CHAN WAN CHUEN SNAKY also known as CHAN WAN CHUEN v. EXPRESS TOURIST BUS CO LTD AND OTHERS

HCA 1875/2015

[2018] HKCFI 2107

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1875 OF 2015

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JUDGMENT

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INTRODUCTION

1.  This is the 4^thDefendant’s application to strike out the Statement of Claim or alternatively stay the Plaintiff’s claim therein as against the 4^thDefendant pursuant to Order 18, rule 19 of the Rules of the High Court and the inherent jurisdiction of the Court (“Application”).

2.  The Application is made on the basis that the 4^thDefendant and the Plaintiff have reached a settlement agreement which has the effect of compromising all the claims made by the Plaintiff against the 4^thDefendant in this action. The Plaintiff however disputes the validity of such settlement agreement.

3.  The following three summonses are to be determined immediately after the determination of the Application:

(1) the 4^thDefendant’s summons dated 15 March 2018 to re-amend his Defence and Counterclaim (“Amendment Summons”);

(2) the 3^rd and 4^thDefendants’ summons dated 22 March 2018 to amend their Answer to Statement of Damages (“Statement of Damages Summons”); and

(3) the Plaintiff’s summons dated 28 March 2018 for directions onexpert evidence on quantum (“Expert Directions Summons”). 

BACKGROUND

4.  In this action, the Plaintiff claims against the Defendants for, inter alia, vacant possession of certain property at 13 Tam Kung Temple Road Shipyard (“Property”).

5.  The Plaintiff’s right to possession of the Property originated from a tenancy agreement dated 6 March 1990 between the Plaintiff as the tenant and the then Governor of Hong Kong as the landlord (“Tenancy Agreement”).

6.  It is not in dispute that the Plaintiff now still remains on recorda tenant of the Tenancy Agreement.  However, it is the 4^thDefendant’s case that the Plaintiff had long transferred his entire interest in the Tenancy Agreement to one Mr Liu who subsequently transferred it in favour of the 4^thDefendant.

THE RESPECTIVE CASES OF THE PLAINTIFF AND THE 4^THDEFENDANT FOR THE PURPOSES OF THE APPLICATION

7.  The settlement agreement relied upon by the 4^thDefendant is an agreement in Chinese between the 4^thDefendant and the Plaintiff, dated 25 November 2017 and titled “合作協議” (“Co-operation Agreement”). It contains, inter alia, the following provisions[1]:

“ (a) Clause 1 provided that a new company in the name of 新成興船廠有限公司 (‘Sun Shing Hing Co Ltd’) would be set up to ‘管理、營運、保養’ (manage, operate and maintain) the [Property] and to take over ‘前新成興船廠之一切業務’ (the business previously carried out by the former Sun Shing Hing Shipyard). The 4th Defendant and [the Plaintiff] would each take a 50% shareholding in Sun Shing Hing Co Ltd.

(b) Clause 2 provided that all legal actions in relation to the dispute over the right to use the [Property] are to be withdrawn and [the] parties are to bear their own costs. Neither party is to have further recourse against each other.

(c) Clause 3 stipulated that [the Plaintiff] acknowledge[s] the 4th Defendant’s status as co-user of the [Property] and his entitlement to any profit derived from the [Property] or the shipyard thereon.

(d) Clause 4 provided that upon signing the [Co-operation] Agreement, the parties are not to object to or litigate over the right to use the [Property]. Any such protest/legal action will constitute a breach of the [Co-operation] Agreement, upon which the relevant party is obliged to ‘放棄’ (give up)his rights to use, manage and profit from the use of the [Property].

(e) Clause 5 stipulated that subsequent to the setting up of Sun Shing Hing Co Ltd, whenever [the Plaintiff] should sign anydocuments with the District Lands Office/Hong Kong East Lands Department (‘DLO’) in respect of the [Property], [the Plaintiff] should inform the DLO that Sun Shing Hing Shipyard which used to operate on the [Property] has now been replaced by Sun Shing Hing Co Ltd. In addition, [the Plaintiff] must notify and obtain the consent of the 4th Defendant before signing any new documents concerning the [Property].

(f) Clause 6 (now deleted) provided that the 4th Defendant agrees to let [the Plaintiff] use an area of approximately 700 square feet out of the [Property] as on-site accommodation.

(g) Clause 7 provided that [the Plaintiff] promise[s] not to transfer the Tenancy Agreement or [his] entitlement to use the [Property] to a third party without the consent of the 4th Defendant.

(h) Clause 8 provided that neither party is allowed to assign or increase their shareholding without the other party’s consent.” 

8.  According to the Plaintiff, during his meeting with the 4^thDefendant on 25November 2017, the 4^thDefendant verbally demandedthat the Plaintiff should pay HK$10,000.00 per month to the 4^thDefendant as rent for the right to reside in the Property as set out in Clause 6 of the Co-operation Agreement.  The Plaintiff refused and hence Clause 6 was deleted.

