SHELL HONG KONG LTD v. YEUNG WAI MAN KIU YIP CO LTD AND ANOTHER

FACV No. 1 of 2003

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 1 OF 2003 (CIVIL)

(ON APPEAL FROM CACV NO. 3749 OF 2001)

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J U D G M E N T

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Chief Justice Li :

1. I agree with the judgment of Mr Justice Chan PJ.

Mr Justice Bokhary PJ:

2. I agree with the judgment of Mr Justice Chan PJ.

Mr Justice Chan PJ :

Introduction

3. The question whether an order or judgment of the court is an interlocutory or final order or judgment often comes up for consideration in deciding what the time limit for lodging an appeal is or whether leave to appeal is required. In the present appeal, this question arises for determination in the context of the jurisdiction of the Court of Appeal comprising two Justices of Appeal to hear an appeal pursuant to s.34B(4)(a) of the High Court Ordinance, Cap 4. If the judgment given by the Deputy High Court Judge Muttrie on 19 September 2001 was an interlocutory judgment, the Court of Appeal comprising Mayo VP and Yuen JA had jurisdiction to entertain an appeal from that judgment. If it was a final judgment, then the Court of Appeal so constituted had no jurisdiction and its judgment given on 26 September 2002 was a nullity and should be set aside, irrespective of its merits.

Background facts

4. The appellant is the plaintiff in this action. It is a supplier of petroleum and chemical products (petroleum products) and the owner of a fuel station in Kowloon. In 1978, the respondent (2nd defendant) was appointed to operate the fuel station selling petroleum products supplied by the plaintiff.

5. By an Operator Agreement dated 1 August 1991, the plaintiff appointed the 1st defendant, a limited company formed by the 2nd defendant, as operator at the fuel station in place of the 2nd defendant. Pursuant to a term in the Operator Agreement and as a security for the plaintiff granting credit to the 1st defendant in respect of the supply of petroleum products by the plaintiff to the 1st defendant, the 2nd defendant executed a Personal Guarantee on 9 August 1991 agreeing to be jointly and severally liable together with the 1st defendant for any payment due to the plaintiff "not exceeding $300,000 at any one time". The Operator Agreement expired on 31 July 1996 but the 1st defendant was allowed to continue the operation of the fuel station.

6. By a Franchise Agreement dated 21 August 1997, which was signed by the plaintiff and the 2nd defendant as a director of the 1st defendant and which was intended to replace the Operator Agreement, the plaintiff granted a franchise to the 1st defendant to operate the fuel station for 5 years with the 2nd defendant also as a nominated principal. Under this Franchise Agreement, the 1st defendant was given credit in respect of some but not all of the petroleum products supplied by the plaintiff. Although the Standard Terms and Conditions annexed to the Franchise Agreement referred to the execution of guarantees by directors of a corporate franchisee, no new guarantee was requested by the plaintiff or given by the 2nd defendant.

The plaintiff's claim

7. In January 1999, the plaintiff, alleging that the 1st defendant had failed to make payment for the petroleum products supplied to it, purported to terminate the Franchise Agreement and commenced the present action. Apart from certain injunctive and other related relief, the plaintiff's main claim is:

(1) against both defendants, under the Franchise Agreement for an alleged outstanding balance in the sum of $909,083.50; and

(2) against the 2nd defendant, under the Personal Guarantee for any sum found to be due from the 1st defendant in respect of goods supplied by the plaintiff from time to time.

8. Initially, the plaintiff claimed against the 2nd defendant as a principal debtor under the Franchise Agreement. This part of the claim was subsequently abandoned, although it must be pointed out that as it stands, the Amended Statement of Claim still contains a claim against the 2nd defendant under that agreement.

9. The plaintiff's case against the 2nd defendant under the Personal Guarantee is that it had continued to be effective and binding on the 2nd defendant, notwithstanding that the Operator Agreement was replaced by the Franchise Agreement. In its Amended Reply, the plaintiff further alleges that the 2nd defendant was estopped by conduct from denying that the Personal Guarantee was still effective and binding.

