AU CHI CHIU AND ANOTHER v. HO CHI HUNG

HCA 2910/2018

[2020] HKCFI 2089

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2910 OF 2018

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JUDGMENT

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A. INTRODUCTION

1.  The present action arises out of a settlement agreement entered into between the 1^st Plaintiff (“P1”) and the Defendant (“D”) dated 7 July 2016 (the “Settlement Agreement”). The 2^nd Plaintiff (“P2”) was P1’s wife at the time of the Settlement Agreement.

2.  The Settlement Agreement provided that:

 (1) P1 would pay a fee of RMB 2,000,000 (the “Settlement Fee”) to resolve a dispute between the parties concerning a galvanizing business in Tianjin (the “Business”) (Clause 1.1).

 (2) Upon receipt of the Settlement Fee, D would refrain from pursuing any civil, criminal or administrative complaints against P1 and/or members of his family (Clause 1.3).

 (3) Any dispute between the parties arising from or relating to the Settlement Agreement is to be resolved in the first instance through friendly negotiation (“友好協商”), and proceedings should be brought in the courts of Hong Kong if such negotiations are unsuccessful. (Clause 5).

 (4) The Settlement Agreement is to be governed by Hong Kong law and subject to the jurisdiction of the courts of Hong Kong (Clause 6).

3.  P1 paid the Settlement Fee to D by way of a cheque dated 7 July 2016.

4.  On or around 15 October 2018, D filed a civil complaint in the People’s Court of Liwan District, Guangzhou (the “PRC Court”), against P2, alleging that she had borrowed and failed to repay a loan of RMB 3,500,000 made by D between April 2013 and March 2014 (the “PRC Proceedings”).

5.  On 4 January 2019, Au-Yeung J granted an interim injunction restraining D from further prosecution of the PRC Proceedings. This injunction was continued by an order of G Lam J dated 18 January 2019.

6.  On 12 February 2019, D was granted leave by the PRC Court to withdraw the PRC Proceedings.

7.  By summons dated 25 March 2019, Ps applied for summary judgment against D. Ps seek relief in the form of a final anti-suit injunction in respect of the PRC Proceedings and damages, or, in the alternative, return of the Settlement Fee.

Discussion

8.  There is no dispute between the parties that Ps are entitled to the primary relief sought. D has conceded (in my view sensibly) that Ps are entitled to a final injunction. D is further prepared to pay the amount of damages claimed by P2, namely legal costs of RMB 70,000 incurred as a result of the PRC Proceedings.

9.  In the circumstances, therefore, there is no triable issue in relation to these two heads of relief. I grant Ps a final anti-suit injunction in respect of the PRC Proceedings and damages of RMB 70,000. It is true that D has already withdrawn the PRC Proceedings, but I do not think that this thereby renders the injunction academic. I have not been provided with evidence of PRC law as to the effects of withdrawal, particularly whether the PRC Proceedings may nonetheless be revived in any form. In any event, since D never took up this argument, I do not think it necessary to examine this point in any detail.

10.  The dispute between the parties lies in the alternative relief claimed by P1, i.e. the return of the Settlement Fee.

11.  P1 claims that by instituting the Mainland Proceedings, D reopened the parties’ dispute in relation to the Business. As a result, D committed a repudiatory breach of the Settlement Agreement, such that the there was a total failure of consideration in respect of the Settlement Fee paid by P1 to D. Ps rely on Johnson v Agnew [1980] AC 367 as authority for the proposition that they have the right to elect between all available remedies.

12.  D disputes P1’s entitlement to return of the Settlement Fee on three grounds:

 (1) The Settlement Fee is not recoverable as it is money paid “in settlement of an honest claim” pursuant to the Settlement Agreement, which is still a live and enforceable contract. In support of his submission, counsel relied on the statement in Chitty on Contracts (33^rd ed) §29-197 that

“A payment that is made in settlement of or submission to an honest claim, or as part of a compromise, cannot be recovered…”

 (2) The Court should “take into account” the fact that Ps have unreasonably failed to engage in friendly negotiations to resolve the dispute in purported breach of clause 5 of the Settlement Agreement.

