Lam Fung Ying v. Ho Tung Sing and Another

HCA002329/1992

Headnote

Compromise - effect on original cause of action.

Election - requisite knowledge.

Practice - default judgment - burden of proof - striking out.

1992 No. A2329

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: Deputy Judge Tong, Q.C. (in chambers)

Dates of hearing: 22 May 1992

Date of handing down of judgment: 30 June 1992

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J U D G M E N T

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1. The facts of this case are not in dispute. I have before me two applications by the Defendants : one to set aside default judgment entered against them on 8th May 1992 and another to appeal from an order of Master Yam who refused to strike out the Statement of Claim herein. These summonses arose in this way. On 17th April 1991, the Plaintiff issued a writ of summons in High Court Action No. A2704 of 1991 ("the 1st Action") against the Defendants seeking, inter alia, damages in the sum of HK$159,450.94. On 1st June 1991, the Defendants served and filed a Defence and Counterclaim. On 28th June 1991, the Plaintiff sought certain further and better particulars of the Defence and Counterclaim. A summons seeking these particulars was taken out on 26th July 1991.

2. Negotiations for the settlement of the 1st Action thereafter commenced as a result of which the hearing of the summons for particulars was adjourned sine die with liberty to restore by the Master. The negotiations did not reach fruition. The summons for particulars was restored but before the matter could be heard, the respective solicitors of the parties reached a compromise of the 1st Action on 5th December 1991.

The Settlement Agreement

3. The terms of the settlement agreement are not in issue here. They are pleaded in paragraph 3 of the Statement of Claim herein :-

"(1)    Judgment be entered in favour of the Plaintiff against the Defendants for the sum of HK $110,000.00 in full and final settlement;

(2)    the Defendants do have leave to withdraw their counterclaim;

(3)    there be a stay of execution on the Judgment so long as the Defendants pay the Plaintiff the sum of HK$110,000.00 by six installments (sic) in the following manner:-

(a)    the first instalment of HK$20,000.00 to be paid on the date of execution of a Consent Summons;

(b)    the second to fifth instalments of HK$20,000.00 each and the sixth instalment of HK$10,000.00 to be paid by post-dated cheques on the same date as the date of the Consent Summons in (sic) each and every succeeding month;

(4)    if the Defendants shall default in paying the said instalments or any part thereof on the due dates or any one thereof, the stay of execution shall be immediatley removed in respect of the whole outstanding balance at the time of such default and the Plaintiff shall be at liberty to levy execution forthwith;

(5)    the Plaintiff shall transfer the 20 ft. trailer No. 10095T to the Defendants and shall execute all necessary documents to effect such transfer;

(6)    the Defendants shall transfer the 40 ft. trailer M. 98797 to the Plaintiff and shall execute all necessary documents to effect such transfer; and

(7)    there be no order as to costs."

4. At the hearing of the summons for particulars, Master Cannon was informed of the settlement and the summons was adjourned.

5. Pursuant to the terms of the settlement agreement, the Plaintiff's solicitors sent to the Defendants' solicitors a draft consent summons for the latter's endorsement. The Defendants' solicitors never endorsed this consent summons. Instead, they came off the record.

6. The new solicitors for the Defendants then indicated to the Plaintiff that the settlement was reached without "the express authority of the 2nd Defendant" and therefore "not binding upon her". This second firm of solicitors, however, was subsequently also discharged by the Defendants. Before a new firm of solicitors was instructed by the Defendants, the. Plaintiff took out a summons for judgment against the Defendants in terms of the settlement agreement. This is, if I may say so, a wholly misguided attempt to resolve the dispute then arising between the parties.

7. I have been referred to paragraph 5 of Atkin's Court Forms, 2nd edn, vol. 12 (1990 Issue) at p. 11 :

    "If one party disputes that a binding agreement has been made to compromise or settle the pending proceedings, or denies the making of such an agreement, or repudiates the agreement, the other party is entitled to apply to the Court to stay all further proceedings and to enforce the agreed terms. The ground of the application is the making of the compromise or settlement agreements and the court may entertain the application in the pending proceedings themselves; or on the application of a party, the court may direct an issue to be tried as to whether a binding agreement or settlement has been concluded between the parties, and, if satisfied that it has, the court may stay all further proceedings and enforce the agreed terms."

8. I have no doubt that the procedure recommended by the editors of Atkin's is the correct one. Here, the Defendants have agreed to consent to a summons by which judgment is to be entered against them in accordance with the terms agreed. The Defendants, however, reneged from their agreement. They claimed that there was no true agreement. If so, there is an issue between the parties as to whether a binding agreement had been made. I cannot see how in these circumstances the Plaintiff could hope to bulldoze through a judgment against the Defendants in the same terms as the settlement agreement.

9. The summons for judgment, not surprisingly, was dismissed by Master Wooley. Instead of persisting with her contention that the 1st Action had been settled by either appealing Master Woolley's order, or more correctly, by issuing another summons following the procedure recommended in Atkin's, the Plaintiff restored the summons for particulars.

10. On 12th February 1992, the Plaintiff obtained an order from Master Bokhary ordering the Defendants to supply the further and better particulars sought with costs to the Plaintiff in any event. It is said that this is a consent order but the order itself does not bear out this fact.

11. The particulars were not supplied and on 6th March 1992, the Plaintiff took out a summons for an unless order. This summons resulted in a consent order whereby again the Plaintiff obtained an order of costs against the Defendants. The particulars were eventually supplied on 11th March 1992.

The Present Proceedings

12. On 1st April 1992, the Plaintiff issued the writ of summons in these proceedings and claimed damages in the sum of HK$110,000 in respect of the breach of the settlement agreement.

13. Instead of putting in a defence, the Defendants by summons dated 14th April 1992 applied to strike out the Statement of Claim herein under the various grounds of 0. 18 r. 19. Master Yam dismissed this summons with costs on 29th April 1992. Notice of appeal against this decision was filed on 1st May 1992.

