Beacon College Ltd. v. Yiu Man Hau, Alfred and Others
Read the full judgment text of HCA 4273/2001 on BabelCite. This High Court CFI judgment was delivered on 13 November 2002.
Cites 3 cases
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HCA4273/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.4723 OF 2001 (formerly HCA2359/2001, 2529/2001 and 2532/2001) ----------------------
----------------------- Coram: Hon Chu J in Chambers Dates of Hearing: 11-13 November 2002 Date of Decision: 13 November 2002 Date of Handing Down Reasons for Decision: 18 November 2002 --------------------------------------------------- REASONS FOR DECISION ---------------------------------------------------- 1)There are two applications before the court. The first is the plaintiff's application to strike out part of the Consolidated Amended Defence filed on 11 October 2002 by the 1st, 3rd to 5th defendants (collectively referred to as "the defendants"). The second is the defendants' application to re-amend the Consolidated Amended Defence and to introduce a counterclaim. The action 2)The background leading to these proceedings had been set out in my earlier decisions on the interlocutory injunction applications and also in other decisions given on other interlocutory applications. I do not repeat them here. 3)It is, however, relevant to these applications to set out briefly some of the development in these proceedings since the granting of the interlocutory injunctions in July 2001. 4)With the agreement of the parties, I had ordered for a speedy trial of these proceedings and given directions that the parties should endeavour to agree upon a timetable and also the directions on the interlocutory steps leading to the trial. Unfortunately and regrettably, too, despite a series of direction hearings, the subsequent conduct of these proceedings can by no means be regarded as expeditious. Owing to a variety of reasons, the trial, estimated to last 20 days, was only scheduled for 11 November 2002. In the meantime, there had been a number of intervening events, including change of representations and bankruptcy orders being made against some of the defendants on their own petitions. There had also been applications to vary or discharge the interlocutory injunctions. Further in July 2002, legal aid was granted to the defendants and the defendants were assigned a firm of solicitors and three counsel in succession. Mr Lin, who appears for them on these applications, is the third counsel to be assigned within the short span of four months and he was only assigned very shortly before the trial was due to begin. 5)On 7 October 2002, leave was granted to the defendants to amend their Defences and to introduce a counterclaim. However, the Consolidated Amended Defence filed pursuant to the leave did not include the counterclaim. The leave to amend was granted on the condition that the defendants also filed and served a concise statement of their case on the pleas of unconscionable bargain and illegality, as pleaded in paragraphs 14 and 25 of the Consolidated Amended Defence, and of the evidence sought to be relied on in support of these pleas. The primary purpose of ordering the concise statement was to address the plaintiff's concern that the pleas as pleaded are lacking in precision and particulars. It was also hoped that this will alleviate some of the prejudice caused by the late amendment in that the plaintiff did not have to plough through the voluminous affirmations that had been filed and ordered to stand as evidence-in-chief in order to identify the relevant evidence relied upon. Consequent upon the direction, the defendants filed the Statement of Pleas on 16 October 2002. 6)At the last pre-trial hearing, the plaintiff indicated that, notwithstanding the Statement of Pleas, it would be moving to strike out the pleas of unconscionable bargain and illegality. A summons was eventually issued on 29 October 2002 seeking to strike out paragraphs 14 and 25 of the Consolidated Amended Defence. Owing to the proximity to the trial, the summons could only be made returnable on the first day of the trial. Then on 9 November 2002, the defendants issued their summons for re-amendment. The proposed re-amendment does not affect the paragraphs that the plaintiff seeks to strike out. 7)Such is the relevant development in these proceedings. I now deal with the applications in turn. Striking out application 8)The application to strike out is directed only at paragraphs 14 and 25 of the Consolidated Amended Defence, which contain respectively the pleas of unconscionable bargain and illegality. Unconscionable bargain 9)The relevant part of paragraph 14 of the Consolidated Amended Defence reads :
10)Paragraphs 6 to 9 of the Statement of Pleas state the defendants' case on the plea to be as follows :