 (3) Alternatively, P1 is “estopped” from demanding repayment of the Settlement Fee: P “elected” to keep the Settlement Agreement alive and enforce its terms by way of the interim anti-suit injunction, and in reliance on the Settlement Agreement D conceded to the interim injunction and withdrew the PRC Proceedings. To allow P to recover the Settlement Fee in these circumstances would be to allow it “two bits on the same cherry” [sic].

13.  I reject D’s first argument.

 (1) Firstly, properly analysed, the fact that the Settlement Fee was paid “in settlement of an honest claim” is neither here nor there. Insofar as D suggests that money paid in settlement of a dispute is ipso facto irrecoverable under all circumstances, this submission is in my view untenable as a matter of law. As explained in the very same passage of Chitty on which D relies:

“… the current position can be stated in the following way. First, where the payer knows or believes the money is not due but pays in any event, the money will not be recoverable on the ground of mistake. If a claim has been made and disputed but payment eventually made, whether in order to avoid threatened litigation or for some other reason such as to preserve good commercial relations or to secure some advantage, it will either be a compromise or a contractual submission to the claim.”

In other words, all that follows from the fact that a payment was made “in settlement of an honest claim” is that (i) the payer will not be able to rely on the unjust factor of mistake,[1] and (ii) there will typically be a valid contractual basis for the payment which bars restitution. This passage does not stand for any wider proposition, and certainly does not mean that a person who pays money under a settlement agreement is disentitled from recovering the same if the basis for the payment has totally failed.

 (2) As for D’s submission that the Settlement Agreement is still “live and enforceable”, this simply begs the question of whether P1 is now entitled to terminate the contract on account of D’s alleged repudiatory breach notwithstanding. This question is the crux of D’s third submission.

 (3) In passing, I note that counsel for D’s submission that “[Ps] are not alleging that they have accepted any “repudiation”” is plainly contradicted by §17 of the Statement of Claim, which provides that

“Alternatively, there is a total failure of consideration and [D] is liable to repay the sum of HKD2,000,000.00 to [P1] for the following reasons: …

(b) By conducting the [PRC Proceedings] in such vexatious and spurious manner, [D] has repudiated the Settlement Agreement and [P1] hereby accepts the repudiation.”

14.  Nor I do not see any merit in D’s second argument. Even assuming that clause 5 of the Settlement Agreement is sufficiently certain to be enforceable (in respect of which I have significant reservations) and that this clause had been breached (to which there is no evidence other than D’s bare assertion to this effect), I do not understand how D proposes that I “take [such conduct] into account” in determining P1’s entitlement to recover the Settlement Fee. Restitution for unjust enrichment is not a remedy awarded at the court’s discretion based on the perceived requirements of fairness on a case-by-case basis, but rather a cause of action firmly based on settled principles: Investment Trust Companies v Revenue and Customs Commissioners [2017] UKSC 29 [2018] AC 275 at §39 (Lord Reed). This point was also recently made by DHCJ Eva Sit SC in AXHT Company Ltd v Freeway Finance Co Ltd [2020] HKCFI 1603, HCA1320/2016 (unrep, 30 July 2020) at §75-78.

15.  As for D’s third argument, this must be examined with some care as it conflates the distinct doctrines of election and estoppel. As Isaacs J explained in Craine v Colonial Mutual Fire Insurance (1920) 28 CLR 305, 325:

“Notwithstanding what was urged as to their practical identity, there are essential distinctions between “waiver” and “estoppel” which we shall presently indicate. …

“Waiver" is a doctrine of some arbitrariness introduced by the law to prevent a man in certain circumstances from taking up two inconsistent positions (see per James LJ in Pilcher v. Rawlins). It is a conclusion of law when the necessary facts are established. It looks, however, chiefly to the conduct and position of the person who is said to have waived, in order to see whether he has "approbated" so as to prevent him from “reprobating”—in English terms, whether he has elected to get some advantage to which he would not otherwise have been entitled, so as to deny to him a later election to the contrary (see per Lord Shaw in Pitman v. Crum Ewing). His knowledge is necessary, or he cannot be said to have approbated or elected.