14. The Plaintiff in the meantime pressed for an acknowledgment of service and a defence. This was ignored by the Defendants' solicitor, Mr. Chan Man Hon, who in an affirmation dated 18th May 1992 frankly admitted that he thought that since the Defendants were seeking to strike out the claim, there was no need to file a defence. He said :-

"I deliberately instructed our clerk to serve the Notice of Appeal on the solicitors for the Plaintiff before [the deadline for the defence] because I had two assumptions :

(i)    I thought that once the Notice of Appeal was filed, the Clerk of Court would not entertain as (sic) application for default judgment;

(ii)    Once, the solicitors for the Plaintiff received our Notice of Appeal, they would wait until the outcome of the appeal before they would proceed to enter judgment in default of defence."

15. I shall not comment on whether these assumptions are reasonable suffice to say that they are wrong and Mr. Chan now also realises they are wrong. Mr. Chan, quite rightly I think, hastened to add that he had to take full responsibilities for making the above false assumptions.

16. Judgment in default against the Defendants was entered on 8th May 1992. The application to set aside the default judgment now comes before me together with the Defendants' appeal from Master Yam's decision of 29th April 1992.

Burden of A Defaulting Defendant

17. Miss Wong who appears for the Defendants accepted that the judgment was a regular judgment and that she had to show merits in the defence under O. 13 r. 9. She does not dispute the right test to apply in these circumstances is that laid down in The "Saudi Eagle" (1986] 2 Lloyd's Rep. 221 (C.A.) that a defendant must show he has a defence which has "a real prospect of success". But what does this mean in practical terms ? Does it mean that a defendant must show a defence with better than 50/50 chance of success?

18. It will not be overlooked that 0. 13 r. 9 gives a wide discretion to the Court. That discretion, on the language of the rule, is wholly unfettered. In Evans V. Bartlam [1937] A.C. 473 (H.L.). Lord Atkin thought (at p. 480) that even the rule on the requirement of an affidavit of merits "could, in no doubt rare but appropriate cases, be departed from".

19. When a similar question came before the English Court of Appeal in The "Saudi Eagle" [1986] 2 Lloyd's Rep. 221, Sir Roger Ormrod who delivered the judgment of the Court, said (atp. 223) :-

"In the course of his argument Mr. Clarke, Q.C., used the phrase 'an arguable case' and it, or an equivalent, occurs in some of the reported cases (e.g. Burns V. Kendel, [1977] 1 Lloyd's Rep. 554 and Vann V. Awford). This phrase is commonly used in relation to R.S.C., O. 14, to indicate the standard to be met by a defendant who is seeking leave to defend. If it is used in the same sense in relation to setting aside a default judgment, it does not accord, in our judgment, with the standard indicated by each of their Lordships in Evans V. Bartlam. All of them clearly contemplated that a defendant who is asking the Court to exercise its discretion in his favour should show that he has a defence which has a real prospect of success. (In Evans V. Bartlam there was an obvious I defence under the Gaming Act and in Vann V. Awford a reasonable prospect of reducing the quantum of the claim.) Indeed it would be surprising if the standard required for obtaining leave to defend (which has only to displace the plaintiff's assertion that there is no defence) were the same as that required to displace a regular judgment of the Court and with it the rights acquired by the plaintiff. In our opinion, therefore, to arrive at a reasoned assessment of the justice of the case the Court must form a provisional view of the probable outcome if the judgment were to be set aside and the defence developed. The 'arguable' defence must carry some degree of conviction."

20. The "Saudi Eagle" was a case where the defendants had taken a deliberate decision not to defend the plaintiff's claim initially because they thought they had no assets. No doubt this reason for the default was taken into account by their Lordships in dismissing the defendants' application.

21. The Hong Kong Court of Appeal in Fountain V. Bank of America National Trust and Savings Association [1990] 2 H.K.L.R. 158, was asked not to follow The "Saudi Eagle". At page 168F, Clough J.A., after citing the judgment of Sir Roger Ormrod quoted above, said :-

    "That passage was criticised by Hobhouse J. in The "Ruben Martinez Villena" [1987] 2 Lloyd's Rep. 621 at p. 624 where he observed

    'If in that passage he is intending to say that the Court must do its best to predict the outcome of the action if the judgment is set aside, and should only set, aside a judgment if it is satisfied that the outcome of the action will, on a better than 50-50 chance, be a judgment in favour of the defendants, then I consider that statement goes beyond the law as it has been laid down in the authorities. As it is an obiter dictum it is not binding on me and I am under no obligation to follow it; but I doubt whether Sir Roger Ormrod was intending to say that.

    Mr. Barlow relied on this criticism for the proposition that Sir Roger Ormrod had propounded too stringent a test for an arguable case and that the judge in the present case had therefore erred in following such a test which amounted to requiring the defendant to show that he would probably succeed in his defence at the trial.

    I am unable to accept this argument. I am in no doubt that in The "Saudi Eagle" Sir Roger Ormrod was clearly founding on Evans V. Bartlam (1937) A.C. 473 (H.L.) when propounding his 'real prospect of success' test. Thus he had earlier observed at p. 223 that Evans V. Bartlam indicated that, in the exercise of the court's discretion whether to set aside a default judgment, the primary consideration is whether the defendant "has merits to which the Court should pay heed" (per Lord Wright at p. 489), not as a rule of law but as a matter of common sense, since there is no point in setting aside a judgment if the defendant has no defence ....'. At p. 223 he had also cited Lord Russell of Killowen's reference at p. 482 in Evans V. Bartlam to 'some serious defence'. Finally Sir Roger Ormrod had expressed the conclusion of the court that the defendants in The "Saudi Eagle" case had not 'shown that they have a defence which has any reasonable prospect of success'.

