BEACON COLLEGE LTD. v. YIU MAN HAU, ALFRED AND OTHERS

HCA4273/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4273 OF 2001

(formerly HCA2359/2001, 2529/2001 and 2532/2001)

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REASONS FOR DECISION

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1. This is the plaintiff's application by summons filed on 29 November 2002 to strike out paragraphs 18A to 18J of the Consolidated Re-Amended Defence and Counterclaim ("CRADC") of the 1st, 3rd to 5th defendants (collectively "the defendants").

2. I do not repeat the background of these proceedings. They had already been set out in previous interlocutory decisions. Suffice it to note that this is the plaintiff's second striking out application. The first application was heard on the first day of the 20 days' trial. The application was successful and two paragraphs in the Consolidated Amended Defence were ordered to be struck out.

3. Also on the first day of the trial, the defendants applied to re-amend the Consolidated Amended Defence and to add a counterclaim. The application was opposed, but leave to amend was eventually granted. Consequently, the CRADC was filed on 15 November 2002.

4. As a result of the re-amendments to the pleadings, the trial was aborted. The trial, now estimated to last 30 days, is re-scheduled to commence in September 2003.

The application

5. The plaintiff applies to strike out paragraphs 18A to 18J of the CRADC relying on all four limbs of Order 18, rule 19(1) of Rules of High Court and alternatively the inherent jurisdiction of the court. The paragraphs that are subject matter of the application form the entire bulk (except one paragraph i.e. paragraph 18K) of the re-amendment to the Consolidated Amended Defence.