The 2nd defendant's defence

10. The 2nd defendant's defence is that the Personal Guarantee was executed by him in favour of the plaintiff for the purpose of the Operator Agreement only. Upon the signing of the Franchise Agreement in August 1997, the Personal Guarantee had lapsed. In any event, the terms of the Franchise Agreement were substantially different from those in the Operator Agreement, implying, it is alleged, that it had been discharged. He is therefore no longer liable as a guarantor.

Events leading to present appeal

11. On 25 October 2000, the 2nd defendant issued a summons under Order 14A, rule 1 of the Rules of the High Court for 3 questions to be determined. Two of these questions related to the 2nd defendant's liability under the Personal Guarantee and the third related to his liability under the Franchise Agreement. He also asked for a dismissal of the plaintiff's action against him in case these questions were decided in his favour. The plaintiff opposed the application. Evidence was filed by both parties. Having heard the parties, the Deputy Judge gave a preliminary ruling holding that the 3 questions set out in the summons were suitable for determination without a full trial under Order 14A. There was no appeal against this ruling.

12. In September 2001, the parties appeared before the Deputy Judge again this time to argue on the merits of the summons. By his judgment dated 19 September 2001, the Deputy Judge ruled in favour of the plaintiff holding that the 2nd defendant was still bound by the Personal Guarantee and was not discharged from liability thereunder. He did not rule on the third question since the plaintiff had abandoned its claim against the 2nd defendant under the Franchise Agreement.

13. On 27 November 2001, the 2nd defendant lodged an appeal to the Court of Appeal against the Deputy Judge's judgment of 19 September 2001. The appeal was listed for hearing before Mayo VP and Yuen JA, having been treated as an interlocutory appeal. Neither party was aware of the possibility of the issue on jurisdiction and the court was not alerted to this issue. The 2 judges proceeded to hear the appeal, allowed it and made an order nisi for costs in favour of the 2nd defendant.

14. When the parties returned to argue on the order nisi, counsel for the plaintiff queried the jurisdiction of the Court of Appeal to hear the appeal from the judgment of the Deputy Judge and questioned the validity of the Court of Appeal's judgment. The Court of Appeal allowed the parties to argue the question of costs on a without prejudice basis and at the end of the day, made an order absolute.

15. The plaintiff then applied to the Court of Appeal consisting of Woo and Yuen JJA seeking leave to appeal against the decision of the Court of Appeal on the ground of lack of jurisdiction. Leave was granted under the "otherwise" limb of s.22 (1)(b) of the Court of Final Appeal Ordinance, Cap 484.

The plaintiff's submission in this appeal

16. It is not disputed that for the purpose of exercising any of its jurisdiction, the Court of Appeal shall consist of an uneven number of Justices of Appeal not less than 3, but a Court of Appeal consisting of two Justices of Appeal is competent to hear and determine certain matters which include any appeal against an interlocutory order or interlocutory judgment. Section 34B(2) and (4)(a) of the High Court Ordinance.

17. Mr Simon Chiu for the plaintiff submits that a judgment given pursuant to an Order 14A application must necessarily be a final judgment whether it disposes of the whole action or only a substantial or crucial issue in the case. It is further submitted that the judgment delivered by the Deputy Judge on 19 September 2001 would have in substance disposed of the entire matter in dispute between the plaintiff and the 2nd defendant, whichever way the decision went. That being the case, it is submitted, the Deputy Judge's judgment was a final judgment and hence the Court of Appeal comprising two Justices of Appeal had no jurisdiction to hear the appeal. The plaintiff is seeking to set aside the Court of Appeal judgment dated 26 September 2002 which allowed the 2nd defendant's appeal with costs. In the present appeal, counsel does not rely on the merits of the case and is content to raise only the jurisdiction point.

18. Mr Jason Pow for the 2nd defendant has indicated that while he does not concede the appeal, he is making no submission except on the question of costs.

Order 14A procedure

19. In order to decide whether the Deputy Judge's determination on the Order 14A summons was an interlocutory or final judgment, it is necessary to first examine the nature of the Order 14A application.