    In my opinion the judge is not to be faulted in the present case for following Sir Roger ormrod's 'reasonable prospect of success' test which is consistent with the relevant dicta in Evans V. Bartlam ('prima facie defence', per Lord Atkin at p. 480, Lord Thankerton concurring; some serious defence', per Lord Russell of Killowen at p. 482; 'merits to which the Court should pay heed' and defendant 'clearly shows an issue which the Court should try', per Lord Wright at p. 489; Lord Roche concurring generally)."

22. The remaining two members of the Court of Appeal, Sir Derek Cons, 'V.P. and Kempster J.A., however, expressed no opinion on the degree of proof required of a defaulting defendant.

23. In the Fountain case, the Court of Appeal was satisfied that the defendant there had shown a defence with a real or reasonable prospect of success at trial.

24. Finally, in Tadashi Furusawa V. Leung Kwok Chai High Court Action No. A3225 of 1989 (unreported), Godfrey J., faced with a similar problem, simply followed The "Saudi Eagle". The defence there was a factual one and the learned Judge was not persuaded that it carried any degree of conviction or had any real prospect of success. It is not clear from the judgment exactly who was, to blame for the default.

25. I am, of course, bound by the Court of Appeal in Hong Kong. However, the passage in Clough J.A.'s judgment in Fountain is merely obiter and the remaining two members of the Court of Appeal did not expressly share the same view. Since the source of this jurisprudence is Evans V. Bartlam I feel that I am duty bound to return to that case for guidance in my search for the minimum threshold that a defaulting defendant must overcome in an application under O. 13 r. 9.

26. In Evans V. Bartlam, Lord Atkin quite clearly was firmly against laying down any rigid rule. At page 480, after affirming there is a rule which requires the applicant to produce an affidavit of merits "meaning that the applicant must produce to the Court evidence that he has a prima facie defence", then said :-

    "The principle obviously is that unless and until the Court has pronounced a judgment upon the merits or by consent, it is to have the power to revoke the expression of its coercive power where that has only been obtained by a failure to follow any of the rules of procedure.

    But in any case in my opinion the Court does not, and I doubt whether it can, lay down rigid rules which deprive it of jurisdiction. Even the first rule as to affidavit of merits could, in no doubt rare but appropriate cases, be departed from.. The supposed second rule [as to a reasonable explanation for the default) does not in my opinion exist."

27. Lord Russell of Killowen expressly rejected (at p. 481) the argument of the respondent that there were two condition precedents to the existence or exercise of this judicial discretion, namely, that the applicant must prove :

"(a)    that he had some serious defence to the action and

(b)    that he had some satisfactory explanation for his failure to enter an appearance to the writ."

28. His Lordship obviously agreed that if there was no possible defence to the action, no useful purpose would be served by setting aside the judgment. At page 482, he said :-

    "But to say that these two matters must necessarily enter into the judge's consideration is quite a different thing from asserting that their proof is a condition precedent to the existence or exercise of the discretionary power to set aside a judgment signed in default of appearance."

29. If Clough J.A. in the Fountain case is suggesting at page 169B that Lord Russell of Killowen was in favour of a rigid requirement of "some serious defence" then, with the greatest respect, that is not an accurate representation of his Lordship's position.

    Lord Wright said at page 488 :-

    "Order XXVII, r. 15, gives a discretion untrammelled in terms it does not even require an affidavit as a condition and the discretion may be exercised on any proper material, though in practice an affidavit is generally required. To quote again from Bowen L.J. in Gardner V. Jay (29 Ch. D. 50, at 58):- 'When a tribunal is invested by Act of Parliament or by Rules with a discretion, without any indication in the Act or Rules of the grounds upon which the discretion is to be exercised, it is a mistake to lay down any rules with a view of indicating the particular grooves in which the discretion should run, for if the Act or the Rules did not fetter the discretion of the Judge why should the Court do so?"

            Then at page 489, his Lordship continued :-

    "In a case like the present there is a judgment, which though by default, is a regular judgment, and the applicant must show grounds why the discretion to set it aside should be exercised in his favour. The primary consideration is whether he has merits to which the Court should pay heed; if merits are shown the Court will not prima facie desire to let a judgment pass on which there has been no proper adjudication. This point was emphasised in Watt V. Barnett (3 Q.B.D. 363). Here the appellant shows merits, in that the debt was primarily a gaming debt; he denies that he made any new contract within Hyams V. Stuart King ([1908] 2 K.B. 696), an authority which has not yet been considered by this House. He clearly shows an issue which the Court should try."

    Lord Thankerton (at p. 431) and Lord Roche (at p.489) simply concurred.

30. The principles that I can extract from Evans V. Bartlam are therefore as follows;

(i)    The Court has a complete discretion in setting aside a default judgment;

(ii) There is no rule that there must be an explanation for the default but obviously where there is an explanation, the matter must be taken into account;

(iii) The Court must strive to do justice to the parties;

(iv) As a matter of common sense, where there is a regular judgment, a defaulting defendent must show his defence has merits. A Court will not exercise its discretion in vain if the defence is bound to fail;

(v) All the defendant needs to do is to show his defence is a real one and there is a proper or serious question to be tried. He will not have discharged his burden if his defence is not a bona fide defence or is illusory.

31. In this respect, I agree with Hobbouse J. in The "Ruben Martiner Villena" (1987) 2 Lloyd's Rep. 621 that the Court in The "Saudi Eagle" is not saying that the Court "should only set aside a judgment if it is satisfied that the outcome of the action will, on a better than 50/50 chance, be a judgment in favour of the defendants" (at p. 624). As I have pointed out earlier, in The "Saudi Eagle", the defendant there had deliberately chose to let the judgment go by default. That must be a matter which the Court took into account.

