IP NGA SIN v. CHEUNG SIU SO

DCCJ 2019/2017

[2021] HKDC 1392

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2019 OF 2017

-------------------------

-------------------------

---------------------

DECISION

---------------------

THE APPLICATION

1.  By a decision dated 18 May 2021 (“the Decision”), this court acceded to the defendant’s application made by summons filed on 31 August 2020 and struck out the Re-Re-Amended Writ of Summons and the Re-Amended Statement of Claim herein on the grounds that a binding settlement agreement had been reached and that it is an abuse of process of the court for the plaintiff to proceed with the action herein.

2.  By Summons filed on 1 June 2021 (“the Leave Summons”), the plaintiff applied for leave to appeal.

3.  I will adopt herein the abbreviations used in the Decision.

THE APPLICABLE LEGAL PRINCIPLES

4.  The requirement for granting leave to appeal is set out in section 63A(2) of the District Court Ordinance (Cap 336, Laws of Hong Kong).  It is trite that leave to appeal shall not be granted unless the court is satisfied that the intended appeal has a reasonable prospect of success or there is some other reason in the interest of justice why the appeal should be heard.  It is also well established that a reasonable prospect of success means an appeal with prospects that are more than fanciful without having to be probable (SMSE v KL [2009] 4 HKLRD 129 at paragraph 17).

THE DRAFT GROUNDS OF APPEAL

5.  The plaintiff’s draft grounds of appeal may be summarised as follows:

(1)  This court erred in law in reaching the conclusion that a valid and binding settlement agreement has been reached between the parties (“Ground 1”);

(2)  This court erred in law in applying the incorrect standard in Order 18 rule 19 of the RDC in ruling that the current action is an appropriate one for striking out (“Ground 2”); and

(3)  This court has failed to analyse precisely why it is plain and obvious and/or certain that a settlement agreement between the parties has been reached (“Ground 3”).

6.  I will deal with these grounds in turn below.

Ground 1

7.  This ground concerns the court’s finding that there was a valid and binding settlement agreement reached between the parties.

8.  In the plaintiff’s draft notice of appeal, this ground was elaborated in this way:

“1.1 By failing to take into account the subjective intentions of the parties’ state of mind but merely relying on the notion that ‘parties are free to agree on whatever settlement terms they think fit’, the conclusion that ‘a binding settlement agreement’ has been reached is unsafe.

1.1.1. By failing to take into consideration the objective behaviours of the parties, whereby it is important to note the Defendant only took out her Striking Out Summons after the vacation of the original trial;

1.1.2. In the circumstance, even the Defendant’s intention would be hesitated and/or not entirely sure that there is a settlement agreement reached by the parties;

1.1.3.     In the circumstance, the Defendant would have understood the Plaintiff’s offer to have included the condition of transferring back of the property in question or else the Plaintiff’s offer would have been ‘too good to be true’.”

9.  The assertion that the court should have considered the subjective intention of the parties when deciding whether there was a binding settlement agreement is contradictory to the legal propositions explained in various authorities which were cited in the Decision, namely, Shogun Finance Ltd v Hudson [2004] 1 AC 919, RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] 1 WLR 753 and Foskett on Compromise, 9^th edition (2020)[1].

10.  The elaborations of Ground 1 (paragraphs 1.1.1 to 1.1.3 of the draft Notice of Appeal) suggest that the court should take into account the behaviour on the part of the defendant that she had only applied for striking out the plaintiff’s claim after some hesitation.  Apart from the fact that this is pure speculation, as pointed out by Mr Wong for the defendant, subsequent conduct of the parties is generally inadmissible in ascertaining the intention of the contracting parties or the effect of the agreement.

11.  In his submissions on Ground 1, Mr Chan spent a lot of paragraphs on “unilateral mistakes”, and cited the case of Hartog v Colin & Shields [1939] 3 All ER 566 and a number of paragraphs in Chitty on Contracts in support.

12.  With greatest respect to Mr Chan, it is difficult to understand whether he was saying that there was “unilateral mistake” on the part of the plaintiff.

13.  If he was, then I am afraid he is not entitled to take this line of submission, because it is not supported by the plaintiff’s own Affirmation which was filed in opposition to the defendant’s application to strike out (see paragraphs 15 and 16 of the Decision). 

14.  On the other hand, if Mr Chan was not running a case of “unilateral mistake”, then the legal principles on “unilateral mistake” which he cited are simply not applicable.