20. The Order 14A procedure was first introduced in England in 1991 and in Hong Kong in 1992. The underlying policy of this Order is, as the Supreme Court Practice 1993 described, "to accelerate the final judicial disposal of an action at the interlocutory stage and thereby save the expense and delay which would otherwise arise not only if the action were to proceed to a full trial but also if the parties would be required to undertake the necessary pre-trial steps to prepare for such trial." Vol. 1 para. 14A/1-2/1, p. 175.

21. For the purpose of this appeal, I need only refer to the main provision in Order 14A rule 1(1) which provides:

"(1) The Court may upon the application of a party or of its own motion determine any question of law or construction of any document arising in any cause or matter at any stage of the proceedings 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."

22. This rule may be invoked for a determination of a question of law or construction of any document by the court, provided that the two conditions in (a) and (b) above are fulfilled. The parties must either have consented to adopt such a procedure or have had the opportunity to be heard. Order 14A rule 1(3).

23. In cases which involve the determination only of a question of law or the construction of a document or where the whole case largely depends on the resolution of a question of law or the construction of a document, the Order 14A procedure is often adopted to put an early end to the entire case. However, it can be seen that under the condition in (b), this procedure can be invoked for the purpose of finally determining not only the entire cause or matter but also "any claim or issue" in the cause or matter. It is not necessary for the making of an application under Order 14A that the determination of a question of law or construction of any document would finally determine the whole action. Such a requirement would be wrong as a matter of "interpretation of the order and as an exercise of discretion". See Leggatt LJ in Korso Finance Establishment Anstalt v. Wedge & others, unreported, February 15, 1994, CA Transcript, at p.7 (in which it was held that an issue of construction was still suitable for determination under Order 14A even though a determination of this issue would not finally determine the entire action between the parties). It is sufficient if an issue in the case can be disposed of using such procedure. However, it is not contemplated that the parties would submit a trivial matter for determination under Order 14A. This would not only be contrary to the spirit and purpose of this procedure, but may also lead to possible abuse, resulting in unnecessary expense and delay and wastage of judicial time. No judge would accede to that sort of request or application in the proper exercise of his discretion.

24. It must also be noted that it is inappropriate to use this procedure if the issues of facts are interwoven with the legal issues to be determined. For obvious reasons, the question of law or construction of document cannot be dealt with on assumed or hypothetical facts. And if it is necessary for the court to hear evidence to resolve a factual dispute in order to come to a determination on the question of law or construction of document, it would not normally be suitable to invoke Order 14A.

25. Hence, even if the conditions are satisfied, the court still has a discretion under rule 1 to decide whether to entertain an application under this Order. He has to decide on the suitability of adopting the procedure in the case in hand before adjudicating on the merits. This was what the Deputy Judge had done in the present case.

Whether a judgment is interlocutory or final

26. In deciding whether an order or judgment is interlocutory or final for the purpose of obtaining leave to appeal, the court has preferred the "application approach" to the "order approach", although it has been said that the former is "right in experience" and the latter is "right in logic" (per Lord Denning MR in Salter Rex & Co v. Ghosh [1971] 2 QB 597, 601). See also First Pacific Bank Ltd v. Robert HP Fung [1990] 1 HKLR 527 and B + B Construction Ltd v. Sun Alliance and London Insurance Plc [2001] 1 HKLRD 1 where the application approach was affirmed. This approach was understood to involve an examination of the nature of the application to see whether the order or judgment made upon such an application would, whether it fails or succeeds, determine the whole action.

27. But it has been recognized that, on the application approach, a judgment, in some circumstances, may be final even if it does not finally determine the whole action, see e.g. White v. Brunton [1984] 1 QB 570; Holmes v. Bangladesh Biman [1988] 2 Lloyd's LR 120; First Pacific Bank Ltd v. Robert HP Fung.

28. In White v. Brunton, a judgment given upon a trial of a preliminary issue was held to be a final judgment for the purpose of deciding whether leave to appeal was required on the ground that it could be treated as the first part of a final hearing. The reason given by Sir John Donaldson MR for such conclusion appeared at p. 573:

"It is plainly in the interests of the more efficient administration of justice that there should be split trials in appropriate cases, as even where the decision on the first part of a split trial is such that there will have to be a second part, it may be desirable that the decision shall be appealed before incurring the possibly unnecessary expense of the second part. If we were to hold that the division of a final hearing into parts deprived the parties of an unfettered right of appeal, we should be placing an indirect fetter upon the ability of the court to order split trials."

