KAR HO DEVELOPMENT CO. LTD. v. CHAN WAI WAH

HCA8039/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.8039 OF 2000

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REASONS FOR JUDGMENT

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Appeal

1. This is an appeal by the defendant against the master's order dated 7 July 2001 striking out its counterclaim with costs on the ground that it disclosed no reasonable cause of action.

2. On 21 December 2001, I dismissed the appeal with costs. I indicated written reasons of my judgment would be given later, which I now do.

Claim

3. The present dispute arose out of an abortive sale and purchase of Flat A, 25/F, Tower 4 of the Greenwood, Laguna Verde ("the Property"). The plaintiff is and was at all material times the owner and developer of the Laguna Verde Development. By an agreement dated 26 March 1997 ("the Agreement"), the plaintiff agreed to sell the Property to the defendant at HK$7,010,000. Pursuant to the Agreement, the defendant had paid a total of HK$2,103,000 as deposit and part payments of the price.

4. Under clause 5(2) of the Agreement, completion shall take place within 14 days of the date of notification by the plaintiff to the defendant that the plaintiff is in a position validly to assign the Property to the defendant. Such notification was given to the defendant by virtue of a letter dated 25 June 1998 from the plaintiff's solicitors. It is the plaintiff's case that completion should then take place on or before 9 July 1998. The defendant did not complete. Consequently, the plaintiff determined the Agreement on 19 October 1998 and later sold the Property to a third party at HK$3,457,000. On 10 August 2000, the plaintiff commenced the present proceedings claiming against the defendant for, inter alia, damages.

Defence and Counterclaim

5. The defendant filed the defence and counterclaim on 21 September 2000. By reasons of the matters pleaded in the counterclaim, the defendant denies that she is liable to the plaintiff. In the counterclaim, the pleader first referred to clauses 4(1)(c), 4(4)(a), 4(4)(c) and 15 of the Agreement. They read :

"Clause 4(1)(c)

The Vendor shall complete the Buildings in all respects in compliance with the conditions of the Government Grant in so far as they relate to the Buildings and the building plans on or before the 30th day of November 1997 subject to such extensions of time as may be granted by the Authorised Person in accordance with sub-clause(5)(a).

Clause 4(4)(a)

Subject to sub-clause(4)(b), if the Vendor fails to complete the Buildings by the date specified in sub-clause(1)(c) as extended by any extensions of time granted by the Authorised Person under sub-clause(5)(a), the Purchaser shall be at liberty by notice in writing to the Vendor to rescind this Agreement and upon service of such notice, this Agreement shall be rescinded within 7 days thereafter and the Vendor shall repay to the Purchaser all amounts paid by the Purchaser hereunder together with interest thereon at the rate of 2% per annum above the prime rate specified by the Hongkong and Shanghai Banking Corporation Limited from time to time from the date or dates on which such amounts were paid up to the date of payment, the payment of such amounts and interest to be in full and final settlement of all claims by the Purchaser against the Vendor hereunder.

Clause 4(4)(c)

If the Buildings are not completed in accordance with the building plans and the other provisions of this Agreement within a period of 6 months from the date specified in sub-clause(1)(c) or any extended date under sub-clause(5), the Purchaser shall be at liberty either to rescind this Agreement in which event the provisions of sub-clause(4)(a) relating to repayment and interest shall apply or to await the completion of the Buildings in which event the provisions of this sub-clause(4)(b) relating to the payment of interest shall apply.

Clause 15

Time shall in every respect be of the essence of this Agreement."

6. The pleader went on thus :

"16. In breach of Clause 4(1)(c) of the Agreement, the Property was not completed on or before 30th November 1997.

17. The Defendant avers that no valid extension of time has at any time been granted under and within the meaning of the Agreement so as to extend time for completion of the Property beyond 30th November 1997. The Defendant cannot plead further unless and until the Plaintiff has provided further particulars on the extension of time and completed discovery of documents.

18. In the premises, the Defendant avers that, by virtue of the aforesaid breach of the Agreement, the Defendant was entitled to rescind the Agreement pursuant to Clause 4(4)(a) and/or alternatively Clause 4(4)(c) of the Agreement and/or at law."

The notice of rescission was said to be given on 7 July 1998, to take effect on 15 July 1998.

7. On 29 September 2000, the plaintiff filed a reply and defence to counterclaim.

Proceedings before the master

8. By a summons dated 17 January 2001, the plaintiff applied to strike out. It was heard by the master on 7 July 2001 together with two summonses taken out by the defendant, one for further and better particulars and the other for leave to amend the defence and counterclaim. The master adjourned the defendant's summonses and proceeded to deal with the plaintiff's application for striking out principally because the parties disagreed on who should bear the costs of the plaintiff's application. In the end, the master allowed the application and struck out the counterclaim with costs against the defendant.

Striking out

9. Order 18 rule 7(1) of the Rules of the High Court provides :

"...... every pleading must contain ...... a statement in a summary form of the material facts on which the party pleading relies for his claim or defence ......".

