THE BANK OF EAST ASIA, LTD v. LABOUR BUILIDNGS LTD AND OTHERS

HCMP 769/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 769 OF 2002

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R U L I N G

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1.  This is the second of two contested applications going to the pleadings.  By consensus they have been argued after counsel for both parties have opened and before the calling of evidence.  The first matter has resulted in leave being granted to the defendants to deal with matters raised in a reply by the plaintiff by rejoinder with consequential leave to the plaintiff to file a surrejoinder.

2.  This matter is an application by the defendants to strike out the pleadings (in two paragraphs) and prayer filed by the plaintiff on 28 June 2007 comprising the plaintiff’s Counterclaim to the Counterclaim of the defendants.

3.  The Counterclaim is in fact that of the 1^st defendant, which seeks a declaration that the 1997 and 1999 debentures are null and void with consequential orders giving it clear title to its real estate and repayment of $4.2 million.  This sum, it is averred, was paid by the 1^st defendant to the plaintiff in part repayment under the mistaken belief that it was bound to do so by the 1997 debenture.

4.  The counterclaim to counterclaim now under challenge, at clauses 38 and 39 in a composite pleading being the amended Reply to Defence and Counterclaim to Counterclaim reads as follows:

“	38.	If, which is denied, the 1997 Debenture and 1999 Debenture are null and void as counterclaimed by the 1st and 2nd Defendants, the Plaintiff is entitled to recover the sum of HK$49,985,385.74 and/or any other sums determined by this Honourable Court to have been advanced by the Plaintiff to the 1st Defendant under the said documents.
	39.	Further the Plaintiff is entitled to and claims interest on the said sum(s) pursuant to section 48 of the High Court Ordinance (Cap.4) at such rate and for such period as this Honourable Court in its discretion considers fit.”

To complete the picture, the prayer reads:

“	And the plaintiff counterclaims against the counterclaim of the 1st and 2nd defendants:
	(1)	Restitution under paragraph 38 herein;
	(2)	Interest as aforesaid.”

5.  The application to strike out is made under O. 18 r.19(1)(a) of RHC.  The relevant parts of that rule state:

“	(1)	The Court may at any stage of the proceedings order to be struck out or amended any pleading or the indorsement of any writ in the action, or anything in any pleading or in the indorsement, on the ground that —
		(a)	it discloses no reasonable cause of action or defence, as the case may be; …
		and may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.”

6.  Sub-rule 19(2) prevents in such an application as this the admissibility of evidence in support; thus the single question for me to resolve is as to whether paragraph 38 of the Counterclaim to Counterclaim discloses a reasonable cause of action in law.

7.  Mr Strachan arguing for the strike out reminded me of the necessary requirements for a properly pleaded case; first to the following extract from the White Book at 18/7/7:

“

It is essential that a pleading, if it is not to be embarrassing, should state those facts which will put those against whom it is directed on their guard, and tell them what is the case which they will have to meet … ‘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. … Each party must plead all material facts on which he means to rely at the trial; otherwise he is not entitled to give any evidence of them at the trial.  No averment must be omitted which is essential to success.”

And then the oft-quoted excerpt from the judgment of Bokhary JA in ADS v Wheelock Marden & Co. Ltd [1994] 2 HKC 264 at p.269, to the effect that the functions of properly particularized pleadings are:

(1)	to inform the other side of the nature of the case that they have to meet as distinguished from the mode in which that case is to be proved;
(2)	to prevent the other side from being taken by surprise at the trial;
(3)	to enable the other side to know with what evidence they ought to be prepared and to prepare for trial;
(4)	to limit the generality of the pleadings, the claim and the evidence;
(5)	to limit and define the issues to be tried, and as to which discovery is required;
(6)	to tie the hands of the party so that he cannot without leave go into any matters not included.

8.  Scott LJ in Pinson v Lloyds Bank [1941] 2 KB 72 said at page 75:

“	It is not the function of particulars to take the place of necessary averments in the pleading nor to state the material facts omitted … in order by filling the gaps to make good an inherently bad pleading.”

9.  Although the claim at paragraph 38 is with respect to its author somewhat spare the test is as to whether reading it in the overall context of the pleadings and the case it satisfies the criteria laid down in Wheelock Marden.

10.  What it does plead as I am prepared to find is that it is a claim for restitution of moneys advanced by the plaintiff to the 1^st defendant under a transaction found to be ineffective which has resulted in the 1^st defendant becoming unjustly enriched.

11.  The various grounds which found the basis of restitutionary claims arising from unjust enrichment are set out in Goff & Jones’ The Law of Restitution, 7^th edition.  Under the heading “Ineffective Transactions” and the sub-heading “Money Paid” it is recorded:

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Money paid.  If money has been paid under a contract which is or becomes ineffective, the recipient is evidently enriched.  It is a distinct question whether that enrichment is an unjust enrichment.  In some of the situations discussed in this Part the basis of the restitutionary claim is that money has been paid under a mistake, for example, both the payer and the recipient mistakenly thinking that a valid contract was in existence.  In most of the situations, however, the ground of recovery is that the expected return for the payment, or consideration, as it is confusingly called, has failed.  In this context, when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise.  They money was paid to secure performance and, if performance fails, the inducement which brought about the payment is not fulfilled.  Where the payment is made under a contract, therefore, a distinction must be drawn between the consideration which moved from the defendant to support the claimant’s contractual promise, and the consideration which the claimant expected to receive for his contractual performance, though these may coincide in the case of a contract founded upon an executed consideration.

The common law rule is that money paid can only be recovered if the consideration for the payment has totally failed.”

12.  In a recent case in the Court of Final Appeal called Shanghai Tongji Science & Technology Co. Ltd v Casil Clearing Ltd [2004] 7 HKCFAR 80, Ribeiro PJ laid down the criteria for a claim for restitution based on unjust enrichment.  He said it was predicated on the total failure of consideration and involved asking four questions:

(a)	was the defendant enriched?
(b)	was the enrichment at the plaintiff’s expense?
(c)	was the enrichment unjust?
(d)	were there any applicable defences?

13.  For the Counterclaim to Counterclaim to be a plea properly pleaded, it must be on the basis that there has been total failure of consideration and that the first three of Ribeiro PJ’s four questions have been pleaded.

14.  In my view the plea does satisfy the necessary criteria.  Mr Strachan has submitted that it is not clear whether the claim for restitution is for total or partial consideration and thus that it is flawed.  But given that it is a Counterclaim to a Counterclaim in which a sum paid is sought to be recovered having been paid by mistake, it seems to me and I so find that it can only be founded on a total failure of consideration.

15.  Returning momentarily to the White Book I repeat an excerpt from the note to O.18 r.19 at 18/19/4:

“	It is only in plain and obvious cases that the court should exercise its summary powers to strike out the endorsement on any writ or any pleading under this rule.
	In order to strike out a pleading:
	(i)	the claim must be obviously unsustainable;
	(ii)	the pleading must be unarguably bad;
	(iii)	it must be impossible not just improbable for the claim to succeed.”

16.  I have already said and repeat that the plea is spare as to detail.  However I am satisfied that it cannot be so classified.  Thus the application to strike it out fails.

(After Discussion)

17.  Costs to the plaintiff in any event with certificate for two counsel (Mr Whitehead SC and Mr Kwan).