KAR HO DEVELOPMENT CO. LTD. v. AXIS INVESTMENT LTD.

HCA15562/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15562 OF 1999

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JUDGMENT

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Hon Lugar-Mawson J:

1. This is the plaintiff's appeal against the order of Master H.C. Wong made on 16 March 2000 dismissing the plaintiff's application to strike out parts of the defence and counterclaim.

2. The application to the Master was made under o.18, r.19 of the Rules of the High Court and the inherent jurisdiction of the court on the grounds that; the defence and counterclaim are frivolous or vexatious - r.19(1)(b); that they may prejudice, embarrass or delay the fair trial of the action - r.19(1)(c); and that they are otherwise an abuse of a process of the court - r.19(1)(d). It is no part of the application that they failed to disclose a reasonable defence and cause of action under counterclaim - r.19(1)(a). This was confirmed by Mr Kenneth Kwok, S.C., in the course of argument before me on Friday.

3. The plaintiff seeks to strike out the following parts of the defence and counterclaim. Firstly, the words "& counterclaim" in the title of the defence and counterclaim"; secondly, paragraphs 12, 13, 14, 15, 16, 17 and 20 of the defence and counterclaim; thirdly, the words "As the defendant has duly rescinded the agreement pursuant to clause 4(4)(c) thereto" in paragraph 23 of the defence and counterclaim; and fourthly, the whole of the counterclaim.

4. The plaintiff was the vendor of a flat in an uncompleted building, Flat B on the 8th Floor, Tower 2, "The Greenwood", "Laguna Verde" in Kowloon. The defendant was the purchaser. The plaintiff, having obtained the consent of the Director of Lands, entered into an agreement for its sale and purchase with the defendant on 25 March 1997.

5. The plaintiff alleges that the defendant wrongfully failed to complete the sale and purchase and claims for damages. The defendant claims that it rescinded the agreement on or about 9 July 1998, which is the day when the plaintiff's notice to complete expired. It says it was entitled to do so under the provisions of the agreement. The defendant counterclaims for refund of the deposit paid under the terms of the agreement.

6. The authorities indicate that it is only in plain and obvious cases that recourse should be heard to the summary process provided for by r.19. See Lord Lindley, MR, in Hubbuck v. Wilkinson [1899] 1 QB 86 at page 91 and Kemsley v. Foot [1951] 2 KB 36, affirmed at [1952] AC 345 (HL).

7. When o.18, r.19(1)(a) forms the basis of the application, the jurisdiction cannot be exercised by a minute and protracted examination of the documents and facts of the cause in action to see whether the defendant has a defence and cause of action supporting the counterclaim. See Wenlock v. Maloney [1965] 1 WLR 1238. Indeed o.18, r.19(2) forbids evidence being led on an application brought under that sub-rule.

8. Where an application to strike out pleadings involves prolonged and serious arguments, the court should, as a rule, decline to proceed with the argument unless the Master or Judge not only harbours doubts about the soundness of the pleadings, but in addition is satisfied that striking out would obviate the necessity for a trial or substantially reduce the burden of preparing for trial. See Williams & Humbert Limited v. W. & H. Trade Marks (Jersey) Limited [1986] AC 368 (HL).

9. All these principles were reiterated by Godfrey J in Hutchvision Asia Limited v. Asia Television Limited [1993] 2 HKC 501. The relevant parts of the headnote to the report read:

"(1) The court has a jurisdiction to strike out a defence because it is bound to fail, but it is a jurisdiction which ought to be very sparingly exercised and only in very exceptional cases. The exercise is not justified merely because the story told is highly improbable and one which it is difficult to believe could be proved. See Lawrence v. Lord Norris (1890) 15 AC 201 applied.

(2) The court will be particularly careful in exercising this very exceptional jurisdiction when the pleading sought to be struck out is a defence. They will do so satisfied that the defendant "has not a shadow of a defence". Michael v. McGrath (1889) 14 AC 665 applied.

(3) It is only when a pleading can be shown to be of such character, for example because it is a sham or entirely without substance that to rely on it must be an abuse of process of the court, that the jurisdiction will be exercised in favour of striking it out. In the case of a defence, it must appear as in a procedure for summary judgment that the plaintiff plainly has no bona fide defence. Remington v. Scholls [1897] 2 Ch 1 applied.

4) The court would not embark at this stage of an action on a consideration whether the case one side or the other is true or false. It will consider only whether the nature of the defence is such that it has to be characterised as an abuse of the process of the court, which is something else altogether.

10. At page 415, lines A to E, Godfrey J said the following:

"What unfortunately has happened is that more and more often practitioners have attempted in proceedings for striking out and/or summary judgments to persuade the court to embark on a mini-trial by affidavits of the allegations made respectively by the plaintiff against the defendant and vice-versa. I cannot too strongly protest against this practice which too many practitioners apparently but unjustifiably deriving an encouragement from a decision of a local Court of Appeal in Moorjani BK v. Bank of India [1990] 1 HKLR 586, where the alleged defence was plainly advanced dishonestly, have embraced with misguided enthusiasm. It is one of the reasons why the lists are clogged with interlocutory applications and why trials which would otherwise have taken place much sooner are unnecessarily delayed. It is time to make it clear that only when a pleading can be shown to be of such a character, e.g. because it is a sham entirely without substance, that to rely on it must be an abuse of the process of the court, that this very unusual jurisdiction would be exercised in favour of striking it out. In the case of a defence it must appear, as in proceedings for summary judgments, that the defendant plainly has no bona fide defence."

11. Godfrey J also said, at page 512, lines F to G, that he was aware of only two reported decisions in which a court had exercised its power to strike out a defence as an abuse of process. I have no reason to doubt the depth of the learned judge's research.

12. The defence in this case will involve the court in the construction of a number of definition clauses in the sale and purchase agreement to see exactly what works the vendor was obliged to complete before a given date provided for in the agreement. That date could be extended by an authorised person under certain circumstances provided for in the agreement. It will also involve the court in determining exactly what works are included in the queried definition. This will not only require a complex exercise in construction, it will also require recourse to the building plans approved by the Building Authority.

13. In addition, the court will be called upon to construe two subtly different worded clauses in the agreement, clauses 4(4)(a) and 4(4)(c), providing for the purchaser's right to rescind the contract on the vendor's default in completing the construction works. It will also involve the question of whether or not in certain circumstances the fact of rescission can be communicated to the other party by conduct or inactivity.

14. As Godfrey J made it clear in Hutchvision v. Asia Television, I am not called upon to embark on a mini-trial of these issues. Neither, as I see it, am I called upon to express any views as to the apparent strength of the evidence or the arguments of either party.

15. Applying what I see to be the principles that should guide a Master or Judge when deciding an application under o.18, r.19; I cannot say that Master Wong was wrong in dismissing the plaintiff's application; I cannot say that the parts of the defence and counterclaim that the plaintiff takes exception to are scandalous, frivolous or vexatious; I cannot say that they may prejudice, embarrass or delay the fair trial of this action; and I cannot say that they are in any way an abuse of the process of this court.

16. The plaintiff's appeal from Master Wong's order is dismissed. Master Wong's order stands, including the order for costs, and the plaintiff must bear the defendant's costs of this appeal in any event.