XCHRX MAK YIU v. CHINACHEM REALTY LTD.

HCA10335/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10335 OF 1998

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J U D G M E N T

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1. This is an application by the Defendant to strike out the Amended Statement of Claim on all the grounds enumerated in Order 18 r 19 as well as under the inherent jurisdiction. It is made at a late stage in the action, pleadings having long closed, discovery having been completed and the action having proceeded to a check-list hearing.

2. The gist of the claim is as follows. The Plaintiff alleges that since 1978, he has worked on construction sites owned by the Defendant, providing labour and materials as a carpentry formwork contractor. He alleges that he is owed money for work done and materials supplied on four particular construction sites, three in Shatin and one in Quarry Bay. He pleads that a contract engaging him for such labour and materials was entered into in respect of each such site, two orally, two partly orally and partly in writing.

3. The Plaintiff relies on certain statements of account said to have been issued on the Defendant's behalf as acknowledging the amounts due to him, these said to total some $3,952,943.00. He also relies on certain admissions allegedly made by the Defendant's previous solicitors, namely, Messrs Ford, Kwan & Co ("FK&Co").

4. The Defendant alleges that on its face, the Amended Statement of Claim discloses no cause of action because it does not allege that an operative agreement between the parties or is at best an embarrassing pleading.

5. The relevant paragraphs are paragraphs 2 and 3 of the Amended Statement of Claim which read as follows:-

"2. (a) Since about 1978 the Plaintiff had at the request of the Defendant worked for reward at various construction sites of which the Defendant had interest as contractor of carpentry formwork by providing labour and materials.

(b) The following are some of the construction sites at which the Plaintiff had worked for the Defendant :-

(i) Shatin Town Lot No. 302 ('ST Lot No. 302');

(ii) Shatin Town Lot No. 300 ('ST Lot No. 300');

(i) Shatin Town Lot No. 303 ('ST Lot No. 303');

(i) Marine Lot No. 703 ('ML Lot No. 703')

(collectively 'the said construction sites').

3. (a) With reference to the said construction sites, the agreements made between the Plaintiff and the Defendant by which the Plaintiff agreed to work as carpentry formwork contractor by providing labour and materials and the Defendant agreed to pay for the same were as follows :-

(i) On the agreement over ST Lot No 302 ('ST Lot No 302 Agreement'), the same was made partly orally and partly in writing. Insofar as ST Lot No 302 Agreement was made orally, the same was made between the Plaintiff and Mr Lau Yue Kwok of the Defendant sometime in about early 1989. Insofar as ST Lot No 302 Agreement was made in writing, the same was evidenced by an undated written Chinese agreement signed by the Plaintiff and someone on behalf of the Defendant and/or Unitrend Industries Limited, a company owned or controlled by the Defendant."

(ii) On the agreement over ST Lot No 300 ('ST Lot No 300 Agreement'), the same was made orally between the Plaintiff and Lau sometime in about early 1990.

(iii) On the agreement over ST Lot No 303 ('ST Lot No 303 Agreement'), the same was made partly orally and partly in writing. Insofar as ST Lot No 303 Agreement was made orally, the same was made between the Plaintiff and Lau sometime in about mid-1991. Insofar as ST Lot No 303 Agreement was made in writing, the same was evidenced by an undated written Chinese agreement signed by the Plaintiff and someone on behalf of Addtrend Industries Limited, a company owned or controlled by the Defendant.

(iv) On the agreement over ML Lot No 703 ('ML Lot No 703 Agreement'), the same was made orally between the Plaintiff and Lau sometime in about early 1991.

(b) The ST Lot No 302 Agreement, ST Lot No 300 Agreement, ST Lot No 303 Agreement and ML Lot No 703 Agreement (collectively 'the said Agreements') were:-

(i) also to be inferred from the conduct of the Plaintiff and the Defendant in that the Plaintiff did render services and provide materials to the said construction sites which were accepted by the Defendant or its agents;

(ii) further evidenced by the statements of accounts prepared by the Defendant and the correspondence between the Plaintiff's Solicitors and the Defendant's Solicitors as pleaded hereinbelow."

Failure to disclose a reasonable cause of action

6. At the hearing, the first ground taken by Mr Nigel Kat on the Defendant's behalf, was that the abovementioned pleading did not disclose a cause of action in that the details of each of the four contracts pleaded did not even purport in each case to allege an agreement between the Plaintiff and the Defendant. Thus, he argued, in two cases, the contract alleged was an oral agreement alleged made between the Plaintiff and Lau and in two other cases, the contract was allegedly made, orally between the same parties and in writing involving, in the first place, the Defendant "and/or Unitrend" and secondly, merely Addtrend. Mr Kat rightly points out that in sub-paragraphs (i) to (iv), there is no express pleading of any agency.