11)The plaintiff moves to strike out this plea principally on the basis that no reasonable cause of defence has been disclosed on the pleading. It is submitted that even if it is established that the plaintiff was in a position of economic advantage over the defendants and dictated the terms of the Contracts, that is by itself insufficient to give rise to a defence of unconscionable bargain. 12)In Alec Lobb (Garages) Ltd & Others v. Total Oil Great Britain Ltd [1983] 1 WLR 87, 94-95, Deputy High Court Judge Millet (as he then was) observed that in the cases on this head of equitable relief, three elements are invariably present before the court will interfere. They are :
It is also said that there must be some impropriety, both in the conduct of the stronger party and in the terms of the transaction itself, which "shocks the conscience of the court" and makes it against equity and good conscience of the stronger party to retain the benefit of a transaction he has unfairly obtained : at p.95C. 13)Alec Lobb was considered and applied in Lo Wo & Others v. Cheung Chau Ka & Anor [2000] 2 HKLRD 370. In that case, Waung J considered that the relevant factors in deciding whether to set aside for unconscionable bargain are (1) the serious disadvantage suffered by the exploitee, (2) the terms of the bargain being oppressive and (3) the conduct of the exploitee being morally culpable such that it shocks the conscience of the court. In the context of the last factor, Waung J pointed out in all cases where the courts have set aside for unconscionable bargains, the circumstances of the transactions are such as to suggest that the exploiter was aware of the disadvantage suffered by the exploitee and had taken advantage of the opportunity. The same point was noted by the Privy Council in Hart v. O'Connor [1985] 1 AC 1000, 1028-1029. The case concerns a contract for sale entered into between a vendor who was, unknown to the purchaser, of unsound mind. In allowing the purchaser's appeal, the Privy Council held that the vendor was not entitled to have the contract set aside for unconscionable bargain in that the purchaser was not aware of the vendor's unsoundness of mind and was guilty of no unconscionable conduct. 14)Bearing these legal principles in mind, when one looks at paragraph 14 of the Consolidated Amended Defence, the inescapable conclusion is that it is a hollow plea. The matters pleaded come nowhere near to either the three elements identified in Alex Lobb or the relevant factors set out in Lo Wo. The Statement of Pleas does not advance the plea any further. Paragraphs 6 to 9 of it do no more than repeating paragraph 14 of the Consolidated Amended Defence. But inequality of bargaining power, economic advantage and the onerous nature of the terms are by themselves insufficient to sustain a plea of unconscionable bargain. Economic advantage is not by itself a plea of defence in law. 15)The evidence identified in paragraph 10 of the Statement of Pleas also does not take the plea any further. The effect of these evidence is :
16)The evidence identified, if accepted, will only show a lack of bargaining power on the defendants' part and also that the defendants felt they had no practical alternative but to sign their contracts. It falls far short of supporting a defence of unconscionable bargain. It does not, for instance, show that the plaintiff was aware of any disadvantageous position suffered by the defendants or how the plaintiff had taken advantage of the opportunity. Neither does it reveal that the conduct of the plaintiff was so morally culpable that it shocks the conscience of the court. 17)In Wharf Properties Limited & Anor v. Eric Cumine Associates Architects Engineers & Surveyors (a firm) [1989] 1 HKLR 556, 565E, the Court of Appeal, referring to Bruce v. Odham Press Ltd [1936] 1 All ER 287, 294, pointed out that a complete cause of action is only pleaded where there is "a statement in a summary form of the material facts upon which the party pleading relies for his claim". 18)Clearly6 to , taken together, paragraph 14 of the Consolidated Amended Defence and paragraphs 10 unconscionable of the Statement of Pleas do not disclose a reasonable cause of defence in bargain. 19)Mr Lin in meeting this part of the striking out application refers to the Canadian case of Morrison v. Coast Finance Ltd 55 DLR (2d) 710, 1965 DLR LEXIS 2183. That case does not avail the defendants. The case holds that proof of inequality in the position of the parties and of substantial unfairness of the bargain obtained by the stronger party gives rise to a presumption of fraud which the stronger party may rebut by showing that the bargain was fair, just and reasonable. The case highlights the point that unconscionable bargain is a specie of fraud; it is constructive fraud : see also Halsbury's Laws of England Vol.16, para.666 and Vol.31, para.854. That being so, it is all the more important that a complete cause of action be properly pleaded. 