GREAT HARVEST PROPERTY INVESTMENT LTD v. HO FREEMAN CHI MAN AND OTHERS

HCA 560/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 560 OF 2010

------------------------

-----------------------

D E C I S I O N

-----------------------

Background

1.  In this case, the plaintiff (“Company”) brought action against the defendants under various agreements for the sale and purchase of properties at a development known as “L’Utopie” in Tai Po (“Development”). In brief, the 2^nd defendant and 3^rd defendant (“Purchasers”) signed provisional agreements with the Company on 8 March 2010 (“Agreements”) for their purchase from the Company of a total of 4 houses within the Development with accompanying carparks, for the total sum of $93,375,000.  Deposits totalling $3,200,000 were to be paid by the Purchasers under the Agreements, and the formal sale and purchase agreements were to be signed by them within 7 days from the date of the Agreements.

2.  According to the Amended Statement of Claim filed on 18 July 2011 (“Original Claim”), it was the 1^st defendant (“Ho”) who issued 4 cheques (“Cheques”) payable to Deacons (the Company’s solicitors) for payment of the deposits under the Agreements signed by the Purchasers.  The cheques were for the total sum of $3,000,000, as a sum of $200,000 was paid by the 3^rd defendant herself by her credit card.  According to the evidence filed on behalf of the Company, the Purchasers told the Company that as they were not Hong Kong residents, they did not have bank accounts in Hong Kong, and the Company agreed at the Purchasers’ request to accept Ho’s cheques instead, for payment of the deposits under the Purchasers’ Agreements.

3.  The Purchasers reneged on their Agreements, and failed to sign the formal agreements.  The Company claims that it is entitled by the express terms of the Agreements to forfeit the deposits paid under the Agreements.  However, Ho’s Cheques for the deposits were all dishonored upon presentation for payment.

4.  According to the Original Claim, the Company claims that Ho is liable to pay to the Company the sum of $3 million, and interest on the sum pursuant to s57 of the Bills of Exchange Ordinance (“Ordinance”). Further or alternatively, the Company claims that the Purchasers are liable  to pay to the Company the total sum of $3 million, being the balance of the deposits payable under the Agreements less the sum of $200,000 already received from the 3^rd defendant by credit card.  The Company also claims from the Purchasers damages for breach of the Agreements, and interest.

5.  Ho applied by its summons issued on 20 September 2011 (“Summons”) to seek determination of a point of law under Order 14A, or alternatively for the point to be tried as a preliminary issue under Order 33, as to whether the Company, not being the holder of the Cheques, is entitled to sue Ho, and if not, for the Company’s claim against Ho to be dismissed. Alternatively, Ho asks for the Original Claim to be struck out under Order 18 rule 12.

6.  The Company then applied to re‑amend the Statement of Claim. This amendment application and determination of the Summons were both adjourned for determination at the same time.  At the hearing before me on 12 January 2002, I ordered that the sensible procedure was for the application for amendment to be dealt with first.

The amendment application : should leave be granted?

7.  The Company seeks to re‑amend by deleting the original paragraph 19 of the Amended Statement of Claim, which pleads that notice of dishonour of the Cheques was dispensed with pursuant to s50(2) of the Ordinance, and to introduce a new paragraph 19 (“Re‑amendments”).  The material part of the new paragraph 19 pleads that, further or alternatively, in consideration of the Company absolutely discharging the Purchasers’ respective obligations to pay the deposits under the Agreements as represented by Ho’s Cheques, Ho promised to pay the Company the total sum of the Cheques, ie $3 million, which is evidenced by his issuance and delivery of the Cheques (“Amended Claim”).

8.  I agree with Counsel for Ho, that the Re‑amendments put forward an allegation of fact which is inconsistent with the allegations of fact in the Original Claim which remain an integral part of the Company’s proposed Re‑amended Statement of Claim.  By the Re‑amendments, the Company is effectively saying that it had agreed to absolutely discharge the Purchasers’ obligations under the Agreements to pay the sum of $3 million as part of the deposits.  The Company claims that it was in consideration of such discharge that Ho agreed to pay the sum of $3 million and issued the Cheques for the said amount.  Yet, it remains the Company’s claim against the Purchasers in the Amended Claim that the Purchasers are liable to the Company not only for damages for breach of the Agreements, but also for the deposits payable under the Agreements in the sum of $3 million.  Despite the general reference to a “promise to pay”, the Re‑amendments refer only to Ho’s issue and delivery of the Cheques, and Counsel for the Company confirmed in the course of the hearing that Ho’s promise and agreement to pay is confined to the promise under the Cheques to pay the sum of $3 million.  According to Counsel, the Re‑amendments were inserted only to show the consideration furnished by the Company and Ho.