29. This line of reasoning was followed in Holmes v. Bangladesh Biman by Bingham LJ who adopted a broad commonsense approach:

"Order 33, rule 3 gives the Court a wide discretion to order the separate trial of different issues in appropriate cases and a decision is not to be regarded as interlocutory simply because it will not be finally determinative of the action whichever way it goes. Instead, a broad commonsense test should be applied, asking whether (if not tried separately) the issue would have formed a substantive part of the final trial. Judged by that test this judgment was plainly final, even though it did not give the plaintiff a money judgment and would not, even if in the airline's favour, have ended the action." (at p.124)

30. These two English decisions were applied in First Pacific Bank Ltd v. Robert HP Fung in which the Hong Kong Court of Appeal held that a judgment given at the trial of 3 preliminary points of law was a final judgment and hence an appeal from it lay to the Privy Council as of right. Fuad VP considered that this accorded with common sense and fairness. He said at p. 531:

"It seems to me that it would be quite extraordinary if in a case of this kind the intending appellant would be deprived of his appeal as of right to Her Majesty in Council in respect of a huge sum for which he is liable simply because the case was tried in the way it was. As events have shown, if the decision of this Court is upheld by their Lordships in the Privy Council, a great deal of time and expense would have been saved. Lord Donaldson's comments about the interests of more efficient administration of justice in White v. Brunton are very pertinent because in this particular case the decision on the proper construction of the statutory provisions in question was a crucial issue at the trial. In my view an entirely sensible course was taken and I am persuaded that we should follow the approach of the English Court of Appeal in Hong Kong and regard a decision on a preliminary point of law that goes to the root of the case as a decision which amounts to a final judgment and not an interlocutory judgment. This seems to me consistent with common sense and fairness which, perhaps, is not always apparent in the way courts have dealt with the problem of deciding whether a judgment or order is interlocutory or final."

31. In my view, what one can extract from these cases is that where an order or judgment given in an application does not finally dispose of the whole action but only an issue in the action, it is necessary to consider the purpose and substance of the application, the issue dealt with and determined by the court and the effect of a determination of this issue on the rights of the parties, the further conduct of the proceeding and the final disposal of the whole action. A broad commonsense approach should be adopted. If the issue dealt with and determined by the court is "a substantive part of the final trial" (Holmes v. Bangladesh Biman, p.124); or "a crucial issue" in the case or a point "that goes to the root of the case" (First Pacific Bank Ltd v. Robert HP Fung, p. 532), or "a dominant feature of the case" (Korso Finance Establishment Anstalt v. Wedge & others, p.7), then the order or judgment, even if it does not finally dispose of the whole action, should nevertheless be regarded as a final judgment.

32. There are good reasons for regarding such a judgment as a final judgment. The purpose of adopting a procedure such as Order 14A or Order 33 rule 3 in appropriate cases is to enable the parties to dispose of at least a large part of their dispute more expeditiously. This is obviously in the interest of the more efficient administration of justice. Such procedure also has the advantage of saving the parties the unnecessary trouble, expense and time to undertake pre-trial steps in preparing for a full trial or to go through such a trial, if the case can be simplified by having some crucial or substantial issues out of the way and determined beforehand. If a judgment disposing of such issues were to be treated as interlocutory only, the parties might be unfairly deprived of the right to appeal to the Court of Final Appeal for taking a much more sensible course in the proceedings than leaving these issues to be decided at a full trial.

33. In my opinion, a judgment given pursuant to an Order 14A application which is not finally determinative of the entire cause or matter but is finally determinative of a crucial or substantial issue in the cause or matter should be regarded as a final judgment.

Whether Deputy Judge's judgment is interlocutory or final

34. As the plaintiff's claim on the Franchise Agreement has been abandoned, the issues between the plaintiff and the 2nd defendant are these: whether the Personal Guarantee executed by the 2nd defendant in 1991 was still effective and binding at the time of the plaintiff's claim; and if it was, what was the extent of 2nd defendant's liability as provided under the Personal Guarantee.