7. I agree that the pleading is susceptible to criticism for being slack and lacking in material particulars. However, I do not consider that, fairly read, it discloses no cause of action. The context of the four sub-paragraphs must be noted. Paragraph 3(a) expressly alleges that the four agreements were "made between the Plaintiff and the Defendant". It is this general allegation that is sought to be particularised (somewhat defectively) in sub-paragraphs (i) to (iv). Those sub-paragraphs set out how each of the agreements (which paragraph 3(a) has alleged was between the parties) came into being: orally in the case of two, and partly orally and partly in writing in the case of the other two.

8. It is quite true that paragraph 3(a)(ii) and paragraph 3(a)(iv) merely state that the Plaintiff made the agreement orally with Lau. However, in paragraph 3(a)(i), where Lau is first mentioned, he is described as "Mr Lau Yue Kwok of the Defendant". Taking that into account together with the fact that sub-paragraphs (i) to (iv) are intended as particulars of the express allegation that the agreements were between the Plaintiff and the Defendant, I consider that the allegations in these two sub-paragraphs may fairly be read as implicitly alleging that Lau was acting on the Defendant's behalf in making the oral agreements with the Plaintiff. I therefore do not consider that paragraphs 3(a)(ii) and paragraph3(a)(iv) should be struck out as disclosing no reasonable cause of action.

9. Turning next to paragraph 3(a)(iii), once more, one notes that this is intended as particulars of the allegation in 3(a) that the agreements were made between the parties. It alleges that the ST Lot No 303 Agreement is one which came about partly orally, by what passed between the Plaintiff and Lau, and partly as a result of the Chinese agreement signed on behalf of Addtrend. So far as the alleged oral transaction is concerned, for the reasons already given, I would read the pleading as containing the implicit allegation that Lau was acting on the Defendant's behalf. Similarly, although the position is less clear in the case of Addtrend, the pleading appears necessarily to imply that Addtrend signed the contract on the Defendant's behalf. Assuming, as I have found, that insofar as it was oral, the contract was made by Lau on the Defendant's behalf, it would appear necessarily to follow that the written aspect, signed by Addtrend, was also entered into on the Defendant's behalf. This is understanding of the pleading is required by paragraph 3(a)'s allegation that, like the other 3 agreements, this contract was made between the Plaintiff and the Defendant. While the pleading merits criticism for lack of precision and while my reading of it may be thought to be generous, I do not think that it plainly and obviously fails to disclose a reasonable cause of action.

10. Turning to paragraph 3(a)(i), the points made about the general words of paragraph 3(a) and about Lau's involvement in the alleged oral aspect of the contract also apply. However, Mr Kat attacked the plea that the written aspect was an agreement "signed by the Plaintiff and someone on behalf of the Defendant and/or Unitrend Industries Limited, a company owned or controlled by the Defendant." He argued that this either failed to disclose a reasonable cause of action or was seriously embarrassing since the Defendant was left not knowing whether it was definitely being said that it was a party to this contract.

11. The pleading is obviously not the model of clarity. However, in my view, it must be borne in mind that the words complained of in paragraph 3(a)(i) relate to the signing of the document. There is no doubt that paragraph 3(a) is alleging that the resultant parties to the contract are the Plaintiff and the Defendant. Prima facie at least, the Defendant should not be in doubt that it is being alleged that it was a party to the agreement.

12. Is the manner of pleading the signature embarrassing? In my view, it is not. It is capable of meaning that the signature was appended by an individual authorised to sign on behalf of Unitrend, which company in turn was signing as agent for the Defendant. When we turn later to the evidence, the document appears, in my view, to bear this out. Again, it is of course true that the pleading merits criticism for putting the point in an over-compressed and unclear form. However, once more, I do not consider it a pleading which plainly and obviously fails to disclose a reasonable cause of action.

13. In note in this context that in the Defence, the Defendant puts the Plaintiff "to strict proof" of the agreements alleged. This suggests, in my view correctly, that the question of whether the agreements alleged exist are a matter of evidence and proof and not for striking out as disclosing no reasonable cause of action under O 18 r 19. It also goes without saying that the Plaintiff may obviously fail to establish the agency as a matter of evidence. My decision is merely that, purely as a matter of pleading, paragraphs 2 and 3 are not so deficient as to deserve being struck out as disclosing no reasonable cause of action.

