XCHRX HONDON DEVELOPMENT LTD. AND ANOTHER v. POWERISE INVESTMENTS LTD. AND ANOTHER

1998, No. A1208

HEADNOTE

Practice and Procedure. Application under O.14A, r.1, RHC. Whether appropriate to seek court's determination on basis of assumed facts. Application to strike out on ground of frivolous, vexatious and/or embarrassing. Whether plain and obvious case.

1998, No. A1208

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1208 OF 1998

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J U D G M E N T

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1. There are two applications before me.

2. The first is by summons dated 7th April 1998 taken out by the 1st Defendant to strike out prayer (A)(1) of the Statement of Claim. This relates to the claim for rescission. The second application is a recent application by summons dated 6th November 1998 also taken out by the 1st Defendant for the determination by the court under O.14A, Rules of the High Court.

3. I shall deal with the second application first. This relates to an application made under O.14A, r.1. The summons asks for the court's determination of the issue:

"Whether assuming all the facts pleaded in the Amended Statement of Claim (including all documents referred to, namely the Provisional Agreement, the Plan, the faxed floor plan, the Formal Agreement with the ground floor plan attached, the Nomination and the Assignment with the ground floor plan attached) are proved, the Plaintiffs are entitled to rescind the Provisional Agreement and/or the Formal Agreement and/or the Assignment, and that in the event the answer is in the negative, paragraph A(1) of the prayer in the Amended Statement of Claim be struck out."

This also relates to the claim for rescission.

4. Under O.14A, r.1 the court may determine any question of law or construction of any document where it appears to the court that -

(a) such question is suitable for determination without a full trial of the action and

(b) such determination will finally determine (subject only to any possible appeal) the entire cause or matter or any claim or issue therein.

Thus, the court has a discretion to determine such a question if it appears to the court that (a) and (b) are satisfied.

5. Normally, the position is straightforward where facts are undisputed and a point of law needs consideration. It can be dealt with summarily as on the facts as admitted, the matter will finally determine the right of the parties, and in the ordinary case there is no need for a trial. Here, however, the 1st Defendant does not admit the facts. As I have set out what is stated in the summons, the issue that the court is asked to determine is on the basis of assumed facts, not admitted facts. That is not the same thing. If the court deals with the application under O.14A as sought by the 1st Defendant, then if the issue is determined against the 1st Defendant, the 1st Defendant is not bound by the assumed facts but will be able to go to trial and challenge all the assumed facts. I note that r.1(1)(b) of O.14A states that such determination "will finally determine", not "may finally determine". As I have said, if the matter goes against the 1st Defendant, the 1st Defendant will have an opportunity to challenge all the facts at trial. That is not, in my view, a final determination on the claim for rescission.

6. I was referred to Salaman v. Warner & others [1891] 1 Q.B. 734 where it was held that a final order is one made where whichever side the decision is given, it will, if it stands, finally determine the matter in litigation. In Salaman v. Warner & others, the court was considering the period of time for an appeal and the distinction between an interlocutory order and a final order, but I think the principle is the same. In my view, if the decision whichever way it is given will, if it stands, finally dispose of the matter in the dispute, in this case the claim for rescission, then I think it will finally determine that claim. That is not the position in this case.

7. There is another point and that is this. The issue that the court is being asked to determine only relates to the claim for rescission, not the alternative claim for damages. The 1st Defendant only assumes the facts pleaded in the Amended Statement of Claim for the purposes of the application taken out under O.14A which is restricted to the claim for rescission only, and not for the alternative claim for damages. So, whichever way the court decides on the O.14A application, the alternative claim for damages will still proceed to trial and facts have not been assumed by the 1st Defendant for that claim. The surprising thing is that the facts in support of the claim for rescission are the same facts in support of the alternative claim for damages. In effect, you could have a situation where the 1st Defendant assumes facts for the claim for rescission but not assumed for the alternative claim for damages, and the matter goes to trial on the claim for damages. You could have a situation where a judge at trial makes a different finding on the facts than what have been assumed. That would be a wholly undesirable situation and one that ought to be avoided in my view.

8. I also accept the point made by Mr. Wong that what the court in effect is being asked to do is to determine the issue on hypothetical facts i.e. on assumed facts and not admitted facts or facts which have been proven. That is another reason for the court declining to deal with the O.14A application in my view.

9. In the circumstances, I dismiss the application made by summons dated 6th November 1998. I do not think that it is wise or appropriate for the court to determine the issue as framed on the basis of assumed facts.