35. If the Personal Guarantee was at the material time no longer effective and binding on the 2nd defendant, he is not liable to the plaintiff and can drop out of the proceedings altogether. But if he remained liable as a guarantor, he would only be interested to know the extent to which he is liable under the Personal Guarantee and whether and if so, how much the 1st defendant is liable to the plaintiff under the Franchise Agreement. The latter issue would be a matter between the plaintiff and the 1st defendant.

36. Hence, as between the plaintiff and the 2nd defendant, the issue whether the Personal Guarantee is still effective and binding on the 2nd defendant is clearly a crucial and substantial issue between them. A determination on this issue in favour of the 2nd defendant would be dispositive of the plaintiff's claim against the 2nd defendant. On the other hand, if it is decided in favour of the plaintiff, it would not dispose of the whole action against the 2nd defendant. However, this would finally dispose of a crucial and substantial issue between them.

37. That being the case, the Deputy Judge's judgment given on 19 September 2001 should be regarded as a final judgment.

38. At the end of its judgment dated 26 September 2002, the Court of Appeal remarked that "it was unfortunate that the matter was proceeded with in the way it was as with the benefit of hindsight the issues posed were not suitable for determination under Order 14A." As I have said earlier, a judge dealing with an Order 14A application has to decide whether the question of law or construction of any document is suitable of determination under this procedure before considering the merits of the application. Notwithstanding his initial decision to proceed with the application, if during the course of hearing of the summons, it appears to him that the question of law or construction of document is indeed not suitable for determination under this procedure for the reason that it then transpires that there are significant disputes on some of the facts or for some other reasons, he may and should refuse to make a determination on the summons. If the Court of Appeal hearing the appeal considers that the judge was wrong to allow the application to proceed, it will no doubt take that into account in deciding on the merits of the appeal.

Conclusion

39. For the above reasons, since the Deputy Judge's judgment given on 19 September 2001 was a final judgment, the 2nd defendant's appeal from this judgment should have been heard by a Court of Appeal consisting of 3 Justices of Appeal. Mayo VP and Yuen JA did not have jurisdiction to hear and determine the appeal. Their judgment is a nullity and should be set aside. The appeal should be re-listed for hearing on a date to be fixed before a properly constituted Court of Appeal.

40. As to the question of costs, my conclusion is as follows:

(1) The appeal in the Court of Appeal was wrongly listed for hearing before a court of 2 judges. Neither party was aware of the lack of jurisdiction of the court so constituted nor had brought this to the attention of the court. It is only fair that there should be no order as to costs for the hearing before Mayo VP and Yuen JA including the hearing on the order nisi.

(2) The 2nd defendant opposed the plaintiff's application to the Court of Appeal for leave to appeal to this Court and failed. He should pay the plaintiff's costs of such application. Since there will be a rehearing of the appeal, this order for costs should be stayed until after the disposal of the appeal by a properly constituted court.

(3) The appeal to this Court is a step to correct the oversight of the parties in pursuing the appeal to a Court of Appeal which lacked jurisdiction. The costs of the appeal to this Court should therefore abide by the result of the rehearing of the appeal before the Court of Appeal.

41. Finally, I would take this opportunity to comment on the rather slow progress in this case. The present case was commenced in January 1999. Pleadings were closed in June 1999. The Order 14A summons was not issued until over a year later on 25 October 2000. The Deputy Judge gave his preliminary ruling on 18 December 2000. But the summons was only heard in September 2001. It was in September 2002 that the appeal to the Court of Appeal was heard. Even if it had been placed before a properly constituted Court of Appeal, the parties had taken three and a half years, an unacceptably long time, to reach that stage. This has defeated the purpose of the Order 14A procedure. I would have thought that even without the Order 14A application, the whole action should and would probably have been concluded by now.

Mr Justice Clough NPJ:

42. I agree with the judgment of Mr Justice Chan PJ.

Sir Anthony Mason NPJ:

43. I agree with the judgment of Mr Justice Chan PJ.

Chief Justice Li:

44. The Court unanimously sets aside the judgment of the Court of Appeal and makes the orders as to costs set out in the judgment of Mr Justice Chan PJ.