9.  Under Order 18 rule 12A which is introduced under the Civil Justice Reform, a party may in any pleading make an allegation of fact which is inconsistent with another allegation of fact in the same pleading “if the party has reasonable grounds for so doing, and the allegations are made in the alternative”.

10.  Rule 12A was introduced at the same time when pleadings are required under the Civil Justice Reform to be verified by statements of truth. Order 41A rule 2 (2) expressly provides for the requirement of the verification notwithstanding that the party has in the pleading made an allegation of fact in accordance with Order 18 rule 12A, which is inconsistent with another allegation of fact in the same pleading.

11.  As stated in the judgment of Patten J in Clarke v Marlborough Fine Art (London) Ltd and another (No 2) [2002] 1 WLR 1731 at 1742, which was referred to by Au J in Hui Yin Sang & anr v Tsoi Ping Kwan & anr HCA 392/2008 28 January 2010, the purpose of the requirement that a party should verify the factual contents of his own pleadings was to eliminate as far as possible claims in which the party had no honest belief.  The consequences of making a false statement in a document verified by a statement of truth are serious, and Order 41A rule 9 provides for proceedings for contempt to be brought in such circumstances.

12.  As pleaded, the fact of whether the Company had discharged the Purchasers is one which is within the knowledge of the Company or its representatives.  Put simply, the Company ought to know whether or not it had agreed to discharge the Purchasers, as it alleges on its own case. It is not a case of the Company not being able to make a judgment on election by reason of incomplete information, or where it needs to wait for evidence to emerge on whether or not it had agreed to the discharge.  Nor is this a case where the fact pleaded is exclusively within the knowledge of the other side ‑ such as whether an agent was authorized by its principal to act.  I see no basis therefore why the Company can or should wait for trial before electing whether to pursue its claim against Ho.

13.  The Re‑amendments, that the Company had agreed to discharge the Purchasers by accepting Ho's Cheques and his promise to pay $3 million, are clearly inconsistent with the Company's claims against the Purchasers for the $3 million deposits under the Agreements.  Although expressed in the alternative, the Company has not shown any reasonable grounds for making its inconsistent claims.  As Mr Chain has emphasized, the Company does not even propose to have its own officers to verify the facts pleaded in the Re‑amendments.

14.  Since the Re‑amendments do not comply with Order 18 rule 12A, I refuse leave under the Company’s application to amend.  To allow them would be to defeat the objectives of the Civil Justice Reform and the purpose for the introduction of statements of truth for pleadings.

15.  The Company’s summons for leave to re‑amend the Statement of Claim is dismissed, with costs.  The costs order includes those costs reserved by Master Ko on 8 December 2011, with certificate for counsel.

The striking out application

16.  Counsel for the Company concedes that the Company is not the holder of the Cheques.  Not being the holder, I fail to see how the Company can maintain its Original Claim against Ho under the Cheques.  I would add that the Amended Claim (should it be allowed) does not add to or alter the Company’s capacity to sue Ho in this action.  As Counsel explained during the hearing, the Re‑amendments only seek to plead the consideration for Ho’s promise to pay under the Cheques.

17.  It was argued on behalf of the Company that although it was not the holder, the Company is entitled to sue as the transferee or equitable assignee of the Cheques.  An equitable assignee cannot as a general rule sue in its own name.  In any action brought on a bill of exchange, the parties to the bill and the title to sue must be clearly identified and pleaded.  In particular, the capacity in which the claimant sues and the rights on which it relies should be set out (see Arab Bank Ltd v Ross [1952] 2 QB 216 ).  If the Company seeks to claim not as the holder but as an assignee, transferee or endorsee of the Cheques, the assignment, transfer and /or endorsement are material facts on which it relies for its capacity to sue, and must be pleaded.  It is not sufficient, as Counsel suggests, for the Company to wait for the defendants to challenge its title or to seek particulars before it makes its plea of the assignment or transfer.

18.  It is clear that on the face of the Original Claim (and, for that matter, the Amended Claim), no reference whatsoever has been made to the Company being the assignee, transferee or endorsee of the Cheques.  In the absence of any cause of action pleaded against Ho other than the Cheques, of which the Company is not the holder, I will strike out the Amended Statement of Claim in so far as it relates to Ho, and dismiss the Company’s claims against Ho, with costs of the action, including the costs of the Summons, with certificate for counsel.  The costs order includes the costs reserved by Master De Souza on 7 October 2011.

The Order 14A /Order 33 application

19.  In view of the above, I see no need to deal with the Order 14A or the Order 33 applications.