9.  It is the Plaintiff’s case[2] that by the time he was asked to sign the Co-operation Agreement on 25 November 2017, it was around 1 pm and therefore past the usual office hours on a Saturday.  He was therefore unable to seek legal advice and naturally reluctant to sign the Co-operation Agreement. When he expressed his reservations, the 4^thDefendant represented to him that the Co-operation Agreement was merely provisionaland subject to contract.  The 4^thDefendant told him he was free to take a copy to consult with his lawyers before a formal agreement was entered into.  In reliance on such representation, he signed the Co-operation Agreement.

10.  It is not necessary for the Court to consider how and why the Plaintiff would be able to use the legal expression “subject to contract”.  The Plaintiff clarified at the hearing that “the actual [r]epresentation was the conduct on the part of [the 4^thDefendant] in telling the Plaintiff that he ‘was free to take a copy to consult with [his] lawyers before a formal agreement [was] entered into’” (“Representation”).[3]

11.  The Plaintiff submitted that, in view of the Representation, he was led to believe that the Co-operation Agreement is only provisional and is not immediately binding.[4]

12.  Alternatively, the Plaintiff submitted that in view of the 4^thDefendant’s denial in making the Representation, “the Representation may be shown to be false at the time it was made, rendering the Co-operation Agreement voidable (and avoided) for misrepresentation”.[5]

13.  The Plaintiff further submitted[6] that the Co-operation Agreement is void for uncertainty in the following respects (collectively “Remaining Details”):

(1) the business to be undertaken by the new company (“New Company”) is uncertain;

(2) the appointment and constitution of the Board of Directors of the New Company (“Board”) are uncertain;

(3) the sources and amount of capital or funding contribution to support the New Company are uncertain; and

(4) the consequences of breach of the Co-operation Agreement (“Consequences of Breach”) are uncertain.

14.  On the other hand, the 4^thDefendant contended that the Co-operation Agreement is immediately binding and is not void for uncertainty. 

15.  Further, the 4^thDefendant denied having made the Representation and also submitted that evidence of the Representation is not admissible in view of the parol evidence rule.

16.  It is not in dispute that the Co-operation Agreement, if held valid, will have the effect of compromising all the claims made by the Plaintiff against the 4^thDefendant in this action.

APPLICABLE PRINCIPLES ON STRIKING OUT

17.  The legal principles on striking out are helpfully set out in the recent case of Ming Chik Property Investment Co Ltd v Good Team Investment Ltd & Anor[2018] HKCFI 157, paragraphs 9 – 11 per Au‑Yeung J:

“ 9. The principles for striking out are well-established. It is only in plain and obvious cases that the court should strike out any pleading under Order 18, rule 19. The expression ‘frivolous or vexatious’ includes proceedings which are an abuse of the process.‌ …. Hong Kong Civil Procedure 2018, Vol 1, §18/19/7.

…

11. There should be no trial on affidavits.  Disputed facts areto be taken in favour of the party whose pleading is sought to be struck out.  Where the legal viability of a case is fact-sensitive,an order for striking out should not be made.  The mere fact thatthe case is weak and not likely to succeed is no ground for striking it out: Hong Kong Civil Procedure 2018, Vol 1, §18/19/4.”

18.  Pursuing an action after it has already been settled is an abuse of process of the court.[7]

THE ISSUES

19.  The Court has to determine the following issues:

(1) Whether extrinsic evidence of the Representation is admissible despite the parol evidence rule.

(2) If the answer to (1) is yes:

(a) whether the Co-operation Agreement was not intendedto be immediately binding in view of the Representation;and

(b) whether the Co-operation Agreement is voidable for misrepresentation in view of the 4^thDefendant’s denial in making the Representation.

(3) Whether the Co-operation Agreement is void for uncertainty.

Whether extrinsic evidence of the Representation is admissible despite the parol evidence rule

20.  The parol evidence rule is succinctly set out in Chitty on Contracts, Vol.1, 32^nd edition, paragraph 13-099:

“ It is often said to be a rule of law that:

‘ If there be a contract which has been reduced to writing,verbal evidence is not allowed to be given … so as to add to or subtract from, or in any manner to vary or qualify the written contract.’”

21.  However, it is trite that extrinsic evidence is admissible as to the validity rather than the contents of a written contract:

“ Validity. The rule prevents a party from relying on extrinsic evidence only as to the contents of the contract, and not as to its validity. Such evidence can therefore be used to establish the presence or absence of consideration or of contractual intention ‌…” [8]

“ No contract. Extrinsic evidence is admissible to show that what appears to be a valid and binding contract is in fact no contract at all …” [9]

“ Extrinsic evidence will always be admitted to defeat a deed or written contract on the ground of fraud, illegality, misrepresentation, mistake or duress.” [10]

22.  The Plaintiff seeks to challenge the validity of the Co-operation Agreement by the Representation on two limbs: absence of contractual intention and misrepresentation.  The law is clear.  Extrinsic evidence of the Representation is admissible despite the parol evidence rule.

