NG CHOI SANG t/a CHEUNG KONG CONSTRUCTION CO v. CHU YU TIN AND ANOTHER

HCA 1922/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1922 OF 2005

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J U D G M E N T

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1. By a notice of appeal dated 4 January 2007, the 1^st defendant appeals against the order of Master B Kwan made on 21 December 2006. 

2. By her order she ordered that CS Construction & Engineering Company Limited be joined as the 2nd defendant (“the 2nd defendant”) and that the defendant be renamed as the 1^st defendant.  She also gave leave to the plaintiff to amend the writ of summons and the amended statement of claim in the terms of the draft annexed to the plaintiff’s summons.  She also gave consequential directions for filing of pleadings.

3. The master ordered that costs of and occasioned by the application be to the defendant in any event with certificate for counsel and that the costs of the hearing before the master be to the plaintiff in any event with certificate for counsel.

4. Apart from that appeal there is also another matter before me.  This is an application by the 2^nd defendant by summons dated 18 January 2007 to strike out the re-amended statement of claim.

Background

5. The background facts are that the plaintiff’s claim herein is for the balance of outstanding loans advanced under two funding agreements.  The loans were to finance projects for sub-contracts obtained by the 2^nd defendant.

6. By the re-amended statement of claim the plaintiff’s primary case is against the 1^st defendant.  He was a director and the majority shareholder of the 2^nd defendant at all material times.  The plaintiff’s primary case is that he was a contracting party under the funding agreements (paragraphs 3 to 7 of the re-amended statement of claim).

7. The 1^st defendant made allegations in the amended defence to the effect that the loans were made to the 2^nd defendant as principal.  It was pleaded on behalf of the 1^st defendant that he was acting for and on behalf of the 2^nd defendant when he requested the plaintiff to advance the loans under the two funding agreements.  The 1^st defendant’s case as pleaded in the amended defence is that the loans were advanced to the 2^nd defendant and not to him and that he was not personally liable to repay the loans to the plaintiff (paragraphs 17, 18 and 22 of the amended defence).

8. As a result of the 1^st defendant’s said allegations in the amended defence, the plaintiff applied for leave to re-amended the statement of claim so as to raise a secondary and alternative case against the 2^nd defendant.  By her order of 21 December 2006 Master B Kwan gave leave to the plaintiff to join the 2^nd defendant as a party and to re-amended the statement of claim. 

9. In both the 1^st defendant’s appeal against the master’s order and the 2^nd defendant’s application to strike out the re-amended statement of claim the same two grounds are relied on by Mr Chong, for the defendants, namely,

1)       Limitation of action,

2)      Election.

Limitation of action

10. Mr Chong, for the defendants, submitted that on the re-amended statement of claim the two loan agreements were varied by the supplemental agreement in August 1998.  He submitted that the action should have been brought within 6 years of the date of the agreement to prevent the action from being time-barred.

11. I observe that the 1^st defendant had raised the same point of limitation in interlocutory proceedings before Master Ho on 6 July 2006.  Master Ho was dealing at that time with the plaintiff’s application for summary judgment and an application by the 1^st defendant to strike out the statement of claim.  Master Ho decided against the 1^st defendant on the limitation point.  He made no order on the 1^st defendant’s application to strike out the amended statement of claim.  He gave unconditional leave to the 1^st defendant to defend the action.  And there has been no appeal from the order of Master Ho.

12. It seems to me that in these circumstances it is not proper for the 1^st defendant to raise the same point of limitation in these interlocutory proceedings before me as it is unfair to the plaintiff to have these matters argued again (see the commentary in the White Book 2007 at paragraph 18/19/11 in particular at page 338).

13. It was submitted that at common law the fact that a loan was payable ‘on demand’ would not be enough to make the obligation to pay conditional upon a demand for repayment (Re Brown’s Estate [1893] 2 Ch 300).  That seems to be a correct statement of the law. 

14. In Li Fook Chu v. H H Lau & Co (a firm) HCA 247/2003 judgment 7 July 2005, Reyes J held that the claim that he was dealing with which was on a promissory note accrued on the date of the promissory note and was barred 6 years after that date.  At paragraph 34 of his judgment he set out a relevant passage in Chitty on Contracts (29^th ed.) paragraph 28-036 :

“Money lent.  At common law [which remains the position in Hong Kong], where no time for repayment was specified in a contract of loan, or where the loan was expressed simply to be repayable ‘on demand,’ the lender’s cause of action in general, accrued when the loan was made and time began to run from that moment.  As a result, once the loan was outstanding for more than six years (which not infrequently happens in the case of loans between friends or members of a family) the lender’s right to recover the money lent became barred notwithstanding that no demand for repayment had been made...

