LAM FUNG YING v. HO TUNG SING AND ANOTHER

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H E A D N O T E

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Where a party litigant is faced with making a choice between two different courses of action, and by words or conduct represents to the other party his election in favour of one course, with the result that the other party conducts himself in reliance on that representation, the first party is estopped from resorting afterwards to the other course.

1992, NO. 154
(Civil)

IN THE COURT OF APPEAL

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J U D G M E N T

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Godfrey, J. delivering the judgment of the Court

1. This is an appeal from an order made by Mr. Ronny Tong, Q.C., sitting as a deputy judge of the High Court, on 30th June 1992, whereby the judge allowed an appeal from an order of Master Yam made on 29th April 1992. The action in which these orders were made was an action, No.A2329 of 1992, in which the present appellant (to whom we shall refer as "the plaintiff") was the plaintiff and the present respondents (to whom we shall refer as "the defendants") were the defendants.

2. The master, asked by the defendants to strike out the action, refused to do so. The judge, taking the view

that the action was bound to fail, did strike it out. The plaintiff now appeals to this court. We have to decide whether or not she should have been allowed to continue with her action.

3. The plaintiff's complaint against the defendants was first ventilated in an earlier action No.A2704 of 1991; we shall refer to this earlier action as "the original action" and to the action No.2329 of 1992, in which the order under appeal was made, as "the subsequent action". The plaintiff's grievances raised in the original action concerned the failure or alleged failure of the defendants to perform their part of an agreement between the parties following the dissolution of a partnership previously existing between them. While the original action was still in its interlocutory stages, the parties compromised, or attempted to compromise, it. It is this compromise, or the attempt to arrive at it, which gives rise to the questions with which this court is now concerned.

4. We can start the story on 5th December 1991, on which date settlement negotiations took place between a representative of the plaintiff's solicitors, Robert Lee & Fong, and a representative of the defendants' then solicitors, Lo, Chan, Chan & Leung. On behalf of the plaintiff, it was asserted in evidence filed on her behalf in the original action that there was concluded on 5th December 1991 a "verbal" agreement (by which of course was meant an oral agreement) for the settlement of the action. We refer to the affidavit made by one Fu Chi Kai in the original action and filed on behalf of the plaintiff on 16th January 1992. Paragraph 2 of that affidavit reads as follows:-

"2. By a verbal agreement made on 5th December 1991 between the Plaintiff's solicitors Messrs. Robert Lee & Fong and the Defendants' then solicitors Messrs. Lo, Chan, Chan & Leung for and on behalf of the respective parties, the parties agreed to settle this action on the following terms, namely:-

(i) Judgment be entered in favour of the Plaintiff against the Defendants for the sum of HK$110,000.00 in full and final settlement of this action;

(ii) The Defendants do have leave to withdraw their counterclaim herein forthwith;

(iii) There be a stay of execution on the judgment so long as the Defendants pay the Plaintiff the sum of HK$110,000.00 by six installments in the following manner:-

(a) The 1st installment of HK$20,000.00 to be paid on the date of execution of a Consent Summons; and

(b) The 2nd to 5th installments of HK$20,000.00 each and the 6th installment of HK$10,000.00 to be paid by post-dated cheques on the same date as the date of the Consent Summons in each and every succeeding month;

(iv) If the Defendants shall default in paying the said installments or any part thereof on the due dates or any one thereof, the stay of execution shall be immediately removed in respect of the whole outstanding balance at the time of such default and the Plaintiff shall be at liberty to levy execution forthwith;

(v) The Plaintiff shall transfer the 20ft. trailer No.10095T to the Defendants and shall execute all necessary documents to effect such transfer;

(vi) The Defendants shall transfer the 40ft. trailer No.9879T to the Plaintiff and shall execute all necessary documents to effect such transfer;

(vii) There be no order as to costs."

5. The deponent added that "the verbal [sic] agreement was to be incorporated into a consent summons in order to formally dispose of this matter". (It does not appear whether this was expressly agreed; but this does not matter, since it must be taken as having been impliedly agreed that the compromise would be embodied in a consent order. Without such an order, the compromise, having regard to the nature of its terms, could not have been made to work.)

6. Later on 5th December 1991, the plaintiff's solicitors sent the defendant's then solicitors a letter enclosing their proposed consent summons. They said: "If the contents of the consent summons meet with your approval, please endorse your consent thereon and return it to us for our filing at your earliest convenience". They asked for the first installment payment for which the proposed consent summons provided and for the post-dated cheques for the subsequent installments for which it also provided. They further asked for a notice of transfer of ownership of the trailer to be transferred to the plaintiff pursuant to the compromise.