These observations are necessary in order to bring into contrast the inherent nature of estoppel by conduct…

First of all, the law of estoppel looks chiefly at the situation of the person relying on the estoppel; next, as a consequence of the first, the knowledge of the person sought to be estopped is immaterial; thirdly, as a further consequence, it is not· essential that the person sought to be estopped should have acted with any intention to deceive; fourthly, conduct, short of positive acts, is sufficient.”

16.  As a result, the inquiry at hand is not whether Ps are “estopped” from terminating the Settlement Agreement and recovering the Settlement Fee as a result of their “election” to enforce the Settlement Agreement, but rather, (i) whether Ps have elected to affirm the Settlement Agreement notwithstanding D’s repudiatory breach thereof, and (ii) if not, whether Ps are nonetheless estopped from terminating the Settlement Agreement. I will consider these issues in turn.

17.  Having considered both parties’ cases and their respective submissions, I am of the view that there is at the very least a triable issue as to whether P1 is now disentitled from terminating the Settlement Agreement as a result of an election to affirm the same:

 (1) The relevant principles are trite. Where an innocent party is faced with a repudiatory breach of contract, he may either affirm the contract or accept the breach and terminate the contract. He will be taken to have elected when he takes steps with knowledge of the relevant facts which are only consistent with one of the two options: Motor Oil Hellas Refineries v Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391, 398 (Lord Goff). This election must also be made within a reasonable time, failing which the law will treat him as having affirmed the contract: Stocznia Gdynia SA v Latvian Shipping [2002] EWCA Civ 889 [2003] 1 CLC 282, §87 (Rix LJ).

 (2) Counsel for P1 cites Johnson v Agnew as authority for the principle that a party who seeks specific performance of a contract (here, by way of a prohibitory injunction) does not thereby make an election to affirm the contract. However, I do not think that the case stands for this precise legal proposition. What Lord Wilberforce held, at 398E–398G, was that:

“It is easy to see that a party who has chosen to put an end to a contract by accepting the other party's repudiation cannot afterwards seek specific performance. This is simply because the contract has gone—what is dead is dead. But it is no more difficult to agree that a party, who has chosen to seek specific performance, may quite well thereafter, if specific performance fails to be realised, say, " Very well, then, the contract should be regarded as terminated." It is quite consistent with a decision provisionally to keep alive, to say, "Well, this is no use—let us now end the contract's life." A vendor who seeks (and gets) specific performance is merely electing for a course which may or may not lead to implementation of the contract—what he elects for is not eternal and unconditional affirmation, but a continuance of the contract under control of the court which control involves the power, in certain events, to terminate it. (emphasis added)”

 (3) Lord Wilberforce’s point was simply that the innocent party may elect to terminate the contract notwithstanding the order for specific performance if the party in breach fails to comply. On my reading of his Lordship’s speech, he did not reach this conclusion on the basis that the innocent party seeking specific performance is allowed to defer his election until judgment, but rather because “if an order for specific performance is sought and made, the contract remains in effect and is not merged into the judgment for specific performance”: 393F.I respectfully agree with the analysis of Jonathan Sumption QC (as he then was) in Safehaven Investments Ltd v Springbok Ltd (1996) 71 P & CR 59:

“It does not follow from this analysis [in Johnson v Agnew]that the innocent party may in all cases change his mind after affirming the contract. If, for example, after he had affirmed it, the repudiating party's conduct suggested that he proposed to perform after all, then that party's previous repudiation is spent. It had no further legal significance. If, on the other hand, the repudiating party persists in his refusal to perform, the innocent party may later treat the contract as being at an end. The correct analysis in this case is not that the innocent party is terminating on account of the original repudiation and going back on his election to affirm. It is that he is treating the contract as being at an end on account of the continuing repudiation reflected in the other party's behaviour after the affirmation. (emphasis added)”

 (4) Returning to the present case, the PRC Proceedings have already been withdrawn. Counsel spoke of D having “purged” any alleged breach, but I do not think that this is quite right. The proper legal analysis is that there is no continuing repudiatory breach on which P1 can now rely to terminate the contract.