Embarrassment

14. Mr Kat sought to argue that because the pleading did not specify the dates at which the sums claimed were said to have become due and payable, the Defendant was embarrassed since it did not know whether it had a defence of limitation. In my view, the proper course to adopt in such a case, is to request particulars or to serve interrogatories regarding the relevant dates. If such request was necessitated by the Plaintiff's culpable failure to plead necessary particulars, the Defendant might be entitled to the costs of so proceeding. I do not consider the alleged embarrassment to be such as to justify striking out the pleading in limine.

15. Moreover, the Amended Statement of Claim pleads that the statements of account relied upon by the Plaintiff were provided by one Leung Ting Hwa on the Defendant's behalf on 20 May 1997, 31 July 1997 and in October 1997. While it is true that the pleading does not expressly state that they were in writing and signed on the Defendant's behalf (as would be required by section 24 of the Limitation Ordinance), the documents have been exhibited and Mr Kat accepted that the statements might arguably constitute an alleged acknowledgment of the debt potentially extending the limitation period. Whether or not such an acknowledgement can be established, it remains my view that this is a case for clarifying the nature of the Plaintiff's claim and not for striking out the pleading.

Abuse of the process

16. I turn next to the contention that the Amended Statement of Claim ought to be struck out as an abuse of the process. This is a ground advanced on the basis of evidence filed.

(i) The evidence of the written agreements or portions of agreements

17. As Mr Kat put it in his skeleton argument, the main contention was that the Plaintiff "has the wrong Defendant". In the first place, this is an argument which mirrors the points already discussed in relation to paragraphs 2 and 3 of the Amended Statement of Claim and involves considering the terms of the written agreements exhibited.

18. Thus, Mr Kat referred to the exhibited copy of the ST Lot No 302, which, it will be recalled, is pleaded to have been signed "by the Plaintiff and someone on behalf of the Defendant and/or Unitrend ....... ". He argued that on such evidence it was clear that the contract was not between the Plaintiff and the Defendant but with Unitrend. Similarly he argued that ST Lot No 303 was between the Plaintiff and Addtrend and not the Defendant.

19. In my view, although the Defendant may ultimately be proven right, I do not consider the evidence so unequivocal that the pleaded case should struck out.

20. Thus, the copy of the first of those contracts shows that the signature consisted of three elements. First, there were handwritten Chinese characters which, it is accepted, are the equivalent of "Chinachem Realty Limited", i.e., the Defendant's name. Secondly, immediately beneath those Chinese characters, a stamp, roughly in the shape of a box designed to contain a signature or initial, has been applied. This stamp states at the top of the box: "For and on behalf of Unitrend Industries Limited, followed by its Chinese equivalent. At the bottom edge of the stamp is a dotted line indicating where the signature should be placed, and underneath that dotted line, the words "Authorized Signatures(s)". The third element is an initial which appears to have been subscribed above the dotted line. In these circumstances, it appears at least arguable that, on its true construction, this is a document which was signed by an authorized officer or employee of Unitrend on behalf of Unitrend, with Unitrend itself signing as a corporate agent of the Defendant.

21. The Plaintiff's case on ST Lot No 303 is weaker because no handwritten characters for Chinachem Realty Limited appear above a similar stamp and initial for Addtrend. However, in my view, it would be open to the Defendant to try to establish that Addtrend, like Unitrend, signed as agent for the Defendant.

22. The Defendant also relies on documents such as quotations and receipts referring, not to the Defendant but to other companies including Unitrend, Wallcharm Development, Addtrend and Addship respectively. Again, while it is by no means clear that the Plaintiff will be able to make good his case, it is a case based on agency, which, if made good, could account for documents of this nature passing between the Plaintiff and these alleged agents while retaining liability on the part of the Defendant. It is therefore not, in my view, plain and obvious that these documents show that the contract was between the Plaintiff and these other companies to the exclusion of the Defendant.

(ii) Contracts entered into prior to the Defendant's incorporation

23. The next ground relied on to strike out the pleading as an abuse of process involves the contention that, on the evidence, the Defendant cannot be liable on any of the contracts sued upon because it was only incorporated in 1993, after the dates of the alleged agreements (spanning the period 1989 to 1991).