Whether the Co-operation Agreement was not intended to be immediately binding in view of the Representation

23.  Disputed facts are to be taken in favour of the party whose pleading is sought to be struck out.  For the purposes of the Application, the Representation is regarded as made despite the 4^th Defendant’s denial.

24.  The Representation in gist is that the Plaintiff “was free to take a copy to consult with [his] lawyers before a formal agreement [was] entered into”.

25.  Whether there is a binding agreement between the parties depends not upon their subjective state of mind, but upon their words or conduct, and whether those words or conduct leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms essential for a binding agreement.[11]

26.  Hence, the starting point is to look at the terms of the Co‑operation Agreement.[12]

27.  It is observed in the decision of the New South Wales Court of Appeal in G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 that [13] :

“ However, the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances:Godecke v Kirwan (1973) 129 CLR 629 at 638; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332–334, 337. If the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction.

Even when a document recording the terms of the parties’ agreement specifically refers to the execution of a formal contract, the parties may be immediately bound.  Upon the properconstruction of the document, it may sufficiently appear that ‘the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms’: Sinclair, Scott & Co Ltd v Naughton[14] (at 317).”

28.  As observed by Harris J in Yau Shik Yin, at paragraphs 21 and 22, there are four possible permutations to the purpose and effect of an agreement that envisages a  more formal agreement to follow[15]:

(1) The parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.

(2) The parties have completely agreed upon all the terms of theirbargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document.

(3) The intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

(4) The parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.

29.  The following terms of the Co-operation Agreement strongly suggest that it was intended to be immediately binding despite the Representation:

(1) 「現達成協議於25/11/2017，條文如下：」
(now reached agreement on 25/11/2017, the provisions of which are as follows:) (Introductory paragraph); and

(2) 「雙方一旦簽署此份協議後，不得就上述地段之使用權再有異議及興訟[，]否則視作違反協議，及放棄、使用、管理、收益之一切權利」
(Upon signing the [Co-operation] Agreement, the parties are not to object to or litigate over the right to use the [Property].  Any such protest/legal action will constitute a breach of the [Co-operation] Agreement, upon which the relevant party is obliged to “放棄” (give up) his rights to use, manage and profit from the use of the [Property].[16]) (Clause 4).

30.  The following features of the Co-operation Agreement also strongly suggest that it was intended to be immediately binding despite the Representation:

(1) it was dated and signed by the Plaintiff and the 4^th Defendant;

(2) the signatures of both parties were witnessed by one 黃桂泉 who also signed beneath their signatures as a witness;

(3) each page of the rest of the Co-operation Agreement was initialled by both parties;

(4) the deletion of Clause 6 of the Co-operation Agreement was initialled by both parties; and

(5) the Hong Kong Identity Card numbers of the parties are set out in the Co-operation Agreement.

31.  The subsequent conduct of the parties, i.e. the Plaintiff and the 4^th Defendant, also strongly suggests that the Co-operation Agreement, signed on 25 November 2017, was intended to be immediately binding despite the Representation:

(1) on 27 November 2017, the 4^th Defendant’s solicitors wrote to the Plaintiff’s solicitors enclosing a copy of the Co-operation Agreement and asking the Plaintiff’s solicitors to arrange for the dismissal of the Plaintiff’s claim with no order as to costs in view of the Co-operation Agreement;

(2) on 5 December 2017, the Plaintiff’s solicitors replied and alleged that the Co-operation Agreement was (1) not binding for not being supported by good consideration; and (2) contrary to the Tenancy Agreement and against public policy.  They did not say that it is not binding for being “provisional” or envisaging a “formal agreement”, or it is “void for uncertainty”;   

(3) on 15 March 2018, the 4^th Defendant took out the Application; and

(4) on 23 May 2018, the Plaintiff made his 2^ndAffirmation, for the first time alleging that (1) the Co-operation Agreement is not binding for being “provisional” or envisaging a “formal agreement”; and (2) it is void for uncertainty.

32.  It is permissible for the purpose of ascertaining whether or not there was a contractual intention to enter into a binding agreement to have regard to the conduct of the parties after the alleged agreement was reached.[17]

33.  In view of the matters set out in paragraphs 29 to 31 above, it is clear that the Co-operation Agreement was intended to be immediately binding despite the Representation.