 (5) As a result, if P1 is entitled to terminate the Settlement Agreement at all, it must be because he still has the right to accept D’s earlier repudiatory breach in bringing the PRC Proceedings. And in the circumstances of the present case, where P1 chose to pursue an injunction as his primary remedy before the courts (and has now succeeded in obtaining the same), I think there is at least a good arguable case that P1 has affirmed the Settlement Agreement in full knowledge of his right to do so.

 (6) I do not think that the Canadian case of Dobson v Winton & Bobbins Ltd [1959] SCR 775 assists P1 either. There, the vendor repudiated a contract for sale of land. The plaintiff brought a claim for specific performance and damages in the alternative. At trial, it emerged that the defendant had since sold the property to a third party, thereby rendering the plaintiff’s claim for specific performance nugatory. The issue for the Supreme Court of Canada was whether the plaintiff was entitled to pursue his alternative claim for damages for loss of bargain without amending his pleadings to delete the claim for specific performance. Judson J held at 779 that:

“On the purchaser's repudiation of the contract, the vendor could have forfeited the deposit and claimed for loss of bargain and out-of-pocket expenses. The Judicature Act gives him the right to join this claim with one of specific performance. At some stage of the proceedings he must, of course, elect which remedy he will take. He cannot have both specific performance and a common law claim for loss of bargain. But he is under no compulsion to elect until judgment, and the defendant is not entitled to assume that by issuing the writ for specific performance with a common law claim for damages in the alternative, the vendor has elected at the institution of the action to claim specific performance and nothing else.”

 (7) In my judgment it is clear that Dobson is of no relevance to the issue at hand. Dobson concerned a plaintiff’s right to elect between the remedies of specific performance and damages, and in this regard, it is well-established that a plaintiff is entitled to wait until judgment to do so: Tang Man Sit v Capacious Investments Ltd [1996] 1 AC 514. It did not discuss the entirely separate issue of an innocent party’s choice when faced with a repudiatory breach, which is an example of election between inconsistent legal rights, and certainly did not say that an innocent party is entitled to wait until judgment to make this choice. Election between rights and election between remedies are distinct doctrines, and decisions on one cannot be relied on in respect of the former: Handley, Estoppel by Conduct and Election (2nd ed) §14-001.

18.  It follows from the above that it is strictly unnecessary for me to rule on D’s case of estoppel. I will therefore confine myself to a few brief observations:

 (1) To make out a case on estoppel, D must show (i) a representation by words or conduct by the innocent party that he will not exercise his strict legal rights to treat the contract as repudiated, and (ii) reliance by the party in breach (iii) in circumstances where it would be inequitable for the representor to go back on the representation: Garside v Black Horse Ltd [2010] EWHC 190 (QB) at §29 (King J).

 (2) D’s case in relation to estoppel is that “acting solely in reliance of the Settlement Agreement, he had conceded to Ps’ application for the anti-suit injunction (resulting in the interlocutory anti-suit injunctions granted against him)”, and that “in order to act according with and “comply with” the said injunction and the Settlement Agreement, D had also instructed his PRC lawyer to “withdraw” the PRC Proceedings”.

 (3) I consider that D has failed to make out an arguable case in respect of each of the three requirements. D does not identify any representation which P1 is said to have made that he will not exercise his strict legal rights to terminate the Settlement Agreement. Nor does D claim to have relied on any such representation; rather, his evidence is that he relied solely only the fact of the Settlement Agreement. I also agree with the observation by P’s counsel that D has not adduced any evidence of PRC law as to the effects of the withdrawal of the PRC Proceedings, in particular whether he is barred from instituting fresh proceedings as a result. Therefore, there is no basis at present for saying that D has suffered any detriment as a result of P’s conduct.