6. Paragraphs 18A to 18J read as follows :

"18A.	It was an implied term and condition of the Contracts by necessary implication or by reason of business efficacy that:
	(a)	the Defendants should not be required to do or participate in an unlawful act or assist in any breach of any statutory regulations or requirements;
	(b)	the Plaintiff undertook to provide the Defendants with reasonable amount of work and/or reasonable working locations so long as the Contracts lasted;
	(c)	the Defendants should enjoy from their employments under the Contracts in addition to the remuneration an opportunity for publicity and reputation to advance their careers and reputation;
	(d)	the Plaintiff was under a duty to preserve trust and confidence that the Defendants should have in it.
18B.	In the event that the Contracts or any of them are found not to be terminable by notices or not to have been terminated by notices, the Defendants say that, in breach of the Contracts and the terms and conditions thereof:
	(a)	the Plaintiff wrongfully required the Defendants to do or participate in an unlawful act or assist in breach of statutory regulations, namely, Regulation 88(c) of the Education Regulations (Cap.279) ('the Regulations');
	(b)	the Plaintiff wrongfully failed or refused to provide the Defendants with any reasonable amounts of work and/or any reasonable working locations;
	(c)	the Plaintiff wrongfully denied or deprived the Defendants of an opportunity for publicity and reputation to advance their careers and reputation;
	(d)	the Plaintiff wrongfully failed to preserve trust and confidence that the Defendants should have in it.
		Particulars
	i.	During the continuance of the Contracts, the Plaintiff regularly and frequently enrolled, organized and arranged classes for the Defendants to teach after the commencement of the Contracts in breach of Regulation 88(c) of the Regulations in that the classes or tutorial courses taught by the Defendants exceeded 45 persons, inter alia, by means of live closed circuit television broadcast to students in other classrooms;
	ii.	When the 1st Defendant went to teach evening classes in October, 2001,
	a.	he was assigned to classes located at the Yuen Long branch only of the Plaintiff while he had previously been teaching in Tuen Mun, Yuen Long, Sheung Shui and Mongkok branches of the Plaintiff;
	b.	he was assigned to teach in the Yuen Long school where only about 8 students enrolled, while over 600 students had enrolled in his classes in the previous year;
	c.	higher fees were charged for his classes while a discount was offered to other comparable classes taught by other teachers with a view to minimizing or reducing the attraction of his classes;
	d.	by reason of the aforesaid matters, the 1st Defendant has suffered a drastic loss of income, publicity and reputation;
	iii.	When the 3rd Defendant went to teach evening classes in October, 2001,
	a.	he was assigned to classes located at the Yuen Long and Sheung Shui branches of the Plaintiff while he had previously been teaching in Tuen Mun, Yuen Long, and Mongkok branches of the Plaintiff;
	b.	he was assigned to teach in the Yuen Long and Tuen Mun branches where only 8 to 27 students enrolled, while about 230 students had enrolled in his classes in the previous year;
	c.	higher fees were charged for his classes while a discount was offered to other comparable classes taught by other teachers with a view to minimizing or reducing the attraction of his classes;
	d.	by reason of the aforesaid matters, the 3rd Defendant has suffered a drastic loss of income, publicity and reputation;
	iv.	When the 4th Defendant went to teach evening classes in October, 2001,
	a.	he was assigned to classes located at the Yuen Long branch only of the Plaintiff while he had previously been teaching in Tuen Mun, Yuen Long, and Yaumatei branches of the Plaintiff;
	b.	he was assigned to teach in the Yuen Long branch where only about 38 to 46 students enrolled, while about 400 students had enrolled in his classes in the previous year;
	c.	higher fees were charged for his classes while a discount was offered to other comparable classes taught by other teachers with a view to minimizing or reducing the attraction of his classes;
	d.	by reason of the aforesaid matters, the 4th Defendant has suffered a drastic loss of income, publicity and reputation;
	v.	When the 5th Defendant went to teach evening classes in October, 2001,
	a.	he was assigned to classes located at the Yuen Long and Sheung Shui branches of the Plaintiff while he had previously been teaching in Tuen Mun, Yuen Long, Sheung Shui and Yaumatei branches of the Plaintiff;
	b.	he was assigned to teach in the Yuen Long and Sheung Shui branches where only about 35 to 41 students enrolled, while about 350 to 420 students had enrolled in his classes in the previous year;
	c.	higher fees were charged for his classes while a discount was offered to other comparable classes taught by other teachers with a view to minimizing or reducing the attraction of his classes;
	d.	by reason of the aforesaid matters, the 5th Defendant has suffered a drastic loss of income, publicity and reputation;
	vi.	By reason of the matters aforesaid, the Defendants have lost all the trust and confidence in the Plaintiff who failed to preserve the same, wrongfully failed or refused to provide the Defendants with any reasonable amount of work and/or any reasonable working locations, and/or wrongfully denied or deprived the Defendants of an opportunity for publicity and reputation to advance their careers and reputation.
18C.	By reason of the matters aforesaid, the Plaintiff has evinced an intention no longer to be bound by the Contracts and has repudiated the same.
18D.	The 1st Defendant as he was entitled to do accepted the said repudiation by notice delivered on 14th May 2001 or alternatively by letter dated 1 November, 2001 or alternatively by his ceasing to teach for the Plaintiff at or about end of October 2001 or alternatively by the service of the Re-Amended Defence.
18E.	The 3rd Defendant as he was entitled to do accepted the said repudiation by notice delivered on 14th May 2001 or alternatively by his ceasing to teach for the Plaintiff in about March, 2002 or alternatively by the service of the Re-Amended Defence.
18F.	The 4th Defendant as he was entitled to do accepted the said repudiation by notice delivered on 14th May 2001 or alternatively by his ceasing to teach for the Plaintiff in late January, 2002 or alternatively by the service of the Re-Amended Defence.
18G.	The 5th Defendant as he was entitled to do accepted the said repudiation by notice delivered on 14th May 2001 or alternatively by his ceasing to teach for the Plaintiff in late January, 2002 or alternatively by the service of the Re-Amended Defence.
18H.	Further or alternatively, the matters pleaded hereinabove constituted constructive dismissal of the Defendants by the Plaintiff.
18I.	Further or alternatively, the matters pleaded hereinabove constituted ill-treatment to which the Defendants were subjected by the Plaintiff within the meaning of section 10(b) of the Employment Ordinance (Cap.57) and entitled the Defendants to terminate without notice or payment in lieu of notice which they did as pleaded in paragraphs 18E to 18G above.
18J.	By reason of the matters aforesaid, the Contracts have been terminated and have ceased to be effective or binding on the Defendants and the Defendants have suffered loss and damages."