32. Insofar as Clough J.A. in Fountain is endorsing a general view that a defaulting defendant must satisfy the Court that his defence has a better than 50/50 chance of success, then such a view is not in line with Evans V. Bartlam.

33. In the present case, the default was solely caused by the Defendants' solicitor taking a wrong view on a procedural step. That has nothing to do with the Defendants.

34. It would be wholly unjust in these circumstances to shut out a defendant on the ground that his defence though real and bona fide is not one which the Court can say will probably succeed on a balance of probabilities at trial. I am of the view that all that such a defendant is required to do is to show that he has a bona fide defence which raises a serious question to be tried. Unless that question is a purely legal one and there are no facts in dispute, he is not obliged to ask the Court to decide that issue in his favour before he is entitled to set aside the judgment. For if the Court is to do that, it is expressing a preliminary view on the merits at an interlocutory stage where not all the facts are known. This has been shown in many other instances to be a very dangerous route to take not to mention that the trial judge may well be influenced or feel hampered by the preliminary view expressed by the Court, particularly when that Court is an appellate court. I would go so far as to say unless the point is patently clear, the Court should refrain from expressing a view on the merits of the parties' respective cases.

Burden of the Defendants on the Striking Out Application

35. In order to succeed on the application to strike out, the Defendants must discharge a much higher burden. It is well recognised that they must show that the Plaintiff's claim is incontestably bad or bound to fail.

36. The point of defence taken by the Defendants in both applications are the same, namely, that the Plaintiff is estopped from pursuing her cause of action founded on the settlement agreement. Whether the Defendants will succeed on only the application to set aside judgment or both applications depends on to what extent the Defendants can show they have a good defence to the Plaintiff's claim. Since the facts relied on and the legal issues are the same, I propose to consider both applications at the same time.

Effect of the Settlement on the Original Cause of Action

37. Whether a settlement has effectively and finally disposed of the original cause of action depends on the intent and effect of the settlement. David Foskett, Q.C. in his very informative book on The Law and Practice of Compromise, 3^rd edition, said at page 106 :-

"If the promised or actual forbearance to pursue the claim is construed as being in return for the promised performance of some act by the other party, such agreement will be regarded as one involving the immediate discharge of the claim. Where, however, the promised or actual forbearance is construed as being in return for the actual performance of some act by the other party, the claim forborne will not be discharged until such performance takes place."

38. The editors of Chitty on Contracts, 26th edn., vol. 1 at page 996 are of the similar view :-

    "In the modern law, therefore, a claimant may still insist upon the performance of some act by the other party in satisfaction of his claim. In that case, there is no satisfaction until performance, and the other party remains Liable on the original claim until the satisfaction is executed. More often, however, the claimant will agree to accept the other party's promise of performance in satisfaction of his claim. The original claim is then discharged from the date of the agreement and cannot be revived. The claimant's sole remedy, in the event that the other party fails to perform, is by action for breach of the substituted agreement, and he has no right of resort to the original claim."

39. The dichotomy between a promised act and the performance of an act in a settlement agreement is highlighted in a number of recent authorites on the law of accord and satisfaction. In Morris V. Baron & Co. (1918) A.C. 1 (H.L.) Lord Atkinson said at page 35 :-

    "There is no doubt that the general principle is that an accord without satisfaction has no legal effect, and that the original cause of action is not discharged as long as the satisfaction agreed upon remains executory. That was decided so long ago as 1611 in Peytoe's Case (1611) 9 Rep. 77b, 79b. If, however, it can be shown that what a creditor accepts in satisfaction is merely his debtor's promise and not the performance of that promise, the original cause of action is discharged from the date when the promise is made : Sibree V. Tripp (1846) 15 M & W 23; Hall V. Flockton (1851) 16 Q.B. 1039 (Ex. Ch.); Evans V. Porris (1847) 1 Ex. 601."

40. In British Russian Gazette & Trade outlook, Ltd. V. Associated Newspapers, Ltd. [1933] 2 K.B. 616 (C.A.) where the settlement agreement was to the effect that the plaintiff accepted "the sum of 1000 guineas on account of costs and expenses incurred in full discharge and settlement of [his] claims." The Court of Appeal held that the agreement was enforceable in law.

    At page 643, Scrutton L.J. explained :-

    "Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative. ........ The consideration on each side might be an executory promise, the two mutual promises making an agreement enforceable in law, a contract."

41. Greer L.J. agreed with the judgment of Scrutton L.J. "on all the questions of principle" (at p... 647) but nevertheless added his views (at p. 651) :-

    "In my judgment, at the present day, the law of this country is that where two people make mutual promises, the promise of each being the consideration for the promise of the other, this amounts to a contract in law for the nonperformance of which an action for damages will lie. I think, however, that it is too late to say that the old rule that an accord without satisfaction does not discharge a liability after breach can be disturbed by a judgment of this Court. I think it is still the law that a mere accord without satisfaction does not put an end to an existing liability after breach, but I think it amounts to an agreement which can be enforced by a claim for damages if it is broken by one of the parties when the other has shown his readiness to perform the terms of the agreement."

42. Slesser L.J. agreed (at p. 657) with both the judgments of Scrutton and Greer L.JJ.

43. The position in law in the case of a settlement of a cause of action is thus if the settlement is reached in return for a promise to pay or to do an act, there is an accord and satisfaction. The effect of this is that as soon as agreement is reached, the original cause of action is discharged and the plaintiff can no longer pursue his original cause of action. Since the lis is extinguished or gone, the  Court will no longer have jurisdiction over the matter and there is nothing the parties can do to revive either the original cause of action or the jurisdiction of the Court. The only remedy open to the plaintiff is to sue for damages in respect of breach of the settlement agreement.