20)Mr Lin also submits that paragraph 14 is included in the Consolidated Amended Defence not for the purpose of striking down the contracts in question, but as a matter relevant to the court's discretion on whether to grant the injunctions claimed by the plaintiff. This submission, to some extent, does help to clarify the uncertainties created by paragraph 9 of the Statement of Pleas, for which Mr Lin is not responsible as it is not his pleading. That said, it does not mean that the duty to plead a complete cause of action is any less than that when the plea is raised for the purpose of setting aside the contracts. 21)In short, I am of the view that paragraph 14 of the Consolidated Amended Defence should be struck out and I so order. Illegality 22)Illegality is pleaded in paragraph 25 of the Consolidated Amended Defence. It reads :
23)The defendants' case on illegality is stated in the Statement of Pleas to be as follows :
24)In St. John Shipping Corporation v. Joseph Rank Ltd [1957] 1 QB 267, 283, Devlin J (as he then was) drew a distinction between a contract which is entered into with the object of committing an illegal act and a contract which is expressly or impliedly prohibited by statute. In the former situation, if the intent is mutual, the contract is not enforceable at all, and, if unilateral, it is unenforceable at the suit of the party who has the intent. In the latter situation, the intent of the parties is irrelevant. If the contract is prohibited by statute, then the contract is unenforceable. The latter situation may also cover a contract, which is otherwise lawful, but when performed is one prohibited by statute : see p.284. In the case of a contract where the consideration and the matter to be performed are both legal, the contract will not become unenforceable merely because the performance infringes the law : Wetherell v. Jones (1832) 3B and AD 221, Shaw v. Groom [1970] 2 QB 504. Such a contract will be enforced unless it is shown that the contract is of a kind prohibited by the statute : St. John Shipping Corporation at p.287 and Shaw p.516. 25)This plea of illegality was first raised in the 1st defendant's application for discharge of the interlocutory injunction in July 2002. At the hearing before Deputy High Court Judge Saunders, the 1st defendant's case was put on the basis that the defendants' contracts were lawful contracts but were performed in such a way as to contravene several of the provisions in the Education Regulation Cap.279, including Regulation 88(c). Deputy High Court Judge Saunders had also remarked in his judgment (paragraph 36) that the employment contract entered into by the 1st defendant was a lawful contract for the provision of teaching services that can be performed in a number of lawful ways. 26)In the Consolidated Amended Defence, which was filed subsequent to the judgment of Deputy High Court Judge Saunders, it gives no clue as to the basis of the defendants' case on illegality. The statute and section said to be offended were not even identified. The matter was not elucidated by the Statement of Pleas. Although it confines the plea to the Evening School Contracts and identifies Regulation 88(c) as the statute offended, the Statement of Pleas does not show whether the plea arises out of an object, be it unilateral or mutual, to commit an illegal act or that it is because the defendants' contracts are prohibited by statute. In this regard, paragraph 3 of the Statement of Plea is singularly unhelpful. 27)The plaintiff's application to strike out paragraph 25 of the Consolidated Amended Defence is principally on the ground that no reasonable cause of defence has been disclosed in that a breach of Regulation 88(c) does not automatically lead to the contracts being illegal and unenforceable. 28)I pause here to note that it is Miss Wong's submissions that the particulars pleaded in paragraph 25 do not support a breach of Regulation 88(c). Regulation 88(c) reads :
29)Regulation 88(c) is therefore concerned with teacher-student ratio, but not with the capacity of classroom nor with the number of students present inside a classroom. Neither does it prohibit on-line teaching per se. Miss Wong therefore submits that particulars (a) and (b) when read together do not support the plea of illegality. I can see the force of this submission, but I need not decide on it. For the purpose of this striking out application, I will proceed on the assumption that the fact of contravention of Regulation 88(c) can be proved. 30)Miss Wong's submission, shortly put, is that even if breach of Regulation 88(c) is proved, the Evening School Contracts will not be unenforceable because they are not the class of contracts prohibited by the Education Ordinance or the Education Regulation. Reliance is placed on the well accepted principles that the court will not hold a contract to be prohibited by statute unless the statute, either by clear implication or by necessary inference, so intends, and that statutes are to be construed in the ordinary way such that one must have regard to all the relevant considerations and no single consideration, however important, is conclusive : St. John Shipping Corporation, p.287-288 approved and applied in Shaw p.518B and in Byjoy Ltd v. Thorogood Estates Ltd [1985] 2 HKC 746,759 and 761. Reference is also made to the judgment of Sachs LJ in Shaw at p.523H-524A when he said that :