7. Broadly speaking, the grounds for the application can be summarized as follows :

(1) No material facts giving rise to the second and third implied terms have been pleaded : paragraph 18A(b) and (c) of CRADC;

(2) The breaches pleaded in particulars (ii) to (vi) of paragraph 18B and the repudiation pleaded in paragraph 18C are based on events that occurred after the issue of the writs. They therefore cannot constitute defence to the plaintiff's claim in breach of contract : paragraphs 18B(ii) to (vi) and 18C of CRADC;

(3) The notice served by the defendants on 14 May 2001 cannot constitute notice of acceptance of the post-writ repudiation : paragraphs 18D to 18G of CRADC;

(4) The alleged breaches, if proved, only amount to breach of warranty and do not entitle the defendants to treat the contracts as repudiated : paragraphs 18A to 18G of CRADC;

(5) The defendants had elected to affirm the contracts and/or waived the alleged breaches.

8. The primary ground on which the defendants oppose the application is that the application amounts to an abuse of process and should be rejected. Alternatively, the defendants argue that the matters complained of do not warrant a striking out order.

Abuse of process

9. Mr Lin for the defendants argues that, as a matter of principle, it is an abuse of process to re-litigate a matter that has already been determined by the court. It is said that the bulk of the plaintiff's present complaints and submissions had been raised or, alternatively, could have been raised at the application for leave to re-amend. Given this and the fact that leave to amend had been granted, the plaintiff should not be permitted to re-open the merits of the defence case through a striking out application.

10. Miss Wong for the plaintiff meets this objection on three fronts. Firstly, it is said that the striking out application and the amendment application are two different applications. Secondly, the granting of leave to amend does not preclude a subsequent striking out application. Thirdly, if the pleading is demonstrably bad, then the court's discretion cannot be fettered and the pleading should be struck out notwithstanding that it was initially introduced with leave of the court.

11. In my judgment, it is not unheard of for interlocutory applications to be renewed : see, for example, Order 24, rule 17 Rules of High Court and Order 32, rule 8 Rules of District Court. Ultimately, it is a matter of judicial discretion. Whether the applications are identical in terms of the statutory provisions relied upon or the relief sought is not definitive of the matter. What is important is whether the substance of the applications or the issues involved are essentially the same. If they are, then the subsequent application should not be entertained, unless :

(1) there is material change of circumstances; or

(2) the grounds or evidence relied upon for the subsequent application are matters that could not reasonably be expected to be adduced at the earlier application : Chanel Ltd v. Woolworth & Co. Ltd [1981] 1 WLR 485, 492H-493A and Habib Bank AG Zurich v. Mindi Investments Ltd 131 SJ 1455, at p.5 of the transcript.

12. In the present case, the summons to re-amend was issued one working day before the trial was due to start on a Monday. On the intimation that the re-amendments may be relevant to the striking out application, the two applications were heard together on the first day of the trial. It is fair to say that the plaintiff and its legal representatives had only been afforded very little time and opportunity to assess and deal with the defendants' application and also the proposed re-amendments. It is also fair to say that the issues involved in the implied terms introduced by the proposed re-amendments are not as straightforward as they appear to be on first blush. This is particularly so bearing in mind the very voluminous affirmations and witness statements that were introduced in the months shortly before the trial.

13. Nevertheless, the plaintiff had made a decision to oppose the amendments. It is true that the plaintiff could have applied for time to consider the amendments. But one must not overlooked the fact that the concern and focus at that stage was to try not to lose the entire 20 days allotted for the trial. The choice of seeking an adjournment of the application was in no way an appealing option having regard to the implications on costs and time as well as the defendants' known financial position. I note too that the plaintiff had indicated throughout the possibility and intention of an application to strike out the re-amendments.

14. It is also relevant to note that when the amendment application was made, the evidential or factual basis of the implied terms had not been identified in any details. The position then taken by Mr Lin was that no new facts need to be introduced since all the necessary facts were already in either the affirmations or witness statements filed. Since then, the defendants had, pursuant to my direction, filed a list of the evidence relied upon for the re-amendments. The defence case on the implied terms has to some extent been elucidated by the list of evidence.