44. This is the case in Green V. Rozen [1955) 1 W.L.R. 741. There, the parties agreed to settle the action on terms written on counsel's brief. On the front of the brief of counsel for the plaintiff was written "By consent, all proceedings stayed on terms indorsed on briefs. Liberty to apply." The terms were set out on the back of the brief signed by counsel on either side. When the action was called on for hearing, the' court was informed of the settlement and the terms thereof, but no order was made. The defendant then failed to pay one of the instalments agreed. The plaintiff applied to the Court for judgment for the balance due under the terms of the settlement. Slade J. held (at p. 746) that the Court had no further jurisdiction in respect of the original cause of action, because it had been superseded by the new agreement between the parties to the action, and if the terms of the new agreement were not complied with the injured party must seek his remedy upon the new agreement.

45. On the other hand, if the settlement is reached in return for the performance of an act or conditional or dependent upon the doing of an act, then there is merely an accord executory. If and when the promised act is performed, the plaintiff is contractually bound to accept it and once accepted, there is accord and satisfaction and the original cause of action is discharged or extinguished. But unless and until the promised act is performed, the original cause of action is merely suspended so that if the defendant does not perform his part of the bargain, then the plaintiff has a choice to either pursue the original cause of action or to sue on the settlement agreement.

46. In Scott V. English [1947] V.L.R. 445, the plaintiff compromised the action on terms, inter alia, that the defendant would pay a sum of £70 within fourteen days and that the trial should be adjourned to a date to be fixed. The defendant did not pay the said sum within the agreed period and the plaintiff sought to proceed with the action. Fullagar J. said at page 453 :-

    "The essence of the matter may be said to be that a mere 'accord' is not a contract at all. But, if we find in any particular case that there is a contract - a promise accepted in 'satisfaction' against a promise - our problem is not necessarily at an end. We have still, I think, in some cases to construe the contract to see whether its effect is to discharge the original cause of action absolutely, so that the plaintiff can never thereafter sue on it but can only sue on the new contract, or whether it effects only a conditional discharge, merely suspending the original cause of action, so that, if it is not performed by the defendant according to its tenor, the plaintiff may still maintain that original cause of action ....... The question is likely to arise wherever a time is fixed for performance of the defendant's promise. In the present case, where a time is so fixed, if the compromise is a mere accord, the plaintiff could sue on the original cause of action at any time before acceptance of performance; he would not be bound to accept performance. If, on the other hand, the compromise is a new contract, he cannot sue on the original cause of action unless the time for performance has passed and there is no performance. But, if the time for, performance by the defendant has passed and there is no performance, can he sue only on the new contract, the original cause of action being absolutely discharged by the new contract, or can he, at his option sue for breach of the new contract, or, rescinding the new contract, proceed on his original cause of action? The question, I think, is to be decided as a matter of construction of the new contract.

    Here the 'compromise' contains mutual promises, and I am of the opinion that there was no mere accord executory but a contract intended to create new 'antecedent' obligations in place of the 'remedial' obligation originally asserted by the plaintiff. But I am also of opinion that that contract effected no absolute discharge of any cause of action : there was, in my opinion, to be a discharge of any cause of action if, but only if, the defendant performed her promise. There is no mere accord executory; if the Defendant tendered performance, the plaintiff was bound to accept it, and he could not have sued before the time for performance by the defendant arrived. But the provision for adjournment of the action is, I think, conclusive to show that there is no absolute discharge,; no unconditional substitution of a new obligation' ......The abandonment of any pre-existing cause of action was, in my opinion, conditional on the performance by the defendant of her part of the compromise. She did not perform her part, and thus the condition was not fulfilled."

47. Here, the agreement was that the Defendants should endorse on a consent summons whereby, inter alia, judgment would be entered in favour of the Plaintiff for a lesser sum. The Plaintiff never did promise the Defendants that she would abandon her cause of action before judgment is signed. If the Defendants are to consent to judgment as agreed, the Plaintiff's cause of action will, of course, merge in the judgment; but until then, the cause of action remains. There is an accord, but until the consent summons is endorsed by the Defendants and filed and judgment entered, there is no satisfaction. The accord is merely executory. Alternatively, as in the case of Scott V. English, the accord is conditional upon the befendants consenting to judgment.

48. The matter can perhaps be tested this way. The summons for particulars was adjourned. It was not dismissed. Before judgment is entered, the Plaintiff can at any time bring on the summons again. Likewise, until judgment is entered, the Defendants' counterclaim remains. They are not to withdraw their counterclaim unless leave is given under the consent summons. If the parties are stopped in their tracks and asked, before the consent summons is endorsed, what are the respective positions of the, claim and the counterclaim, the parties will undoubtedly reply :-

    "But of course, until the consent summons is filed and judgment entered, both the claim and the counterclaim will remain."

49. In my judgment, neither the claim nor the counterclaim has ever been abandoned or discharged by the settlement agreement before the promised act of consenting to the consent summons is performed by both the Plaintiff and the Defendants. This is not disimilar to the facts in Fraser V. Elgen Tavern Pty. Ltd. [1982] V.R. 398.

Effect of the Defendants' Refusal to Endorse the Consent Summons

50. When the Defendants refused or failed to endorse the consent summons they clearly evoked an intention no longer to be bound by the settlement agreement. Faced with this repudiation, the Plaintiff has two choices : either to accept the repudiation and continue with her original action for a large sum (but equally she will have to defend the counterclaim) or insist on the terms of the settlement and sue for the breach thereof. If she is to sue on the settlement agreement, the loss suffered by her will be the loss of the HK$110,000 and the 40 feet container which the Defendants promised to transfer to her. If the Defendants were to persist with their counterclaim, the Plaintiff could probably apply to have it struck out on the ground that the Defendants had agreed to withdraw it and the Plaintiff is entitled to hold them to that agreement.