This passage had been adopted in Richardson Greenfields of Canada (Pacific) Ltd v. Chow Paul [1989] 1 HKC 261, 269B. In that case, Bokhary J (as he then was) further observed that (p.269G):
31)It is submitted that the Evening School Contracts between the plaintiff and the defendants are perfectly legal in its aims and purpose, namely, the provision of teaching or tutoring services for value. The purpose of the Education Ordinance is to promote education in Hong Kong and to supervise and control schools and the teaching therein. The purpose of enacting Regulation 88(c) is for the protection of students. Accordingly, the Ordinance does not forbid the core object of the Evening School Contracts. The illegality now alleged is only collateral and/or incidental to the performance of the Contracts and would not be falling within the kind of contracts prohibited by the Ordinance or the Regulation. 32)With regard to the cases of Ashmore Benson Pease & Co. Ltd v. A.V. Dawson and Intell Education v. Siu Yat Ming & Another cited in paragraph 4 of the Statement of Pleas, Miss Wong argues that they are distinguishable. She draws assistance from the judgment of Deputy High Court Judge Saunders (paragraphs 22 to 29) which holds the same view. In particular, it is pointed out that the Intel Education case involves the teaching by an unqualified teacher such that the performance of the teaching contract necessitates the commission of an offence. By contrast, the Evening School Contracts can be performed in a variety of lawful ways. It is further argued that insofar as Intel Education had relied upon the case of Ashmore Benson Pease & Co. Ltd (at paragraphs 41-43), it must be remembered that the law, as laid down in St. John Shipping Corporation and applied in other cases, including Shaw, Byjoy Ltd and Richardson Greenfields of Canada (Pacific) Ltd, is that illegality in the performance of a contract may only disable a person from suing on it, if he participated in the illegality, and this is so when the contract is prohibited by statue. 33)Mr Lin has advanced no substantial argument against the foregoing submissions of Miss Wong. He defends this part of the striking out application on another basis, a matter that I will come on later. 34)For my part, I am in agreement with the analysis of Miss Wong on the law and its application to the present case. The plea of illegality is bad and unsustainable if it is sought to be advanced on the basis as put before Deputy High Court Judge Saunders, namely, that the Contracts were prohibited by the Education Ordinance, or on the basis that the Contracts became illegal in the course of performance. In other words, if the defendants' case on illegality is the Evening School Contracts are unenforceable by reason of the second principle set out in Devlin J's judgment in St. John Shipping Corporation (at p.283), it is plainly and obviously unsustainable and ought to be struck out. 35)It is perhaps in recognition of this that Mr Lin does not advance the defendants' case on this basis in his oral submissions. I say oral submissions because even in his written submission lodged before the bearing, Mr Lin was proceeding on the basis that the Evening School Contracts were unenforceable by reason of the manner in which they came to be performed. What Mr Lin seeks to argue at the hearing is this. The plaintiff has been adopting a policy of organizing classes that have more than 45 students and by means of, inter alia, on-line teaching. Hence the inference is that when the Contracts were made, they were made with an object to contravene Regulation 88(c). The object was an unilateral one, being that of the plaintiff alone. Relying therefore on the first principle set out in Devlin J's judgment in St. John Shipping Corporation, the Evening School Contracts are unenforceable. 