AQUALITY (POOLS) LTD v. LI CHI YUNG SIMON

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Prelimiary Issue

1. This is an appeal against the Master's decision who refused the Plaintiff's application for judgment on admission pursuant to O.27, r.3 of the Rules of Supreme Court. At the hearing before the Master the Defendant invited the Master to deal with a preliminary issue as to the admissibility of a document. The Master ruled the document to be inadmissible and as the Plaintiff's application was based on an admission in this document, the consequence was that the application was dismissed. The determination on this issue was the only issue dealt with by the Master at the hearing.

Background

2. Briefly, the facts of this case is that the Plaintiff has constructed a swimming pool for the Defendant. On 10th August 1995 the present action was commenced by the Plaintiff against the Defendant seeking the payment of $1,369,245, being the outstanding sums owed by the Defendant to the Plaintiff in respect of the construction of the swimming pool. There were negotiations between the parties and by a letter dated 18th September 1995 signed by the Plaintiff and the Defendant in which it was recorded that:

"..... It is hereby mutually confirmed the agreement between you (i.e. Mr. Lai of the Plaintiff) and Mr. Li Chi Yung (i.e. the Defendant) that the manner of payment of the costs of construction of the captioned project will be as follows :-

Defendant's argument

3. The Defendant argued that this document should be excluded as part of the evidence in this case. The basis of the argument is that this document is privileged from production, it is inadmissible as being part of a without prejudice discussion between the parties. In Rush & Tompkins v. GLC [1989] 1 AC 1280, Lord Griffiths held that:

"The 'without prejudice' rule is a rule governing the admissibility of evidence and is founded upon the public policy of encouraging litigants to settle their differences rather than litigate them to a finish."

4. Miss Chan, Counsel for the Defendant, accepted that the without prejudice material would be admissible if the issue is whether or not the negotiations resulted in an agreed settlement. She submitted, however, that the Plaintiff relied on this document not merely to prove a settlement but as constituting an admission upon which the application for judgment was made. She argued that if the document is to be used for that purpose, then it falls within the without prejudice rule and should be excluded. She relied on a passage of Lord Griffiths' judgment where at p.1301 it was stated that:

"I would therefore hold that as a general rule the 'without prejudice' rule renders inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made in a genuine attempt to reach a settlement. It, of course, goes without saying that admissions made to reach settlement with a different party within the same litigation are also inadmissible whether or not settlement was reached with that party."

Document admissible

5. I think Miss Chan has misread the judgment of Lord Griffiths. He was referring to the exclusion in a subsequent litigation of the proof of admission made in a genuine attempt to reach a settlement connected with the same subject matter. In the present dispute between the parties, there is no previous litigation at all. As the case of Tomlin v. Standard Telephones and Cables Limited [1969] 1 WLR 1378 showed, the without prejudice material will be admissible if the issue is whether or not the negotiations resulted in an agreed settlement. This case was expressly referred to in the judgment of Lord Griffiths and was not overruled by him.

6. I find it difficult to accept Miss Chan's argument that on one hand one could refer to the without prejudice material to ascertain whether a concluded settlement has been reached and on the other hand the very same material should be excluded because the Plaintiff is relying on the material as constituting an admission on the part of the Defendant. As Miss Park, Counsel for the Plaintiff, submitted that if there was indeed an agreed settlement, common sense dictates that the Defendant must be taken to have agreed to an admission of liability to the extent of the amount agreed to be paid by him. The document should therefore not be excluded as evidence in the present case.

7. Both parties agreed that I should hear the merits of the Plaintiff's application in the event that I should rule this document to be admissible. I shall now hear the parties on their submissions.

[Submissions]

Agreement to pay

8. There is no doubt that on 18th September 1995 the Defendant agreed to pay to the Plaintiff a lesser sum of $1,180,000 than the amount claimed in the writ. There is also no doubt that according to the letter there is no qualification or condition imposed on the payment of the sum. The only issue is whether notwithstanding this clear admission, the Defendant still has a defence to the application for judgment.

Defence

9. The Defendant complained of substantial increase in the costs of construction, long delay and also defective performance in the construction of the swimming pool. He said he agreed to pay the money on the representation that the defects had been remedied. The representation was made by the Architect in charge of the project and who was instrumental in arranging for a settlement of the case by the parties. The Plaintiff also confirmed by a letter of 15th August 1995 in which it was stated that all the defects had been made good. The Defendant said that this turned out to be incorrect and there were still many defects which were not remedied. A defence and counterclaim seeking damages is filed. The damages included liquidated damages for delay in completion, costs for remedying the defects and loss of profits in selling the property upon which the swimming pool is located.

Application not granted

10. The Plaintiff invited me not to take the matter raised by the Defendant into account. It is said that the plea of representation was lacking in particulars and that the particulars of defects should be provided by a professional person and the allegation also lack particulars.

11. I think the particulars of misrepresentation were identified, namely, misrepresentation by the Architect and the letter of 15th August 1995. The details of defects were set out in the Defects List and in the Defence. It cannot be the intention of O.27, r.3 that one should carried out a minute examination of the affidavits to determine if the defence is credible or sustainable.

12. It is said by reference to Foskett: The Law & Practice of Compromise Para. 4-25 that a compromise would none the less be enforceable even if there is suppression of facts. However, the Defendant is relying more than merely a suppression of facts, he is relying on actual misrepresentation. The defence of misrepresentation and the Defence and Counterclaim are matters I just cannot ignore.

13. It may well be that a more appropriate application would be under O.14. However, I am not concerned with that and I do not wish to express a concluded view on the matter. But as far as the present summons is concerned, and having considered authorities such as Technistudy Ltd. v. Kelland [1976] 3 All E.R. 632 and Mersey v. Shuttleworth (1883) 11 QBD 531, I do not consider it to be a fit case to grant a judgment on admission.