The cardinal provision in rule 7 is that the statement must state the material facts. The word "material" means necessary for the purpose of formulating a complete cause of action; and if any one "material" statement is omitted, the statement of claim is bad and is liable to be struck out : Bruce v. Odhams Press Ltd [1936] 1 All ER 287 per Scott LJ at 294, Ng Shui Hing v. Lai Hang [1983] 1 HKC 158 per Fuad JA at 162, CS Low Investment Ltd v. Freshfields [1991] 1 HKLR 12 per Fuad VP at 21.

10. There are three bases upon which the defendant alleged that she was entitled to rescind. The first cause of action is based on clause 4(4)(a). The material fact, i.e. "the Property was not completed on or before 30 November 1997" was pleaded. But as rightly pointed out by Mr Chan, SC for the plaintiff, not only has the further material fact, i.e. election to rescind within 28 days as required by clause 4(4)(b), not been pleaded, it is common ground that the defendant had not within 28 days elected to rescind. This clause of action is bound to fail : see Kar Ho Development Company Ltd v. Axis Investment Ltd [2001] 1 HKC 86. Mr Lo, counsel for the defendant, readily conceded that defendant had lost this "first opportunity" to rescind. The master was in the circumstances correct in striking out this part of the counterclaim.

11. The second cause of action is based on clause 4(4)(c). In order to invoke this particular clause, the defendant has to plead the material facts in support, i.e. "the Buildings are not completed ... within a period of 6 months from the date specified in sub-clause(1)(c) or any extended date ...". That unfortunately was not pleaded. Further, the only material fact that has been pleaded is "... the Property was not completed on or before 30th November 1997" : see paragraph 16 of the counterclaim. This is the breach referred to in paragraph 18 to support the defendant's entitlement to rescind under clause 4(4)(c), which, Mr Chan submitted, was totally misconceived. With respect, I entirely agree. The master was again right in striking out this part of the counterclaim.

12. The defendant obviously recognises the problem, and is seeking to cure the defect by seeking leave to amend by pleading that "The Plaintiff failed to complete the Buildings in accordance with the building plans and/or the other provisions of the Agreement within a period of six months from 30 November 1997 i.e. 30 May 1998": see the draft amendment attached to summons for leave to amend the defence and counterclaim. But Mr Lo contended that the plea, even without the proposed amendment, was not defective because the plaintiff all along knew what the defendant's case is. In this connection, counsel relied on British Airways Pension Trustees Ltd v. Sir Robert McAlpine & Son (1994) 45 Con LR1, where Savill LJ said at pp.4 to 5 :

"The basic purpose of pleadings is to enable the opposing party to know what case is being made in sufficient detail to enable that party properly to answer it. To my mind, it seems that, in recent years, there has been a tendency to forget this basic purpose and to seek particularization even when it is not really required. This is not only costly in itself, but is calculated to lead to delay and to interlocutory battles in which the parties and the Courts pore over endless pages of pleadings to see whether or not some particular points have or have not been raised or answered, when in truth each party knows perfectly well what case is made by the other and is able properly to prepare to deal with it. Pleadings are not a game to be played at the expense of citizens nor an end in themselves, but a means to the end, and that end is to give each party a fair hearing."

13. As I understand this dicta, it appears to be directed to the undesirable practice of seeking unnecessary particulars. It certainly does not relieve a party from his primary duty to plead all material facts which are essential to complete his cause of action even if the other side is somehow aware of his case. I reject Mr Lo's submission without any hesitation.

14. The third cause of action is based on law. It is not clear from the pleading what the "law" is and what material facts are in support of such law. Mr Lo submitted that the defendant would be relying on misrepresentation. It is trite law that particulars of any misrepresentation must be contained in the pleading. The statement of claim must show the nature and extent of each alleged misrepresentation, by whom and to whom it was made, and whether verbally or in writing : see Hong Kong Civil Procedure 2002, Vol. 1, para.18/12/25 at p.289. In the absence of these material facts, this claim is hopelessly bad. The master was also right in striking out this part of the counterclaim.

Conclusion

15. For the foregoing reasons, I hold that the counterclaim, as formulated, does not disclose any reasonable cause of action. It is liable to be struck out and the master was correct in striking it out. This appeal is therefore dismissed.

Costs

16. Mr Lo submitted that even if the counterclaim is struck out, the defendant should not be penalized by costs. He complained that the plaintiff should have asked for particulars instead of applying to strike out. And the application only come after close of pleadings. With respect, I do not see any reason why costs should not follow the event. The function of particulars are not to be used in order to fulfill material gaps in a demurrable statement of claim - gaps which ought to have been filled by appropriate statements of the various material facts which together constitute a party's cause of action : see Bruce v. Odhams Press Ltd, above. In the circumstances, the plaintiff is certainly entitled to take out the application for striking out. Any delay in taking out the application alone is, in my view, insufficient to displace the normal rule. I therefore order costs against the defendant.