7. But it transpired that the defendants, or at least one of them, did not accept that the defendants' then solicitors had authority to compromise the original action. In these circumstances, the defendants changed their solicitors. They instructed Day & Co. in place of Lo, Chan, Chan & Leung, and Day & Co. went on the record as the defendants' solicitors on 18th December 1991. However, Day & Co. were not on the record long; for on 8th January 1992 the defendants gave notice of their intention to act in person.

8. We pause there. What was the plaintiff now to do? She was faced with a number of options, none of them ideal.

9. Her first option was to accept the defendants' repudiation of the compromise and to get on, or attempt to get on, with the original action. This was not ideal, for she would thereby lose the benefit of the compromise which she had obtained (or, at any rate, thought that she had obtained).

10. Her second option was to attempt to assert the compromise by seeking to enforce it in the original action. This was not ideal, either; for, in the absence of an endorsed consent summons, she might have difficulty in persuading the court to make the appropriate order. In Foskett's Law and Practice of Compromise, 3rd Edition, 1991, at p.74, the author expresses the view (with which we agree) that ".... a court would have jurisdiction to make an appropriate consent order giving effect to a previously concluded compromise notwithstanding the lack of formal consent to the making of the order by one of the parties, provided that there was an expressed or implied term of the agreement that the order should be made." But the point is not clear beyond argument; and anyway the defendants in the present case had refused to accept that there had been "a previously concluded compromise", so that the issue would have to be decided, and decided in favour of the plaintiff, before she could make any further progress with this option. And even if the issue was decided in favour of the plaintiff, it might be possible for the defendants, having lost on the issue, then to go on to argue that the compromise had the effect, not of entitling the plaintiff to an order in the terms of the proposed consent summons, but of entitling the plaintiff merely to damages for breach of the compromise agreement (a claim which she would be able to advance only in a fresh action).

11. The plaintiff's third option was to attempt to assert the compromise in precisely that way; i.e. by bringing a fresh action against the defendants for damages for breach of the compromise agreement. But this would be even less satisfactory; for the plaintiff would have lost her right to get on with her original action (if indeed that right had survived the compromise agreement) and also her right to a consent order embodying the terms which had been agreed.

12. A litigant faced with choices such as these finds himself (or herself) in an unenviable position. But some election must be made. We can now resume the narrative; indicating in doing so the election which the plaintiff did in fact make here.

13. The first step the plaintiff took after the defendants repudiated the compromise was to apply for a judgment on terms carrying into effect the compromise agreement; she went for the second option. But, on 23rd January 1992, Master Woolley rejected her application. There is in evidence an attendance note of the hearing before the master, made by the representative of the plaintiff's solicitors who attended the hearing (at which only one of the defendants was present), from which it appears that the master was "not prepared to deduce an agreement from the correspondence exchanged between solicitors".

14. The plaintiff was now faced with another choice; i.e. whether or not to appeal against Master Woolley's refusal of her application or to write off the repudiated compromise and get on with her original action.

15. She elected not to appeal against the decision of Master Woolley. Instead, she elected to get on with her original action, by restoring on 27th January 1992 an application for particulars in that action which she had originally made on 26th July 1991 and which, on 5th December 1991, had been adjourned sine die on the footing that a compromise of the action had been reached. The return date given for the restored hearing of the plaintiff's application for particulars was 12th February 1992. On that day, another firm of solicitors, Chan, Wong & Lam, gave notice to act on behalf of the defendants and the master made an order for the particulars requested. But the particulars were not given; and on 6th March 1992 the plaintiff applied for an "unless" order for the particulars.

16. On 11th March 1992, the defendants gave the particulars requested. On the same day, they consented to an order vacating the date (12th March 1992) on which the plaintiff's application for the "unless" order was due to be heard. The consent order provided for the plaintiff to have her costs of applying for it.

17. We pause again. The conduct of the plaintiff just described is consistent only with an election (it does not matter whether it was wise or foolish, or even whether it was permissible) to get on with the original action rather than to seek to assert the compromise. By her conduct, too, the plaintiff communicated her election to the defendants who, by giving the particulars requested, accepted and acted on it, incurring costs in doing so.

18. But then the plaintiff had second thoughts.

19. On 1st April 1992, the plaintiff instituted the subsequent action, setting up the compromise agreement and seeking to enforce it. The plaintiff claimed (1) the sum of $110,000 (for which, under the compromise, judgment for the plaintiff was to be entered); (2) interest; (3) further and other relief; and (4) costs.