51. These two choices of the Plaintiff, however, are mutually exclusive one of the other. This is accepted by counsel for the Plaintiff. If the Plaintiff elects to pursue the original action, she must be taken as having accepted the Defendants' repudiation of the settlement agreement. Her part of the bargain was she would give up the uncertainty of her original cause of action for a larger sum in return for the certainty of a judgment for a lesser sum. By persisting with her original cause of action, she must be taken to have abandoned or waived her right to have the certainty of a judgment for a lesser sum. On the other hand, if she insists on the settlement agreement being performed by the Defendants or seeks damages thereunder, she must keep her side of the bargain : that is, abandon or waive her original cause of action for a larger sum. She cannot pursue both causes of action at the same time unless she makes it absolutely plain to the Defendants, that she is not making an election to abandon or waive either of the two alternative causes of action.

Essential Elements of Election

52. As I have already described, what the Plaintiff did, however, is that after failing to enforce the settlement agreement by way of a completely wrong and inappropriate procedure, she elected to restore the summons for particulars. Not only that, but she successfully obtained an order for the particulars with costs. In my view, the message to the Defendants at this point of the proceedings cannot be clearer "I shall pursue my original cause of action and forget about the settlement."

53. Prima facie, all the elements of an estoppel by election (see para. 310 at p. 313 to 314, para. 318 at p. 324 and para. 322 at p. 333 to 340 of Spencer, Bower & Turner on The Law Relating to Estoppel by Representation, 3rd edn.) are thus present :-

(a) The Plaintiff is confronted with two alternative and mutually exclusive causes of action as against the Defendants;

(b) She so conducts herself as reasonably to induce the Defendants to believe that she is intending definitely to pursue the original cause of action, to the exclusion of the cause of action under the settlement agreement; and

(c) The Defendants in such belief alter their positions to their detriment by consenting to provide the particulars and pay costs to the Plaintiff.

54. There is, however, an important distinction between election and estoppel proper (see para. 326 at p. 344 of Spencer, Bower & Turner, 3rd edn.). In the case of ordinary estoppel, knowledge of the representor as to the facts to which his representation or action is directed is generally immaterial since the law is only concerned with the effect of the representation on the representee. But in the case of election, simple logic and common sense dictates that he who "elects" between two possible courses of conduct must have knowledge of the alternatives between which he makes his choice.

55. The authorities suggest that the law may require the proof of knowledge of two distinct facts possessed by the elector before he will be held to his election, namely : -

(i) Knowledge of the facts giving rise to the right to elect : see Matthews V. Smallwood (1910) 1 Ch. 777 at p. 786-7 per Parker J.; and Kammins Ballrooms Co. Limited V. Zenith Investments (Torquay) Limited [1971] A.C. 850 (H.L.) to which I have to return later;

(ii) Knowledge of the right to elect see Kendall V. Hamilton (1879) 4 App. Cas. 504 (H.L.) at p. 542 per Lord Blackburn; and other cases cited in para. 328 at p. 347-8 of Spencer Bower & Turner, 3rd edn.

56. While the principle under paragraph (i) above seems to be relatively well recognised and settled, the editor of Spencer Bower & Turner, 3rd edn., thought that the second requirement of knowledge under paragraph (ii) above and the way in which knowledge and intention can actually be proved are far from settled : see paras. 329 and 330 at p. 348 to 351 and para. 332 at p. 352 to 354 of Spencer Bower & Turner, 3rd edn. That, of course, does not assist me at all. I have to resolve this question the best I can.

Knowledge of The Plaintiff

57. Let me say at once that since the Plaintiff or her legal representatives were personally involved in all the steps in the 1st Action, she must have knowledge of all the facts giving rise to the right to elect. Alternatively, the knowledge of her legal representatives who are her agents must be imputed to the Plaintiff.

58. The difficulty, however, lies in to what extent the Defendants must show that the Plaintiff knew of her choice to pursue either the original cause of action or her remedies under the settlement agreement and intended to elect to pursue the former and waive or abandon the latter?

59. I have already referred to what Lord Blackburn said in Kendall V. Hamilton (1879) 4 App. Cas. 504 (H.L.). In Lissenden V. C.A.V. Bosch Limited [1940] A.C. 412 (H.L.), Lord Wright (at p. 436) regarded the presence of knowledge of the position and intention to elect as essential elements of election (see also per Lord Atkin at p. 429).

60. The principle of election received further attention in Evans V. Bartlam [1937] A.C. 473 (H.L.). At page 479, Lord Atkin said : -

    "....... to infer election it must be shown that the person concerned had full knowledge of the various rights amongst which he elects. There is no evidence that the defendant at the time he asked for and received time had any knowledge of his right to apply to set the judgment aside. I cannot think that there is any presumption that he knew of this remedy either sufficiently for the purposes of the doctrine as to election or at all."

    Lord Russell of Killowen said much the same thing at page 483 :-

    "The doctrine of election only applies to a man who elects with full knowledge of the facts. There is no suggestion that the Defendant knew that he could apply to set the judgment aside."

    At page 485, Lord Wright said :-

    "Election is a question of fact. I can find no facts here to show that the elements of election such as intention or knowledge of his legal right were present."

61. The requirement of knowledge and deliberate choice was also confirmed in Young V. Bristol Aeroplane Co. Ltd. [1946] A.C. 163 (H .L.) : at p. 176 per Lord Russell of Killowen and at p. 187 per Lord Porter.

62. None of the above cases was cited in Kammins Ballrooms Co. Ltd. V. Zenith Investments (Torquay) Ltd. [1971] A.C. 850 (H.L.) where Lord Diplock by way of obiter, said (at p. 883A)

    "we are not concerned in the instant appeal with the first type of waiver. This arises in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner which is consistent only with his having chosen to rely on one of them, the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did."