15. Having regard to these matters, I do not consider that this is a case where the plaintiff's striking out application ought to be dismissed outright as amounting to an abuse of process. I also do not consider that the application ought not to be entertained as a matter of discretion. It would, at the least, be an incorrect exercise of the discretion to refuse the application if the pleading does merit striking out or rectification.

16. I turn now to deal with the merits of the application.

Lack of material facts : paragraph 18A(b) and (c)

17. It transpires from Mr Lin's submissions that the 1st and 4th implied terms (i.e. paragraph 18A(a) and (d)) are said to be implied by law whereas the 2nd and 3rd implied terms (i.e. paragraph 18A(b) and (c)) are implied by necessary implication or by business efficacy.

18. To the extent that the 1st and 4th implied terms arise by implication of law, Mr Lin does not disagree with my view that this should be specified in the beginning part of paragraph 18A.

19. I digress here to deal with a related submission that Miss Wong makes. It is that the evidence is overwhelmingly to the effect that the defendants were aware of the plaintiff's alleged practice in relation to the class size and on-line broadcast teaching before they entered into the contracts in question. In the circumstances, it is not possible to imply into their contracts a term that they would not be required to teach in manner contrary to Regulation 88(c), Education Regulation. Alternatively, there cannot be any breach of the contract on the basis that the defendants were required to teach classes of over 45 students and by means of on-line broadcasting.

20. I recognize the force of this submission. I also accept that this implied term may well be inconsistent with the defence case on the 2nd, and arguably, 3rd implied terms. It is trite law that the court will only be prepared to imply a term, not being one implied by law, where it can be inferred, either from the language of the contract or the circumstances under which the contract is entered into, that the parties must have intended the stipulation in question : Chitty on Contracts (28th Edition) Vol.1, paras.13-004. If, as the defendants had stated in their affirmations and witness statements, that the practice of the plaintiff had always been to organize or enrol classes with over 45 students by means of on-line broadcasting, there might not be room for the 1st implied term to arise and/or for the plea that the plaintiff had been in breach of it. But inference as to the intention of the parties is a matter of fact and evidence. It is inappropriate to conclude simply on the affirmations and witness statements, without the witnesses being cross-examined, that the parties' intention must be such as to leave no room for the implied term to arise or for the breach to be established.

21. Returning to the 2nd and 3rd implied terms, they are not terms that can be readily implied into contracts of employment, still less teaching contracts. They may be implied where the circumstances surrounding the contract or the relationship of the parties warrant it : Devonald v. Rosser & Sons [1960] 2 KB 728, 739-41, 744, Herbert Clayton & Jack Waller Limited v. Oliver [1930] 1 AC 209, 216.

22. Accordingly, it is incumbent for the pleading to set out the special circumstances or aspect of the parties' relationship that give rise to the terms. In this regard, the plaintiff's complaint of lack of material facts is well-founded.

23. The omission however is not fatal. It appears from Mr Lin's submissions that the defence case for the 2nd implied term is built upon, inter alia, the fact that the defendants' income under their contracts were referable to the amount of students enrolled in their courses and in turn affected by the locations that they taught. Mr Lin also referred to the fact that the defendants had in the past received substantial publicity and promotion by the plaintiff as supporting the 3rd implied term. These matters prima facie may provide some factual basis for giving rise to the 2nd and 3rd implied terms. Whether they provide the defendants with a strong or weak case is a matter for the trial. This deficiency in the pleading can be met by affording the defendants an opportunity to further amend.

Post-writ events : paragraphs 18B(ii)-(v), 18B(vi), 18C

24. The plaintiff's complaint is that for breaches alleged to occur in October 2001 and thereafter, they cannot amount to defences to the plaintiff's claim in breach of contracts because the cause of action accrued in May or June 2001. I do not understand Mr Lin to be disagreeing with this submission. According to him what the defendants seek to make use of the matters particularized in paragraphs 18B(ii) to (vi) and 18C are :

(1) to ground the counterclaim for damages;

(2) to resist the injunctive relief sought by the plaintiff; and

(3) to limit the quantum of any award of damages to the plaintiff.