24. The evidence relevant to this point emerged in dribs and drabs and may even now not be entirely developed. The picture which has so far emerged is that a company called "Chinachem Realty Limited", i.e., with exactly the same name as the Defendant's, was incorporated on 21 March 1978, with Wang Teh Huei and Mrs Nina T H Wang as its directors. It was of course in 1978 that the Plaintiff says he started working for the Defendant, meaning no doubt, a company called "Chinachem Realty Limited".

25. The evidence, however, now suggests that the abovementioned company changed its name to Tunis Limited at an Extraordinary General Meeting held on 28 February 1983. A certificate of incorporation on change of name was issued on 8 March 1983. The abovementioned Mr and Mrs Wang were holders of the only two issued shares and were, with two others, registered as directors of Tunis.

26. Subsequently, the Defendant, taking once more the name Chinachem Realty Limited, apparently became incorporated in 1993, with Mrs Nina T H Wang as one of its directors.

27. There is accordingly, at least prima facie, force in the Defendant's argument that it cannot be bound by the contracts sued upon because it was not yet in existence when they were allegedly made: see Chitty on Contracts, 28 Ed, §9-012. Given the unusual background involving the first Chinachem Realty's change of name, it is perhaps not surprising that the Plaintiff may have been under a misimpression as to the identity of the other contracting party. However, as this was a point which emerged at a very late stage, the evidence bearing on its implications and on related questions has not been explored or placed before the court. A range of questions arise. For example: Since the Plaintiff says that he has worked continuously for the Defendant since 1978, did he initially contract with the first Chinachem Realty? With whom did the Plaintiff contract after the change of name to "Tunis"? If the Defendant did not contract with the Defendant, with whom did he contract? What, if any, interest did the Defendant acquire in relation to the construction sites in question after it was incorporated?

28. While the action against the Defendant now appears prima facie untenable, it is not a conclusion that one ultimately must inevitably arrive at. Thus, it is conceivable, subject to exploration of the evidence, that even if the contracts sued on constitute pre-incorporation contracts so far as the Defendant is concerned, that liability on the Defendant's part could be set up on the basis that after its incorporation, a fresh contract between the Defendant and the Plaintiff can be inferred, if the Defendant took possession of property belonging to the Plaintiff or has modified the terms of the original contract: see Chitty on Contracts, 28th Ed., §9-014.

29. The germ of this argument is possibly detectable in paragraph 3(b)(i) of the Amended Statement of Claim where the Plaintiff alleges that the agreements are "also to be inferred from the conduct of the Plaintiff and the Defendant in that the Plaintiff did render services and provide materials to the said construction sites which were accepted by the Defendant or its agents." This line might derive support from the Plaintiff's allegations that, well after its incorporation, the Defendant issued statements of account acknowledging the sums due from it for such work and materials and subsequently had FK&Co write on its behalf implicitly acknowledging this.

30. However, as it stands, the pleading in paragraph 3(b)(i), fairly read, merely attempts to support the existence of a contract between the Plaintiff and Defendant in the 1989-91 period. It is not a pleading of a fresh, post-incorporation contract. Further material facts, if they exist, would have to be alleged and established before such a line could be set up.

31. I have referred above to a conceivable argument simply to indicate that I do not consider that any case against the Defendant, as opposed to some other entity, is necessarily doomed. I am equally not to be taken to be suggesting that conceivable argument may be valid. The reality, as I have stated, is that the evidence has not been explored. Accordingly, it is not yet known whether the facts which would be essential to the success of maintaining a claim against the Defendant can be pleaded and established.

32. I have, in this context, also considered whether the evidence disclosed at the hearing suffices to make it arguable that the Defendant is estopped by representation from denying that it entered into the relevant contracts or alternatively from denying that it is liable for the sums stated to be owing by virtue of the statements of account and solicitors' correspondence relied on by the Plaintiff.

33. I have concluded that the evidence is simply not sufficient at this stage to allow me to draw such a conclusion. For instance, there is presently no sufficient evidence of detriment having been suffered by the Plaintiff in reliance on the statements of account and/or the correspondence. Again, this is not surprising since the point only emerged at the last moment.

Conclusion

34. I have therefore come to the conclusion that I cannot allow the Plaintiff's claim to proceed with its pleadings in the present condition. If it does so without amendment, it is a pleading which is, in my view, doomed to fail on the pre-incorporation contract point.

35. However, it is also my view that on the basis of what is so far known, it is plainly not a pleading which is incurably bad. The pre-incorporation contract point having now emerged, the Plaintiff will obviously have to explore the evidence and consider whether it has a viable claim against the Defendant and if so, on what basis such a claim can be formulated. The Plaintiff will obviously also have to consider whether it ought to join other parties, and so forth.