Lord Pearson, who delivered the dissenting speech said this at page 878C :-

    "Is it incumbent on the tenants to prove when the landlords' solicitors received counsel's advice as to the legal position? I do not see how they could prove it. only the landlords and their legal advisers would have the information and if they were asked to disclose it - whether by discovery of documents or by answer to interrogatories or by answers to questions in cross-examination - they would be entitled to refuse on grounds of legal professional privilege. I do not think the law imposes on the tenant such an unreasonable burden of proof. In my opinion the knowledge which is required for waiver - that is to say, the knowledge which the party alleged to have waived his right must be shown to have had at the material time - is only knowledge of the relevant facts. The party alleging waiver does not have to show that the party alleged to have waived his right appreciated the legal position resulting from the relevant facts."

Lord Reid in his speech at page 860H said :-

    "I have read the speech to be delivered by my noble and learned friend Lord Pearson. I agree with what he says about waiver ......"

63. The majority of their lordships' view in the Kammins case is therefore that a defendant need only show knowledge of the relevant facts on the part of the plaintiff.

64. This view, however, was not accepted in Peyman V. Lanjani (1985) 1 Ch. 457, where the Court of Appeal chose to apply Leathley V. John Fowler & Co. Ltd. [1946) K.B. 579 (C.A.) instead. The issue before the Court in Peyman was whether the plaintiff there had elected to affirm or rescind a contract. The Court of Appeal found on the evidence that the plaintiff had not affirmed but in the course of his judgment, Stephenson L.J. embarked upon a detailed examination of the law on waiver or election. He sought to explain (at p. 486G) Lord Diplock's speech in Kammins as merely concerning "the elector's ignorance not of his legal right resulting from the facts, but of the legal effect resulting from his exercise of that right of enabling the other party to hold him to his election."

            At page 487E, Stephenson L.J. said :-

    "Lord Diplock's words were on any view obiter dicta and Lord Pearson's unnecessary to his (and Lord Reid's) dissenting opinion that there had in fact been waiver; and if they have to be interpreted as we are asked to interpret them, they seem to me, if I may respectfully say so, to conflict with the earlier opinions in their Lordships' House which I have already cited, particularly in Evans V. Bartlam [1937] A.C. 473. I therefore feel free to follow the decision of this court in Leathley V. John Fowler & Co. [1946] K.B. 579 and to hold that knowledge of the facts which give rise to the right to rescind is not enough to prevent the plaintiff from exercising, that right, but he must also know that the law gives him that right yet choose with that knowledge not to exercise it.

    The plaintiff can therefore rely on his own unchallenged ignorance of the law, unless he is precluded from doing so either by what he has done or by his solicitor's knowledge of the law. Those decisions lay down what a person in his position must know before he loses his right to rescind, they do not go far into what he must not do if he is to keep the right, or what effect on it of his having legal advice may be."

65. Nevertheless, Stephenson L.J. was of the further opinion that although there was in fact no intention to waive or abandon a right because there was no knowledge of it, intention could be presumed from conduct objectively. At page 488D he said :-

    "Waiver or election is always a question of intention to be decided on the evidence as a question of fact ..... In fact and in law men's intentions must be judged by their actions, and a man's acts may convey to any reasonable person standing in the shoes of the other party to a contract, as clearly as any words, an intention to repudiate or to affirm the contract. If the other party, relying on acts having the latter effect, suffers detriment or prejudice, there is unequivocal, and irrevocable, affirmation."

        May L.J. agreed with Stephenson L.J. (at p. 492H) but addved (at p. 494E) that :-

    "...... I do not think that a party to a contract can realistically or sensibly be held to have made this irrevocable choice between rescission and affirmation unless he has actual knowledge not only of the facts of the serious breach of the contract by the other party which is the pre-condition of his right to choose, but also of the fact that in the circumstances which exist he does have that right to make that choice which the law gives him. To hold otherwise ...... would in my opinion not only be unjust, it would be contrary to the principles of law which one can extract from the decided cases."

Slade L.J. also agreed. At page 500F, he said :-

    "Lord Blackburn in Kendall V. Hamilton, 4 App. Cas. 504, 542, said 'there cannot be election until there is knowledge of the right to elect.'. For the reasons given by Stephenson and May L.JJ., I am of the opinion that this statement, which was cited by Lord Porter in Young V. Bristol Aeroplane Co. Ltd. (1946] A.C. 163, 186 as being the , foundation of the principle of election, still correctly represents the law. With Stephenson and May L.JJ., I do not think that a person (such as the plaintiff  in the present case) can be held to have made the irrevocable choice between rescission and affirmation which election involves unless he had knowledge of his legal right to choose and actually chose with that knowledge."

66. These conflicting authorities are not at all easy to reconcile. I am, however, greatly assisted by Stevenson L.J.'s view in Peyman that where there is an absence of direct evidence of knowledge of the right to elect, a plaintiff's intention to elect can be proved by or inferred from his conduct. This is in line with what Lord Blackburn said in Scarf V. Jardine (1872) 7 App. Cas. 345 (H.L.) at page 361:-

    "........ but so soon as he has not only determined to follow one of his remedies but has communicated it to the other side in such a way as to lead the opposite party to believe that he has made that choice, he has completed his election and can go no further; and whether he intended it or not, if he has done an unequivocal act - I mean an act which would be justifiable if he had elected one way and would not be justifiable if he had elected the other way - the fact of his having done that unequivocal act to the knowledge of the persons concerned is an election."

67. Lord Atkin in Evans V. Bartlam [1937) A.C. 473 (H.L.) also implied: (at p. 479) that in certain situations, the necessary knowledge could be presumed.

68. In United Australia Ltd. V. Barclays Bank Ltd. [1941) A. C. 1 (H.L.), his Lordship (at p. 29) said :

    "....... a man cannot waive a wrong unless he either has a real intention to waive it, or can fairly have imputed to him such an intention, and in the cases which we have been considering there can be no such intention either actual or imputed."