25. I accept that the events alleged to have occurred in October 2001 and thereafter are relevant to the counterclaim and to the relief to be granted in the event the plaintiff succeeds in its claim. Miss Wong does not dispute this either. She however points out that the present pleading does not set out the relevance and limits of the use of these post-writ matters. The pleading is therefore ambiguous and embarrassing.

26. This criticism of the plaintiff is not unjustified. Although paragraph 22A of CRADC pleads that the plaintiff is not entitled to the injunctive relief, it is on the basis that the facts as alleged by the plaintiff does not in law justify the injunctions sought. The position is not improved by the blanket traverse in paragraph 24 that the plaintiff is not entitled to its claim and relief. To the extent that pleadings should set out the parties' case with precision and also identify the issues for resolution with clarity, the CRADC has not met these objectives.

27. That said, however, I agree with Mr Lin that this is not a matter incapable of being cured such that the paragraphs sought to be struck out.

Notice of 14 May 2001 : paragraphs 18D to 18G

28. The plaintiff's criticism in this regard is that the notice of termination served by the defendants on 14 May 2001 cannot amount to acceptance of any repudiation that took place afterwards. Logically, this must be right. The relevance of the notice of 14 May 2001 as acceptance of repudiation therefore can only be confined to the 1st implied term. In this regard, paragraphs 18D to 18G may well be improved by spelling the matter out clearly, but it is in no way a serious defect and certainly does not attract the draconian measure of striking out.

Breach of warranty : paragraphs 18A to 18G

29. This ground for striking out is based upon the case of Strongman (1945) Ltd v. Sincook [1955] 2 QB 525. In that case, the builder claimed against the developer, who was also the architect, for the price of work done. The architect defended the claim on the basis that the contract was illegal in that the building works were carried out without the licence required by law. The court accepted the building contract was one prohibited by statute and therefore illegal and unenforceable. The court however found as a matter of fact that the architect had promised to procure the necessary licence and also to stop the work if the licence was not obtained. It was therefore held that the architect had made a collateral warranty that the contract was legal and since the architect was in breach of that warranty, the builder was entitled to damages for the breach. Plainly, the case is distinguishable. The promise that was held to be a warranty was a promise relating to legality of the contract. This is not the same as the duty not to require an employee to undertake unlawful work. The case does not amount to a proposition that the 1st implied term is not a material term, the breach of which does not amount to a repudiation. This ground for striking out therefore fails.

Affirmation waiver and constructive dismissal

30. The plaintiff's argument is that the defendants, by continuing to teach with the plaintiff must be taken to have waived the alleged breaches and/or have affirmed the contracts. This is particularly so with regard to breach of the 1st implied term. Reliance is placed on Chitty on Contracts (28th Edition) Vol.1, paras.25-003, 25-006 and 25-007. It is said that on the case of the defendants, they, having had knowledge of over-sized classes and on-line teaching and that such was against Regulation 88(c), Education Regulation, nevertheless persisted in carrying out the contracts. In the circumstances, the defendants would be regarded as having affirmed the contracts and thus lost their right for repudiation.

31. The defendants, on the other hand, argue that the breaches are continuous in nature so that any waiver cannot affect their rights with regard to the breaches that occur subsequently. The plaintiff, however, says that if this is indeed the defence case, then the pleading should spell it out. It should for instance specify when or what the last breach that was relied upon.

32. In my view, affirmation or waiver are pleas that the plaintiff can raise either by way of reply or as defence to the counterclaim. The defendants will then deal with it in the rejoinder. It is in that context that the averment of continuous breach is to be pleaded. The defendants should not be expected to pre-empt the plaintiff's case in the CRADC. The pleading is not defective by failing to set out the allegation of continuous breach.

Conclusion

33. For the above reasons, I do not consider that paragraphs 18A to 18J that so defective that they ought to be struck out in full or in part. I do, however, accept that a number of the plaintiff's objections and criticisms are well-founded so that the CRADC ought to be improved either by way of amendments or by provision of particulars.

34. I will now hear counsel on the terms of the order to be made.