10. I deal now with the application to strike out. It is important to bear in mind that the application is made on the ground that the claim is frivolous, vexatious and/or embarrassing. It is not made on the ground that there is no reasonable cause of action in respect of the claim for rescission. It is also trite law that for the purposes of the application, the facts pleaded in the Statement of Claim are to be regarded as true and as matters which will be proved at trial.

11. The facts are that the 1st and 2nd Plaintiffs were companies which were, at all material times, beneficially owned and controlled by Mr. Chan Chi Hin ("Mr. Chan"). On 7th August 1997, there was a Provisional Agreement for Sale and Purchase with a floor plan annexed thereto whereby the 1st Defendant as vendor agreed to sell and the 1st Plaintiff or its nominee agreed to purchase Shop 1A on the Ground Floor of Ka Wing Building, Nos. 534-538 Nathan Road, Kowloon ("the property") at a price of HK$14,500,000.00.

12. The Provisional Agreement which has been exhibited in evidence describes the purchaser as "Hondon Development Limited or nominee(s)" and on the signature page, it has been signed with the description above the signature for and on behalf of the purchaser by "Hondon Development Limited or nominee(s)". Annexed to the Provisional Agreement was a floor plan which was signed by Hondon Development Limited of the one part and the 1st Defendant of the other part which showed Shop 1A in the coloured portion in the plan. Next to Shop 1A in the plan is shown a lift lobby with two service lifts. The Plaintiffs' case is that before the Provisional Agreement was signed, the 1st Defendant through the estate agent acting on behalf of the 1st Defendant made certain representations and in reliance thereon the 1st Plaintiff entered into the Provisional Agreement with the 1st Defendant. The representations were:

(a) that the boundary of the property was as shown in the floor plan which was faxed to the Plaintiff and which is the same as that annexed to the Provisional Agreement;

(b) that the property would be partitioned in accordance with the floor plan;

(c) that there would be two service lifts in the lobby entrance located immediately next to the property and that the property would be partitioned off from the lift lobby by a glass partition to facilitate the use of the same as a display window for the shop;

(d) the setting and location of the property was that as shown in the floor plan and in a sales brochure which was provided to Mr. Chan by the estate agent.

13. Mr. Chan was the recipient of these representations. It was not possible to inspect the inside of the property before the Provisional Agreement was signed because the property had not yet been partitioned into the respective shop spaces and it was not possible to gain access to the property at that time.

14. Under the Provisional Agreement, vacant possession of the property would be delivered on or before 15th September 1997 upon completion and partitioning would be completed so as to partition off the property on or before 15th October 1997. As I have said, relying on the representations the Provisional Agreement was entered into.

15. The 2nd Defendant is a firm of solicitors who acted for the Plaintiffs in the conveyance of the sale and purchase transaction and they have also been sued for negligence in this action.

16. To the Formal Agreement for Sale and Purchase there was a plan attached. This plan differed from the plan that was annexed to the Provisional Agreement. The effect of the difference is that Shop 1A was much smaller than as shown in the plan annexed to the Provisional Agreement and the lift lobby that was shown in the earlier plan was no longer there; instead, there was another shop there.

17. On 12th September 1997 one day after the Formal Agreement was signed, by a Nomination of that date, the 1st Plaintiff as the nominator nominated the 2nd Plaintiff as its nominee to accept the Assignment of the property under the Formal Agreement. Completion took place on 15th September and the balance of the purchase price was paid. The Assignment was taken in the name of the 2nd Plaintiff. The plan attached to the Assignment was the same plan as that attached to the Formal Agreement for Sale and Purchase.

18. Unknown to the 1st and 2nd Plaintiffs, when they executed the Formal Agreement and the Assignment respectively, the plan annexed to the Formal Agreement and the Assignment was, as I have said, different from the plan which was annexed to the Provisional Agreement. A portion of the property situated next to a staircase was excluded from the boundary of the property shown in the later plans. As a result of that, there was a substantial reduction of the area of the property by virtue of the excluded portion. I say it was a substantial reduction because as pleaded, the boundary of the property as shown in the original plan annexed to the Provisional Agreement was about 90" x 107" which was about 67 sq. ft. What was in fact done when the property had been partitioned was that the area of the property was only about 47" x 65", namely about 22 sq. ft. This was a very material difference in my view.