19.  Finally, I will record that I would nonetheless have given D unconditional leave to defend in relation to the Settlement Fee even if I were with P1 on the affirmation issue, on the basis that P1 has not demonstrated that there was a total failure of consideration.

20.  As Cheung JA observed in Ju Yan Di Emperory Genesisy v Yau Wai Han [2015] 1 HKLRD 822 at §14, while the burden is on the defendant to demonstrate a credible defence, this does not mean that the defendant bears all the burden of proof:

“This is because the starting point in a summary judgment application is that it should only be invoked when there is no defence to the claim. This means that the plaintiff must in the first place demonstrate that the defendant has indeed no defence. […] This requirement must be kept in proper perspective when assessment is made of the strength of the application, otherwise there is a danger that the attention will be focused solely on what the defendant has said without consideration at the same time of the basic premise of the plaintiff ’s claim or its inherent strength and weakness.”

21.  It is trite that a person can only recover money paid under a contract if the failure of consideration was total. In other words, the plaintiff must show that the promisor has not performed any part of the contractual duties in respect of which the payment is due: Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574, 588D (Lord Goff).

22.  In the instant case, P1’s case is simply that “by reopening the dispute on [the Business] (via [the PRC Proceedings]), the consideration … ie the Settlement Fee totally failed.”

23.  I do not think that this mere assertion is sufficient. After all, the evidence is that D satisfactorily performed his part of his bargain for two years by refraining from suing P1 and his family. One will also note, for example, that the Settlement Agreement also contained covenants by D not to (i) verbally or physically attack P1 (Clause 2.1), (ii) harass, make false accusations against or threaten P1 and his family, (Clause 2.2), or (iii) disclose the existence or contents of the Settlement Agreement to any third party (Clause 3.2).

24.  P1 has simply not dealt with these points. He has not demonstrated, for example, that the benefits conferred by the other negative covenants were incidental or that the consideration could somehow be apportioned between the various benefits: see Giedo van der Garde BV v Force India Formula One Team Ltd [2010] EWHC 2373 (QB), and Achieve Goal Holdings v Zhong Xin Ore-Material Holding Co Ltd [2020] HKCA 51, CACV 6/2019 (unrep, 17 January 2020)).

25.  In the premises, I do not think that P has shown a sustainable case on total failure of consideration, such that I would not have granted summary judgment to P1 in respect of the Settlement Fee in any event.

Conclusion and Relief

26.  In conclusion, I grant summary judgment in relation to P’s claim for a final injunction in respect of the PRC Proceedings and damages of RMB 70,000. I decline to grant summary judgment in respect of P’s claim for recovery of the Settlement Fee.

27.  I turn now to the question of costs.

28.  D’s counsel submits that D should be entitled to all costs incurred after 10 April 2019, being the date on which D’s solicitors issued a letter to P’s solicitors conceding P’s entitlement to a final injunction and damages to be assessed.

29.  Against this submission, it may be noted that clause 5 of the Settlement Agreement provides that a party in breach of the Settlement Agreement shall be liable for all losses of the other party arising out of a dispute under the Settlement Agreement, including arbitration fees and lawyer’s fees (“違約方應承擔守約方因處理本協議下之糾紛所產生的仲裁費，律師費等一切損失”).

30.  However, I do not think that this clause can be read so widely to allow Ps to recover costs incurred as a result of unsuccessful interlocutory applications. On the whole, and especially given that D has been substantially successful in this application, I agree with counsel’s submission that D should be entitled to his costs from 10 April 2019. 

31.  I therefore make an order nisi that the costs of this application up to 10 April 2019 be paid by D to Ps and costs of the application from thereafter be paid by Ps to D, both to be taxed if not agreed. I grant certificate for counsel to both parties, and order that all costs be taxed on the District Court scale.  

32.  I direct that the parties lodge an agreed form of the order to be made for my approval within 14 days of the date of this Judgment. In the event that the parties are unable to agree on the precise terms of the order, each party shall lodge its proposed form of order for my determination on the papers.