15.  In his reply submissions, Mr Chan quoted the following passages in Chitty on Contract (33^rd edition (2018)):

“Thus it has been said that cases of common mistake may be explained as resting on the construction of the contract, and in particular on an implied condition precedent, while cases of unilateral and mutual mistake may be no more than an application of the rules of offer and acceptance.”[2]

“No contract can be formed if there is no correspondence between the offer and the acceptance, or if the agreement is not sufficiently certain. The starting point must be whether the parties have reached an agreement that there is a contract between them on the same terms, so that subjectively they are agreed on the same thing. […] Thus ‘mutual misunderstanding’ may prevent the formation of a contract, and arguably this is no more than an application of the requirements of offer and acceptance and certainty.”[3] (Mr Chan’s emphasis)

16.  The two excerpts quoted by Mr Chan were taken from paragraphs 3-012 and 3-014 of Chitty on Contract (33^rd edition (2018)).  However, Mr Chan had only quoted part of those paragraphs. 

17.  In paragraph 3-012, after the excerpts quoted above, the learned author continued:

“From a conceptual point of view there is force in these arguments, and it is certainly hard to discern a single ‘doctrine’ of mistake when the two categories of case described above are subject to quite different rules. However in this work it is assumed that there are distinct rules on mistake dealing with each category. This is partly because, in each situation, the courts have recognised distinct rules of mistake and partly because the various kinds of mistake are what may be called ‘functional categories’. In factual terms, a party may claim that he, or both he and the other party, made the contract under a misapprehension of some kind, whether it be as to some fact bearing on the contract, as to the terms he has included in his offer or as to the other party’s intentions or identity, when the mistake was self induced. We need to know what self-induced ‘mistakes’ or (to use a word that does not have legal connotations) ‘misapprehensions’ the law will take account of and what the parties’ rights will be. Whether the rules that are applied are simply applications of more general rules, such as the doctrine of implied conditions or the rules of offer and acceptance, is from a functional viewpoint irrelevant; they are the rules that govern these types of mistakes.”

18.  Paragraph 3-014 of Chitty on Contracts (33^rd edition (2018)) reads:

“No contract can be formed if there is no correspondence between the offer and the acceptance, or if the agreement is not sufficiently certain. The starting point must be whether the parties have reached an agreement that there is a contract between them on the same terms, so that subjectively they are agreed on the same thing. If so there will be a contract on the agreed terms, if, however, one party claims that he did not intend to contract at all, or did not intend to contract on the terms which the other party claims were agreed, then the question is whether there is a contract (or, as it is often put, whether or not the ‘contract is void’). The intention of the parties is, as a general rule, to be construed objectively: the language used by one party, whatever his real intention may be, is to be construed in the sense in which it was reasonably understood by the other. Thus:

‘…if one party (O) so acts that his conduct, objectively considered, constitutes an offer, and the other party (A), believing that the conduct of O represents his actual intention, accepts O’s offer, then a contract will come into existence, and on those facts it will make no difference if O did not in fact intend to make an offer, or if he misunderstood A’s acceptance, so that O’s state of mind is, in such circumstances, irrelevant.’

Nevertheless cases may occur in which the terms of the offer and acceptance do not match or suffer from such latent ambiguity that it is impossible reasonably to impute any agreement between the parties.  For example, if it was reasonable for A to interpret the words of O’s offer as meaning x when O in fact meant y, but it was equally reasonable for O to interpret A’s reply as an acceptance of the offer as O intended it (i.e. as meaning y), there is no agreement even on an objective basis. Thus ‘mutual misunderstanding’ may prevent the formation of a contract, and arguably this is no more than an application of the requirements of offer and acceptance and certainty.”

(the words which are emphasised are those which have been omitted from Mr Chan’s quotation)

19.  It can be seen that as far as this case is concerned, the applicable principle is that the court would not consider the subjective intention on the part of the plaintiff.  The principles on “unilateral mistake” are not applicable herein.

20.  Mr Chan’s reliance on the case of Hartog v Colin & Shields [1939] 3 All ER 566 is also misconceived.  In that case, the plaintiff claimed damages against the defendants who were alleged to have broken a contract on the sale of Argentine hare skins.  The defendants defended the claim by stating that there was no contract, because, it was said, the plaintiff knew that the defendants’ offer contained a mistake.  There was expert evidence (which the court accepted) that the way in which Argentine hare skins were bought and sold was generally per piece rather than per pound. There was also accepted factual evidence that the discussions and negotiations between the parties were all along on the basis of “per piece” but not “per pound”.  However, the offer which was made by the defendant was made “per pound”.  The court therefore found that, when the defendant’s offer reached the plaintiff, the plaintiff must have realised that there was a mistake.