19. Although completion took place on 15th September, the 2nd Plaintiff as the assignee was not able to take possession until 15th October 1997 when all the partitioning had been completed. On 14th October 1997 at an inspection of the property, Mr. Chan discovered for the first time that the area of the property as partitioned at the site was substantially smaller than what the 1st Plaintiff had contracted for under the Provisional Agreement. And it is said that the representations which I have mentioned above were false and untrue in that:

(a) the 1st Defendant never intended to sell the property with the boundary as shown in the plan annexed to the Provisional Agreement. In fact, it is alleged that the 1st Defendant did not have title to the portion that was excluded because the portion that was excluded was in fact part of the water tank room;

(b) the 1st Defendant never intended to partition the property in accordance with the plan annexed to the Provisional Agreement;

(c) there was never a lift lobby next to the property and the 1st Defendant never intended to partition the property with a glass partition facing a lift lobby. What was supposed to be a lift lobby was in fact a shop separated from the property by a thick concrete partition wall measuring some 25" in thickness.

20. It is also said that the solicitors, the 2nd Defendant, failed to discover the discrepancy in the two plans. It is said that the sale and purchase was completed without the Plaintiffs discovering the falsity of the representations. On that basis, the Plaintiffs seek rescission.

21. I have been reminded of how the court should deal with applications of this type. It is trite law that the court should only exercise its power to strike out in plain and obvious cases. Unless it can be said that a plaintiff is bound to fail, the court should refuse to strike out and dismiss its claim.

22. It is useful to remember what Danckwerts L.J. said in Wenlock v. Moloney [1965] 1 WLR 1238 at 1244:

"But this summary jurisdiction of the court was never intended to be exercised by a minute and protracted examination of the documents and facts of the case, in order to see whether the plaintiff really has a cause of action. To do that is to usurp the position of the trial judge, and to produce a trial of the case in chambers, on affidavits only, without discovery and without oral evidence tested by cross-examination in the ordinary way. This seems to me to be an abuse of the inherent power of the court and not a proper exercise of that power."

It is plain to me that the court should not embark on a mini-trial of the action based on affidavit evidence alone.

23. Mr. Chain for the 1st Defendant had a number of points in support of his application some of which he abandoned in the course of argument. In the end, he rested his case on two main points:

(1) when the 2nd Plaintiff took up the Assignment of the property, the representation that was made was at that time spent and can't be relied on to rescind the Assignment, and

(2) the knowledge of the Plaintiffs' solicitors is deemed to be the knowledge of the Plaintiffs and the fact that the solicitors knew of the plan annexed to the Formal Agreement is imputed to the Plaintiffs.

24. On the first point, Mr. Chain relied on the case of Gross v. Lewis Hillman Ltd. [1970] 1 Ch. 445.

25. It has been pointed out to me by Mr. Wong for the Plaintiffs that in the Provisional Agreement, the purchaser is specifically described as the 1st Plaintiff or its nominee. That being so, it was submitted that it was within the contemplation and intention of the parties that the 1st Plaintiff had a right to nominate a nominee and that nominee would be treated as the purchaser under the Provisional Agreement. As it turned out, the nominee was the 2nd Plaintiff. The Nomination which has been produced in evidence shows that it was signed by Mr. Chan on behalf of both the nominator and the nominee. Mr. Chan is, of course, the person who beneficially owns and controls both Plaintiffs.

26. Mr. Wong further submitted that it was intended that whatever representations were made that induced the nominator to enter into the agreement was intended for the nominee as well. And Mr. Wong said that it was the case of the 1st Plaintiff or its nominee being the principal under the Provisional Agreement. In the alternative, the 1st Plaintiff was the agent of the 2nd Plaintiff when the Provisional Agreement was signed. He submitted that whether it was principal or agent did not matter as the elements that were required for holding the 1st Defendant liable for the representations were present because the representations were not spent.

27. It is, in my view, arguable that the principal in the Provisional Agreement was the 1st Plaintiff or nominee. It is not plain and obvious to me that the 2nd Plaintiff can never be regarded as a principal under the Provisional Agreement. This is a matter which should properly be investigated at trial. It is not appropriate, in my view, to have a minute examination of the exact relationship between the parties at this stage. On Mr. Wong's alternative case, I note that that has not been pleaded in the Statement of Claim but I see no reason why an alternative case cannot be made out in a properly pleaded Amended Statement of Claim.