Where the contract of loan does provide for repayment of the debt on or before a fixed or determinable date, or does effectively make the obligation to repay conditional upon a demand for repayment or any other matter, it is a question of construction when the lender’s cause of action accrues....”

15. Mr Tsang, for the plaintiff, relies on the last passage and submitted that on the plaintiff’s case the obligation to repay was conditional upon a demand for repayment and that it was a question of construction of the relevant agreement as to when the cause of action accrued. 

16. I would observe that on the plaintiff’s pleaded case in the re-amended statement of claim the plaintiff is suing on a breach of the supplemental agreement.  It is to be noted that under the two funding agreements the plaintiff’s case is that it was agreed that the loans would be repaid by the 1^st defendant when the 1^st defendant received the project payments from the principal contractors (paragraphs 4 and 6 of the re-amended statement of claim). 

17. It is pleaded at paragraph 11 of the re-amended statement of claim that the 1^st defendant represented to the plaintiff that the final account for his works was still being processed.  As Mr Tsang submitted, this must mean that not all payments had been received from the principal contractors and some payments were still due from them.  It was submitted that this means that the 1^st defendant’s obligation to repay for part of the loan had not yet accrued.  On that basis the supplemental agreement was entered into.

18. It was submitted that as a matter of construction of the oral term agreed and as pleaded in paragraph 12(c) of the re-amended statement of claim, there was a requirement that the demand was a condition precedent to an obligation to repay.  Mr Tsang submitted that the words pleaded in paragraph 12(c) that

‘The reduced balance of management fee unpaid, the balance of loan interest (together with further accrued interest), and the outstanding loans would be repaid by the 1st defendant later upon demand.’

would, on a construction of that term, mean that there was a condition precedent to an obligation to repay that there be a demand.  It was submitted that it would make no sense for the 1^st defendant to agree to turn an obligation to pay only when payment was received which had not yet accrued for part of the loan into an obligation to make immediate repayment on the date of the supplemental agreement.  It was also submitted that as demand was only made in April 2005 the claim was not statute-barred.

19. In my view, the matters raised by Mr Tsang is plainly reasonably arguable and it cannot be said that the claim is unsustainable. 

20. Mr Tsang also submitted that a party granting a forbearance to another party can only retract it after he gives reasonable notice of his intention to do so to the other party.  He submitted that the cause of action would accrue only after expiry of the time given by the plaintiff and he relied on Charles Rickards Ltd v. Oppenhaim [1950] 1 KB 616 in the dicta of Denning LJ (as he then was) at page 623.  This is also, in my view, reasonably arguable and it cannot be said that the plaintiff’s claim is unsustainable. 

Election

21. As to election, Mr Chong relies on a passage in the judgment of May LJ in Chestertons (a firm) v. Barone [1987] EGLR 15 at page 17 where he said :

“It seems to me, however, that the clearest evidence of an election is at least the commencement of proceedings by the plaintiff against one or other of the two relevant parties.”

22. He submitted that by suing the 1^st defendant in the first place, there was an election on the part of the plaintiff and the claim against the 2^nd defendant is therefore unsustainable.  I am unable to accept this.  The passage cited in Chestertons does not, in my view, amount to a statement of principle that the mere commencement of proceedings against either of two parties alternatively liable conclusively amounts to an election.  I would also refer to what May LJ said in the same judgment at page 17 :

“Before leaving this appeal, I would add this.  We were shown in the course of the argument references inBowstead on Agency, 15^th ed, and a like passage in the second volume of Chitty on Contract, each of which it appears were edited by the same editor, which indicate that there is little, if any, authority in which there has been held to have been an election in the general circumstances of the instant appeal short of there being judgment in favour of the plaintiff against one or other of the principal or agent, save in two cases, to which Bowstead refers, where the defence could have been based equally well on an estoppel, as it was based on the principle of election.”

23. I was also referred to paragraph 8-121 of Bowstead and Reynolds on Agency 18^th ed. where it was submitted by the editor that :

“a supposed election (short of judgment) to have recourse to the agent does not bind the third party unless it gives rise to some form of estoppel.” 

No estoppel is suggested here.

24. The authorities cited by Mr Tsang namely, Morel Bros. & Co. Ltd. v. Earl of Westmoreland [1903] 1 KB 64 and Peterson v. Maloney (1951) 84 CLR 91 show that the mere commencement of proceedings (short of judgment) will not involve an election. 

25. Election ultimately is a question of fact and the election must be clear and unequivocal. 

26. I am unable to accept that the plaintiff’s claim against the 2^nd defendant is unsustainable.  The 2^nd defendant has failed to satisfy me that this is a plain and obvious case where the Court should exercise its discretion to strike out the pleading and enter judgment on its behalf. 

27. I dismiss the appeal and I dismiss the 2^nd defendant’s summons.