costs of the appeal should, in my view, also be costs in the cause, the reason being that the Defendant has agreed all along to the action being resolved pursuant to O. 14A. The court has held that it is not proper to make a determination under O. 14A. To that extent, it is right, in my view, that costs should be in the cause.