28. The case of Gross v. Lewis Hillman Ltd., (supra) in my view is distinguishable. In that case, there was a straight sub-sale to the Plaintiff and it was in that context that the Court of Appeal dealt with the question whether if the misrepresentations were fraudulent, the Plaintiff would be entitled to rely on them. On the facts of that case, there was no repetition of the representation to the Plaintiff and it is not surprising to see why the claim for rescission failed in that case.

29. Whatever view may be taken of the Nomination that has been produced in evidence dated 1st September 1997, it is not, in my view, a sub-sale. It must be remembered that Mr. Chan who beneficially owns and controls both Plaintiffs was the person to whom the representations were made in the first place. It is arguable that the representations were made to induce the Plaintiffs to enter into the contract in the first place. There is no evidence to suggest that the representations were ever corrected. That being so, it is, in my view, reasonably arguable that the 1st Defendant as vendor stood by and let the property be assigned to the 2nd Plaintiff without correcting the errors as regards the boundary of the property as well as the other representation as regards the glass partition. Mr. Chain said that the representation as regards the glass partition was not a material representation but I think it is reasonably arguable that it was material. We are talking about a very small shop and to make it even smaller by taking away a glass partition and replacing it with a thick concrete wall of 25" must encroach upon the property to make it smaller. Also, a glass partition would not prevent people from the outside looking in and if it was intended to use it as a display window, that was certainly not met. These are, however, matters to be properly resolved at trial.

30. In the case ofPilmore v. Hood 5 Bing. (N.C.) 98, there was in fact a repetition of the misrepresentation to the person who subsequently took up the purchase of which the vendor had notice. That enabled the assignee to bring an action. In this case, of course, there is no repetition of the misrepresentation directly to the 2nd Plaintiff but it would be artificial, in my view, to forget about the fact that the person who received the representation was in fact Mr. Chan. There was no need, in my view, for him to repeat the representation to the 2nd Plaintiff to the knowledge of the 1st Defendant as vendor. At least, it is not plain and obvious to me that that must be so on the facts of this case. It is not plain and obvious to me that when the 2nd Plaintiff took up the Assignment of the property, the misrepresentation was spent.

31. I turn to the second point, knowledge of the solicitors. As I have said, there is no evidence that there was any correction of the error by the 1st Defendant. However, Mr. Chain said that the plan that was annexed to the Formal Agreement made it plain that it was different from the plan annexed to the Provisional Agreement and the solicitors must have known that that was so and if they knew that, that must be imputed to the Plaintiffs. He relied on Strover and Another v. Harrington [1988] 1 Ch. 390. Again, that case, in my view, is distinguishable. In that case, it is clear that the solicitor had knowledge of the falsity of the representation. In those circumstances, I can well see why knowledge should be imputed to the client. In this case, however, it is pleaded that there was no knowledge on the part of the solicitors. It is specifically pleaded that the 2nd Defendant failed to discover the difference and/or discrepancy between the Formal Agreement and the Assignment plans and the plan annexed to the Provisional Agreement. That must mean, in my view, that the solicitors did not know of the difference because they failed to discover it. In the circumstances, on those facts the solicitors did not know of the falsity and there is no relevant knowledge to be imputed to the Plaintiffs.

32. It is not enough that the solicitors had the opportunity to discover the error. Plainly they did, they did have that opportunity. In this context, I would respectfully adopt what Jessel M.R. said in Redgrave v. Hurd [1881] Ch. 1 at 13:

"There is another proposition of law of very great importance which I think it is necessary for me to state, because, with great deference to the very learned Judge from whom this appeal comes, I think it is not quite accurately stated in his judgment. If a man is induced to enter into a contract by a false representation it is not a sufficient answer for him to say, "If you had used due diligence you would have found out that the statement was untrue. You had the means afforded you of discovering its falsity, and did not choose to avail yourself of them." I take it to be a settled doctrine of equity, not only as regards specific performance but also as regards rescission, that this is not an answer unless there is such delay as constitutes a defence under the Statute of Limitations ............... Nothing can be plainer, I take it, on the authorities in equity than that the 'effect' of false representation is not got rid of on the ground that the person to whom it was made has been guilty of negligence."

33. In the circumstances, I reject Mr. Chain's contentions. The application to strike out is dismissed. I would also add that rescission is an equitable remedy and before deciding whether or not to grant equitable relief, the court no doubt will have regard to all the circumstances in the case. This can, in my view, only be properly done at trial after hearing all the evidence.

34. Both applications are dismissed with costs to the Plaintiffs in any event.