Lee Yun Sau v. D.H. Shuttlecocks Ltd.

HCA1459/1991

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATION REGION

COURT OF FIRST INSTANCE

ACTION NO. 1459 OF 1991

Coram: Deputy High Court Judge Lam in Court

Date of Hearing: 30 October 2001

Date of Ruling: 1 November 20001

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Ruling

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1.By a summons of 29 October 2001, the Plaintiff sought leave to amend his Re-amended Reply and Defence to Counterclaim. The proposed amendments were in Paragraphs 5(3) and 6(IV) of the document. After hearing arguments from counsel for the Defendant on 30 October 2001, Mr.Choi (who appeared on behalf of the Plaintiff) abandoned the application in respect of Paragraph 5(3). I therefore only need to decide the application in respect of Paragraph 6(IV).

2.The application was opposed by Mr.Wong who appeared on behalf of the Defendant. The proposed amendment was to plead an oral agreement between the Plaintiff and Mr.Chau Hau Tung made several days before 13 February 1991. The background to that agreement was that there were several pieces of litigation between the two parties and they were desirous of settling the same by a Deed of Compromise. The alleged effect of the oral agreement was that Mr.Chau would release the Plaintiff from all obligation to repay all or any part of any loans which were outstanding at the time of the agreement even though such loans were not covered by the Deed of Compromise provided that the Plaintiff would execute the Deed without request for amendment of the Deed.

3.The Plaintiff wished to rely on this alleged oral agreement to aver that there was no outstanding obligation from the Plaintiff to the Defendant in respect of loans, including those pleaded in Paragraph 4(5) of the Re-Amended Defence and Counterclaim. As the pleadings stand, the Plaintiff relied on the Deed of Compromise to achieve the same. However, at the hearing before me, Mr.Choi conceded on behalf of the Plaintiff that the Deed of Compromise did not refer to those loans. Hence the original plea could not be sustained and the compromise point depends wholly on this new plea of oral agreement.

4.Before I consider the submissions of the parties, I should point out that it is not very clear to me as to how an agreement in 1991 could have anything to do with transactions which were completed by Assignments in 1990. In the counterclaim, the Defendant did not seek repayment of any loans. In fact, the defence case was that the loans pleaded in Paragraph 4(5) of the Re-Amended Defence and Counterclaim had been settled in February 1990 by, inter alia, the Assignments from the Li brothers to the Defendant.

5.Mr.Wong opposed the amendment on the basis that the plea was bad in law. He submitted that because of the "entire agreement clause" in the Deed of Compromise of 13 February 1991, the Defendant could not set up a collateral oral agreement as a matter of law. He relied on Clause 20 of the Deed. In support of his contention, he referred me to the case of Inntrepreneur Pub Co. v. East Crown Ltd. [2000] 3 EGLR 31. In that case, Lightman J. held as follows,

"The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement (often long-forgotten or difficult to recall or explain) upon which to found a claim, such as the present, to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search, and the peril to the contracting parties posed by the need that may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that, accordingly, any promises or assurances made in the course of the negotiations (which, in the absence of such a clause, might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence, as is suggested in Chitty on Contract (28th ed) vol 1 para 12-102; it is to denude what would otherwise constitute a collateral warranty of legal effect.

Mr.Wong submitted that the decision of Barnett J. in Michael Sofaer v. Arral Pacific Management [1995] HKCU 1 should be read subject to this later authority. Barnett J. held in that case that the precise effect of an entire agreement clause still remained to be established and refused to disallow an amendment on the strength of such a clause.

6.Mr.Choi did not dispute the law as contended by Mr.Wong. His submission was that the oral agreement had a separate life on its own and he relied on Para.12-101 of Chitty on Contracts, 28th Edn. Since the loans in Paragraph 4(5) (which he called "smaller loans") were not covered by the Deed of Compromise, the subject matters of the Deed and the oral agreement were different.

7.Clause 20 of the Deed reads,

"This deed constitutes the entire agreement of the parties hereto with respect to matters hereof and shall supersede any prior expression of intent, understanding or representation made in respect of any of the matters herein."

8.Notwithstanding its superficial appeal by reference to the wordings of Clause 20, I am satisfied that Mr.Choi's argument was wrong. What the Deed intended to achieve was to settle disputes between the Plaintiff and Mr.Chau. The Deed contained detail provisions which set out the respective obligations of the parties under the settlement. The nexus between the Deed and the alleged oral agreement was part of the Plaintiff's case in the proposed amendment. It is averred that provided that the Plaintiff executed the Deed in its existing form, Mr.Chau would release the Plaintiff from all outstanding loans including those not referred to in the Deed. Such oral agreement was said to be reached several days before the execution of the Deed. In effect, what the Plaintiff wishes to put forward is that apart from the considerations set out in the Deed, a further benefit to the Plaintiff under the settlement was the agreement for release by Mr.Chau. This is plainly an attempt to add something to the settlement which was not recorded in the Deed. Upon analysis, it is therefore clear that the Plaintiff is not alleging two independent transactions. The subject matter of the Deed was the settlement and by alleging an oral agreement, the Plaintiff is seeking to add some further consideration in his favour for the settlement. In my judgment, this is not permissible as a matter of law and the observations by Lightman J. are applicable.

9.For these reasons, the proposed plea is not arguable as a matter of law and I should not allow such amendment. I therefore dismiss the Plaintiff's summons of 29 October 2001.

Representation:

Mr Chris M L Choi instructed by Messrs Jackie Cheung & Co. for the Plaintiff

Mr Horace Wong instructed by Messrs L.H. Kwan & Co. for the Defendant