Whether the Co-operation Agreement is voidable for misrepresentation in view of the 4^th Defendant’s denial in making the Representation

34.  No authority has been cited by the Plaintiff in support of his submission that denial or wrongful denial of making a representation is tantamount to misrepresentation.

35.  On the other hand, it is trite law that there is misrepresentation if (1) there is a representation of fact; and (2) that fact turned out to be untrue.

36.  Looking at the facts contained in the Representation, they are not untrue because no one could have stopped the Plaintiff from consulting his lawyers on the copy. There is no “misrepresentation”.

37.  The Plaintiff did not make the assertion with conviction himself.  He merely said “the Representation may have been false …”.

38.  The Plaintiff’s submission on misrepresentation does not hold water.

39.  The Plaintiff’s written submissions also alluded to an estoppel argument that the 4^th Defendant “is likely to be estopped” from relying on the Co-operation Agreement because the Plaintiff had signed it in the belief that it is only provisional.[18] In view of the Court’s conclusion that the Co-operation Agreement was intended to be binding, the estoppel argument has no basis.

Whether the Co-operation Agreement is void for uncertainty

40.  As a general principle, courts are reluctant to strike down what are obviously intended to be commercial agreements for uncertainty.[19]

41.  Even if certain terms of economic or other significance to theparties have not been finalized, an objective appraisal of the parties’ wordsand conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement.[20]

42.  In the present case, in my view, the matters set out in paragraphs 29 to 31 above lead to the conclusion that the Plaintiff and the 4^thDefendant did not intend agreement of the Remaining Details to be a pre-condition to a concluded and legally binding agreement.

43.  Moreover, an agreement may be complete where the remaining details can be determined by the standard of reasonableness or by law.[21]

44.  The standard of reasonableness could be applied to give sufficient certainty to an otherwise vague provision provided that there is an objective standard for assessing what would be reasonable.[22]

45.  In the present case, the Plaintiff and the 4^th Defendant have agreed that the New Company shall take the form of a company limited by shares.  It is therefore beyond dispute that the New Company shall be managed by the Board.

46.  As to the appointment of directors to the Board, it is trite that the first directors are appointed by the shareholders.[23] In the present case, they are the Plaintiff and the 4^th Defendant.

47.  The rest of the Remaining Details, apart from the Consequences of Breach, are all management matters that are apt to be resolved by the Board with an objective standard available for reference if necessary.

48.  The agreement on equal shareholding provides an objective standard on the board seats.  The reasonable arrangement is that the Plaintiff and the 4^th Defendant should have rights to appoint an equal number of directors to the Board.

49.  Similarly, the fact that the use of the Property is subject to the Tenancy Agreement also provides an objective standard as to what business may reasonably be undertaken by the New Company.

50.  Shareholder loans or bank loans are also a reasonable source for funding the operation of the New Company and the amount required would depend upon its reasonable need.

51.  The Plaintiff submitted that if he were in breach of the Co-operation Agreement, “[he] would have to forfeit all [his] rights to use, manage and profit from the [Property].  In other words, [he] would have to give up the Tenancy Agreement. It then follows that the 4^th Defendant’s purported rights and entitlements under the [Co-operation Agreement] would also be forfeited because those rights depended on [his] continuing entitlements under the Tenancy Agreement”.[24] The Plaintiff submitted that the Consequences of Breach do not make sense and are uncertain.

52.  However, as a matter of construction, it is clear that the forfeiture of the Plaintiff’s rights to use, manage and profit from the Property merely means forfeiture of his rights and entitlements under the Co-operation Agreement.  It does not mean a forfeiture of his rights and entitlements under the Tenancy Agreement, which is a different agreement. There is no basis to say that the Consequences of Breach do not make sense and are uncertain.

53.  The Co-operation Agreement is not void for uncertainty.

Conclusion

54.  The Co-operation Agreement is a valid and binding agreement which has the effect of compromising all the claims made by the Plaintiff against the 4^th Defendant in this action.

DISPOSITION

55.  For the foregoing reasons, I allow the 4^th Defendant’s application to strike out the Statement of Claim as against the 4^thDefendant on the grounds that it is scandalous, frivolous and vexatious and that it is otherwise an abuse of the process of the Court.

56.  In light of the above, it is unnecessary for me to canvass the 4^thDefendant’s alternative application for a stay.  Suffice it to say that had this been necessary, I would have granted the stay as pursuing a settled action is an abuse of process of the court.

57.  I also make an order nisi that the Plaintiff shall pay the 4^thDefendant the costs of this action including the costs of the Application, to be taxed if not agreed.

58.  I also give liberty to the parties to restore the Statement of Damages Summons and the Expert Directions Summons for hearing before Master.  No order is made on the Amendment Summons which is now rendered obsolete by the outcome of the Application.

59.  Lastly, it remains for me to thank Counsel for their assistance.