69. The editor of Spencer Bower & Turner, 3rd edn., is of the same view: see para. 329 at p. 348 to 350(but contrast e.g. Lord Morris of Borth-y-Gest in Kammins [1971] A.C. 850 (H.L.) at p. 865G).

70. In my judgment, the preponderance of the authorities is in support of the following propositions :-

(i)    Where A facing two or more mutually inconsistent courses of conduct elects to adopt one course of conduct with knowledge so as reasonably to induce B to believe that he is intending definitely to adopt that course, and definitely to reject or relinquish the other course or courses, and B in such belief alters his position to his detriment, A is precluded, as against B, from thereafter resorting to such other course or courses of conduct;

(ii)    The consequence of the election, if established, is the abandonment or waiver of a right;

(iii)    The necessary knowledge required in establishing an election is :

(a) Knowledge of the relevants facts giving rise to the right to elect; and

(b) Knowledge of the right to elect;

(iv) The knowledge required under (a) above can be proved either directly by proof of actual knowledge or indirectly by inference or imputation;

(v)    Once such knowledge is proved, it is not necessary for B to go on to show that A is aware of the legal rights or consequences flowing from the known facts;

(vi) The knowledge required under (b) above is knowledge sufficient to show that A intends to make a deliberate choice of one course of conduct as opposed to another;

(vii) Such knowledge and intention is a matter of fact to be decided on a balance of probabilities on the evidence before the Court;

(viii)    As in the case of (iv) above, such knowledge and intention can be proved either directly by proof of actual knowledge or indirectly by inference or imputation. But direct evidence from A that he was ignorant of the choice may not be conclusive. The Court must determine A's state of mind objectively on the evidence. Indeed, there may be circumstances where A is precluded from declaring that he in fact did not have the requisite knowledge and intention; for example, when the detriment suffered by B is irreversible.

The Plaintiff's Knowledge

71. I have already said the Plaintiff clearly knew all the relevant facts giving rise to the right to elect. She must also know of her right to elect for she in fact initially chose to enforce the settlement agreement. It was only after she failed to so enforce the settlement agreement that she restored the summons for particulars and elected to pursue the original cause of action instead. Even if she has turned a blind eye to the obvious, her legal representatives must know of the two mutually inconsistent courses of pursuing the original cause of action on the one hand and seeking redress under the settlement agreement on the other. Their knowledge is the knowledge of the Plaintiff. By pursuing the original cause of action without any indication to the Defendants that she intended to reserve all her rights (assuming such reservation is possible), if any, under the settlement agreement, she must have intended to abandon or waive such rights.

72. Alternatively, the Defendants must be regarded as having sufficiently set up a prima facie case of election. The Defendants have done all they can to prove the necessary knowledge of the Plaintiff. They cannot be required to go on to do the impossible : to prove that the Plaintiff did receive proper legal advice that she had a choice to either pursue the original cause of action or to seek redress under the settlement agreement and that she acted according to such legal advice. To require such proof is in the words of Lord Pearson in Kammins [1971) A.C. 850 (H.L.) at p. 878D, to impose on the Defendants an unreasonable burden of proof.

73. The Plaintiff did not adduce evidence by way of affidavit that she in fact did not know of her right to elect. Nor did she through her counsel suggest that she was ignorant of such right. Indeed, there is no indication that knowledge would in fact be an issue in these proceedings. It could, of course, be argued that knowledge is a question of fact which must be determined at the trial on oral evidence and not on affidavit. But this point was not taken by counsel for the Plaintiff.

74. I have an application to strike out the Plaintiff's claim which I must decide on the evidence before me. In the absence of any indication that knowledge will be an issue either on the evidence filed or in argument, I cannot assume that direct evidence from the Plaintiff will be led at the trial that she did not, in fact, have the necessary knowledge. If I must come to a decision on the present facts, which I think I must, I have no hesitation in finding that the necessary knowledge on the part of the Plaintiff is proved.

Orders To Make

75. In my view, all the elements of election are proved. Quite clearly, the Defendants have shown a bona fide defence which raises a serious question to be tried. The default judgment must be set aside.

76. The next question is should I strike out the Plaintiff's claim ? I bear in mind I must only exercise my discretion in the most clear and obvious cases. The Statement of Claim on the face of it does disclose a reasonable cause of action so that the Defendants' application under 0. 18 r. 19(1)(a) must fail. To be fair to the Defendants, that part of the application was never pressed.

77. It has been said that an action which is doomed to failure is an abuse of the process of the Court and may be dismissed (see Domer V. Gulf Oil (Great Britain) (1975) 119 S.J. 392). It is also clear that where a good plea of estoppel is shown, the Court may strike out the pleading and dismiss the action under O. 18 r. 19 and the inherent jurisdiction of the Court.

78. In this case, all the facts are agreed. I have already said there is no indication that the Plaintiff can or indeed will dispute knowledge at the trial. I am in just as good a position to decide this matter now as the trial judge. Should I delay that decision until trial at the cost of time and further legal costs ? I would say no. That would be wholly unjust to the parties. They should be left to concentrate on the 1st Action where the true issues between the parties are being fought.

79. I hereby strike out the Plaintiff's Statement of Claim and dismiss her action.

80. As to the question of costs, as the solicitor for the Defenants frankly admits, the default judgment was entered solely because of his fault. The Plaintiff should have the costs of the Defendants' application to set aside the default judgment in any event. I make an order nisi to this effect.

81. The Defendants, however, should have the costs of the action upon its dismissal. I hereby make an order nisi that the Defendants do have costs of the action including the costs of the application to strike out.

Representation:

Appearances

Miss Lisa Wong instructed by Messrs. Chan, Wong & Lam for the Defendant Applicants;

Mr. Simon Leung instructed by Messrs. Robert Lee & Fong for the Plaintiff Respondent.