20. In our judgment, this was a step which the plaintiff was not entitled to take, having regard to her earlier election (in the light of the defendants' repudiation of the compromise agreement and the master's rejection of her application to enforce it) to prosecute the original action.

21. The judge said (and we apprehend there is no dispute about it) "... that where a good plea of estoppel is shown the court may strike out the pleading and dismiss the action under O.18, r.19 and the inherent jurisdiction of the court". He rightly directed himself that the court's discretion to do this was to be exercised only "in the most clear and obvious cases". What the judge had to decide (and what this court also has to consider) is whether this is such a case.

22. We agree with the judge that it is. If the subsequent action is allowed to go on, the defendants' defence, that the plaintiff, having elected to prosecute the original action, cannot now resile from that and set up the compromise instead, is bound to succeed. The subsequent action is therefore bound to fail; and the judge was right to strike it out.

23. A number of authorities were cited to us but really there is no point of law in the case. The relevant principle, which is undisputed, is set out as follows in Spencer Bower & Turner, Estoppel by Representation, 3rd Edition (1977), at p.333:-

"... it very frequently happens that a party litigant is confronted with the necessity of immediately making a definite choice between two possible courses of action which are mutually exclusive. Whenever this occurs, the general rule of estoppel by election comes into play: that is to say, if by words, or (as is almost invariably the case) by conduct or inaction, he represents to the other party litigant his intention to adopt one of two alternative and inconsistent proceedings or positions, with the result that the latter is thereby encouraged to adopt or persevere in a line of conduct which he otherwise would have abandoned or modified, or (as the case may be) change tactics from which he otherwise would never have deviated, the first party is estopped, as against his antagonist, from resorting afterwards to the course or attitude which, of his free choice, he has waived or discarded."

24. We see no escape for the plaintiff from this on the facts of the present case. By restoring her application for particulars she plainly represented to the defendants her intention to prosecute the original action rather than to set up the compromise.

25. There is, however, one further matter with which we ought to deal. During the course of the argument, a member of this court drew attention to the fact that the evidence before the court as to what took place between the representatives of the parties' solicitors on 5th December 1991 was jejune. There was uncertainty as to whether the requirement for the compromise to be embodied in a consent order was not just a term, but a condition, of the agreement. If a condition, was it a condition precedent to the formation of the agreement; or a condition subsequent (so that a breach of the condition would dissolve the agreement)? And were the parties to be taken as having intended that the compromise agreement was to discharge all original claims or counterclaims? Did it, or did it not, provide for their revival in the event of breach? Did the agreement constitute a complete accord and satisfaction?

26. If it were necessary to resolve these uncertainties in order to resolve the question which the judge had to decide, it is difficult, as another member of the court pointed out, to see how that could be done in the absence of of viva voce evidence (tested if necessary by cross-examination) of the representatives of the parties' solicitors who were said to have made the compromise agreement. If such an exercise were necessary, it would be impossible to contend that the defendants' case of estoppel by election was so plain and obvious that the action on the compromise must be bound to fail.

27. But in fact it is not necessary to resolve these uncertainties. Until these matters were raised in the course of the argument all the material facts had, rightly, been treated (as the judge noted) as agreed. And indeed none of the facts material to the resolution of the problems raised in this appeal are in dispute. There is nothing which could emerge at the trial of the subsequent action to displace the crucial fact that the plaintiff, faced with the choice between prosecuting the original action or instituting the subsequent action, elected for the former, by restoring for hearing (as she did on 27th January 1992) her application for particulars in the original action. The plaintiff rejected the alternative choice, which was for her to set up the compromise, whether by appealing the decision of Master Woolley on 23rd January 1992 or by instituting a fresh action based on the compromise.

28. From that election she cannot now be permitted to resile. We have no doubt, despite the uncertainties about the ipsissima verba and true effect of the oral agreement concluded, or said to have been concluded, on 5th December 1991, that the plaintiff here plainly did elect to prosecute the original action rather than to set up the compromise. For present purposes, that is all that matters. There is no need for further enquiry as to the nature and effect of the alleged compromise. Whatever its nature and effect, the plaintiff elected against it; and it is that election to which she has to be held, and from which the court cannot permit her to resile by now re-asserting a right to set up the alleged compromise.

29. For these reasons, we would dismiss this appeal; but not without first expressing our appreciation of the clear and cogent argument advanced (albeit unsuccessfully) by Mr. Anderson Chow on behalf of the plaintiff. We will make an order nisi that the defendants have the costs of the appeal.