36. Under O 18 r 19, the court has a discretion to allow an opportunity to amend even though the formulation of the amendment is not before the court: CBS Songs Ltd v Amstrad [1987] RPC 417 at 424, SCP 1999, 18/19/2. Obviously, giving leave to amend on this basis is without prejudice to any further application by the other party to object to the amended pleading as filed. In my judgment the appropriate order in the present case is to strike out the Amended Statement of Claim but at the same time to give the Plaintiff leave to serve a fresh pleading on the abovementioned basis. I also wish to indicate that in line with the rule in O 15 r 6 that no cause or matter shall be defeated by reason of the misjoinder or nonjoinder of any party, a proper application to join or substitute such parties as may appear appropriate in the light of recent evidential developments is likely to be viewed sympathetically. The orders which I make on the summons are therefore as follows:-

1. That the Amended Statement of Claim be struck out under the Rules of the High Court, Order 18 rule 19 and under the inherent jurisdiction of the Court on the ground that the evidence disclosed before the Court establishes that the contracts sued upon are alleged to have been entered into prior to the date of incorporation of the Defendant herein.

2. That the Plaintiff be at liberty, if so advised, to serve within 28 days from the date of this Order, a Re-amended Statement of Claim in substitution for the Amended Statement of Claim struck out as aforesaid.

3. That if the Plaintiff should fail to serve his Re-amended Statement of Claim within the said period of 28 days, the Defendant be at liberty to apply for the dismissal of this Action on 2 clear days' notice.

4. Liberty to serve a Re-amended Statement of Claim as aforesaid is granted without prejudice to any application that the Defendant may seek to make by way of challenge to the fresh pleading served thereunder.

5. Liberty to apply.

Costs order nisi

37. In the ordinary case the costs would probably be ordered to follow the event. However, the way in which the Defendant initiated and pursued its striking-out application was less than commendable and, in my view, takes this case out of the ordinary.

38. Practice Direction 21.4 requires a party contemplating such an application to inform the other party at least 5 clear working days before the hearing of the grounds relied on. This was never done. Mr Kat tells me that he was himself only instructed two days prior to the hearing.

39. The only purported "grounds" stated in the Summons itself were that the Statement of Claim (which should have been a reference to the Amended Statement of Claim) "discloses no reasonable cause of action, and/or it is scandalous, frivolous or vexatious, and/or it is otherwise an abuse of process of the court". This told the Plaintiff nothing about the precise basis of the complaint.

40. Since the Defendant was also seeking to strike out the pleading on the basis of evidence, it filed an Affirmation of Joseph Leung Wing Kong on 26 August 1999 in support. However, this merely purported to exhibit "documents received from the Plaintiff's solicitors by way of inspection in the action." It was pointed out by Mr C Y Li, appearing on the Plaintiff's behalf, that this carried as an "exhibit", a bundle of 503 pages with no indication at all as to how they were of relevance. When that affirmation came to be inserted in the bundle for the hearing, the only document exhibited was a 10 page company search relating to the Defendant company. Obviously, the affirmation not only told the Plaintiff nothing about the real basis of the application, it is likely to have engendered significant wasted costs when his solicitors and counsel had to go through the exhibit to try to ascertain what points the Defendant was trying to make on the basis of such voluminous documents. Even the cost of copying the documents to counsel would have been significant.

41. This way of conducting a striking out application is to be deprecated. The application must be made openly and not as a matter of ambush. If a pleading is seen to be defective, the party seeking to strike it out has a duty to indicate to the other side precisely what the perceived defect is. If it turns out to be a defect potentially curable by amendment, this gives the other side the opportunity to cure it without wasting costs and the court's time on a striking-out application. If, on the other hand, the defect is not curable, the other party is given an opportunity to drop the offending claim or defence, or even the whole action, again saving time and costs. No contested application should proceed to a hearing without both parties having had an opportunity to consider the relevant points, fully exposed.

42. In the present case, the Defendant has succeeded on the pre-incorporation point which is a point never properly flagged or developed prior to launching the application. The evidence bearing on it did not emerge all at once but was developing right up to the last moment before the hearing. The Plaintiff has therefore never had a proper opportunity to consider whether it ought to amend in relation to the crucial point before having to face a striking-out application. In my judgment, it would accordingly be wrong to make it bear the costs of the application in such circumstances.

43. I therefore make the following costs order nisi, namely, that there be no order as to the costs of the application.