36)In my judgment, this attempt to rely on the first principle must fail. It is stretching one's imagination to say that the object of the Evening School Contracts, whether unilateral or mutual, is to provide teaching or tutoring services in an illegal manner. Even if on-line teaching or over-sized classes were within the contemplation of either or both of the contracting parties, it would only be one of the contemplated modes of performing the Evening School Contracts. It cannot be that either or both of the parties intended that the Contracts would or should only be performed in contravention of Regulation 88(c). To say that the only purpose or the purpose of entering into these Contracts was to procure or commit a breach of Regulation 88(c) is certainly not borne out by the evidence identified in the Statement of Pleas, or indeed those now before the court. At any rate, the pleading, including the Statement of Pleas, nowhere contains an averment of illegal object. Neither has it identified what the illegal object was. 37)Mr Lin has referred to the judgment of the English Employment Appeal Tribunal given by Browne-Wilkinson J in Coral Leisure Group Ltd v. Barnett [1981] ICR 503, [1981] IRLR 204. The case does no more than illustrate the distinction between a contract that imposes an obligation to do an unlawful act and a contract where the obligations can be performed lawfully, but had been performed illegally. The case in fact highlights the rule that where the illegality lies in the performance only, a party is not barred from enforcing the contract because he performs it in an unlawful manner. The contract will only be unenforceable if it is a contract forbidden by the statute or the common law. The case does not advance the defendants' case. The plea of illegality is plainly and obviously untenable. 38)Another reason put forward for striking out the plea of illegality is that the pleading is embarrassing. I had already pointed out the inadequacy of paragraph 25 of the Consolidated Amended Defence and paragraph 3 of the Statement of Pleas. Apart from that, paragraph 2 of the Statement of Pleas in stating that the plaintiff has been enrolling or organizing classes that have 45 students is referring to the size of classes. This is to be contrasted to Particular (a) under paragraph 25 of the Consolidated Amended Defence that refers to the number of students in a classroom. Yet both paragraphs apparently are relied upon as supporting a breach of Regulation 88(c). 39)The embarrassing and unsatisfactory nature of the pleading on illegality is well-illustrated by the twists and turns in the arguments advanced in the course of the striking out application on behalf of the defendants. The pleading is so imprecise and fluid that it is unclear as to what the defendants' case is. In C.S. Low Investment Limited v. East Asia Warburg Limited (unreported), Civil Appeal No.37 of 1990, at p.4, it is said that a party must plead his case with sufficient particularity to enable the other party to gauge its strength, to admit or deny the allegation. The plea of illegality clearly falls short of this requirement for it not only prevents a demurrer but also gives the plaintiff no knowledge of what the defendants' case is. It is therefore embarrassing : see Philipps v. Philipps (1878) 4 QBD 127, 132. 40)Mr Lin submits that if it is a matter of form, the court should not strike out the pleading but should either call for amendment or particulars. That may well be so in the general bulk of cases. But here for the reasons stated above, the plea is bad in law. Additionally, I cannot overlook the fact that the defendants had been afforded an opportunity to properly set out their case on illegality by serving a concise statement. And if the Statement of Pleas is the best that they can do, there is no justification not to strike it out. 41)For these reasons, I am of the view that paragraph 25 of the Consolidated Amended Defence should be struck out and I so order. 42)I turn now to deal with the defendants' application to re-amend. Application to re-amend 43)The proposed re-amendment seeks principally to introduce a new cause of defence in breach of implied terms and also to advance a counterclaim for declaration and damages on the basis of breach of those implied terms. A total of four implied terms are being introduced. They are :
44)It is alleged that the plaintiff had breached the implied terms. The breach of the first implied term is premised on the point of over-sized classes and on-line teaching. As for the breach of the other three implied terms, it is rested upon the events that occurred after the imposition of the interlocutory injunction. 45)I have to say I have considerable reservations as to the merits of the proposed re-amendment. I had for instance pointed out to Mr Lin that the complaint about reduction in class size after the defendants returned to teach at the plaintiff's evening school does not sit comfortably with their complaint that previously they were required to teach over-size classes in breach of the law. And in the context of the alleged breach of the first implied term, it cannot be forgotten that under the Evening School Contracts, the bulk of the defendants' income is linked to the number of students enrolled in their classes. I had also observed in the course of submissions that, while the duty under the third implied term may readily be implied in an artist's or performer's contract, it may not readily arise under a teacher's contract. 