21.  It can be seen that the facts in Hartog are very different from those in the present case, since the plaintiff herein is not alleging that there was any mistake made when her solicitors made the offer on her behalf. 

22.  I therefore conclude that Ground 1 has no reasonable prospect of success.

Ground 2

23.  Ground 2 reads:

“2. The Judge erred in law in applying the incorrect standard in Order 18, rule 19 of Rules of the District Court in ruling that the current action is an appropriate one for striking out.

2.1 The Judge has failed to consider, as a matter of law, a striking out summons should be taken out promptly, yet the present action has reached the trial stage (if not for the pandemic of COVID-19 the trial would have been heard in August 2020) which is in appropriate for striking out application;

2.2  By further failing to consider the circumstances of the case and applying a wrong standard, the Judge erred in reaching conclusion that the Statement of Claim should be struck out on the ground that it is an abuse of court process.”

24.  Mr Chan submitted that this court has failed to consider that, as a matter of law, a striking out summons should be taken out promptly and ought, as a rule, to be made before the close of pleadings.  He cited paragraph 18/19/3 of Volume 1, Hong Kong Civil Procedure 2021, in support.

25.  I am afraid this argument is totally misconceived.  With greatest respect, counsel should not just pick a sentence in the commentary of the White Book without regard to the context in which the comments were made.

26.  If the basis of the striking-out application is that the claim as pleaded in the Statement of Claim is obviously unsustainable, then of course such an application should be made as early as possible. However, this is not the basis relied on by the defendant in the present case, and it goes without saying that the application herein could not have been made before the defendant allegedly accepted (on 15 March 2020) the plaintiff’s offer to settle.

27.  Mr Chan’s reliance on the Court of Appeal authority of Poon Lai Bing v Gold Dragon Limited t/a Club Paris & Another (CACV 136/2007, unreported, 13 December 2007) is similarly unhelpful, as the application for striking out part of the Amended Defence and Counterclaim in that case was made on the basis that the pleading regarding fraud, dishonesty and forgery did not contain the necessary particulars.  Apparently the case before this court is of a totally different scenario.

28.  In paragraph 30 of the Court of Appeal’s Judgment in Poon Lai Bing, Cheung JA held that:

“[…] My view is that Ms Poon [the plaintiff] had the amended defence and counterclaim for 10 months and no action was taken on it until the eve of the trial. Without expressing any view on the English approach, even if Ms Poon was permitted to apply to strike out the pleadings on the first day of the trial, the Judge should only accede to this request in the clearest circumstances where, for examples, the particulars were totally lacking and the allegations were clearly unsustainable.” (emphasis added)

29.  It appears that, when complaining that this court has applied the wrong “standard”, Mr Chan was having in mind the test of “in the clearest circumstances” used by Cheung JA as quoted above.  What Cheung JA was dealing with in Poon Lai Bing is a case of totally different nature, despite the fact that that was also a striking-out case.  The reference to such a test in the present case is therefore, in my view, inappropriate.

30.  I therefore hold the view that Ground 2 has no reasonable prospect of success.

Ground 3

31.  This ground reads:

“3. The Judge has failed to analyse precisely why, in his view, that it is plain and obvious and/or certain that a settlement agreement between the parties has been reached.

3.1  In failing to make precise and studious analysis, the conclusion reached by the Judge is unsafe.”

32.  In his written submissions, Mr Chan complained that this court did not explain in the Decision why the “strict linguistic approach” on the construction of the April Letter was adopted, and that it had not addressed nor given any explanation as to the law on construction of contract.

33.  As aforesaid, the legal principles which I considered applicable had been set out in paragraphs 19 to 21 of the Decision. Explanation on how those principles were applied to the present case had been given in paragraph 22 of the Decision.

34.  All other circumstances which were relied on by Mr Chan had also been discussed in the Decision.  It was after the consideration of all the arguments raised by Mr Chan that this court came to the conclusion that it is plain and obvious that a binding settlement agreement had been reached between the parties (see paragraphs 37 to 40 of the Decision).

35.  I therefore hold the view that Ground 3 has no reasonable prospect of success.

CONCLUSION

36.  By reasons of the aforesaid, the plaintiff’s application for leave to appeal is hereby dismissed.

COSTS

37.  There is no reason why costs should not follow the event.  I make a costs order nisi that the plaintiff shall bear the defendant’s costs of the Leave Summons, with certificate for counsel, to be taxed if not agreed.

38.  The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on paper) within 14 days hereof.