46)I do not consider it appropriate to go into a detailed analysis of the merits of the proposed re-amendment at this stage as I do not wish to prejudge the matter. Suffice to say I am not prepared to conclude that the proposed re-amendment is bound to fail such that it will be futile to allow it to be introduced. That being the case, it remains for me to consider the other factors relevant to the exercise of my discretion. 47)There is no doubt that this is a very late attempt to amend and the amendment involves raising new cause of defence and action. The only reason for the late amendment is the change in representation and more specifically the change of counsel. I had said in other cases and I repeat it here. I consider that the court ought to be slow to allow parties to seek amendment to pleadings or variation of interlocutory orders and discretions merely because they have engaged different lawyers, who take a different view of or approach to the cases. This is particularly so when the amendment or variation is sought at a late stage. If the court is to condone such practices, the court will not be able to effectively discharge its duty of ensuring that cases be conducted fairly, expeditiously and economically. I have therefore to say that I do not find the defendants' reason for amendment to be appealing or satisfactory. 48)Having said that, I am conscious that it is ultimately a question of doing justice according to the circumstances of the case. In deciding whether to grant leave to amend, the guiding principle has been to allow all amendments that are relevant to the question in issue so long as any prejudice occasioned can be compensated by costs or adjournment : Hong Kong Civil Procedure 2002, Vol.1 para.20/8/6. 49)In this case, the proposed re-amendment will no doubt occasion prejudice to the plaintiff. It has been said that no new facts or evidence will be introduced. That may be so for the defendants, but I am not sure that the same goes for the plaintiff. Miss Wong has suggested that, for instance, evidence of the reasons leading to reduced number of students enrolled in the defendants' classes and of the practices of other tutorial schools in the context of the third implied term may have to be explored. I accept there is force in this analysis. 50)Consideration as to the prejudice occasioned to the plaintiff is complicated by the fact that the defendants are legally aided and some of them had been adjudicated bankrupt. There is therefore some uncertainty as to the prospect of enforcing or recovering any costs ordered in favour of the plaintiff on the amendment. Mr Lin, however, helpfully points out that the proposed re-amendment also involves a counterclaim. While costs order against a legally aided defendant cannot be enforced against the Director of Legal Aid, there is no similar restriction on enforcement of costs order against a legally aided plaintiff or a legally aided defendant in respect of his counterclaim. 51)Weighing all these considerations and bearing particularly in mind the paramount concern of the court to decide the rights of the parties by reference to all the relevant issues, I am led to the conclusion, though reluctantly, that the application to re-amend should be allowed. Since the proposed re-amendment contains some clerical errors, I will grant leave for the Consolidated Amended Defence to be amended in substantially the same form as the draft attached to the defendants' summons. Additionally, I order that the defendants do, for the purpose of avoiding further delay, provide a list of evidence sought to be relied upon. The case will in the meantime be adjourned to enable some preparatory steps to be taken. 52)There is no reason to depart from the rule that costs follow event in the case of the striking out application. As for the amendment application, I accept that in appropriate cases, a distinction should be drawn between costs of the application, which should be borne by the applying party, and costs of the hearing on the application. In the latter where the opposition is unmeritorious or unreasonable, the opposing party should be disallowed his costs or even be ordered to bear the costs of the applying party. In the present case, it cannot be said that the plaintiff's opposition to the application is unreasonable or wholly devoid of merits. There is no reason for not following the usual practice of awarding costs against the party seeking the court's indulgence to amend. The plaintiff is to have the costs of and occasioned by the re-amendment. As to costs thrown away, it is reserved for the time being. Conclusion 53)The orders that I make are :
Representation: Miss Priscilla Wong, instructed by Messrs Anthony Chiang & Partners,for the Plaintiff Mr Kenny Lin, instructed by Messrs Wan & Leung,for the 1st, 3rd to 5th Defendants |
Cases cited in this judgment
Further hearings and rulings under HCA 4273/2001