First Good International Ltd v. Shum Kin and Others
Read the full judgment text of HCA 614/2004 on BabelCite. This High Court CFI judgment was delivered on 9 May 2005.
1. This is the plaintiff’s appeal against the decision of the Master made on 1 December 2004. By the decision, the Master struck out the plaintiff’s Statement of Claim as against the 1 st and 2 nd defendants, and refused the plaintiff’s application to amend the Statement of Claim. She further awarded the 1 st and 2 nd defendants the costs of the action.
Cited by 3 cases · Cites 2 cases
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HCA 614/2004 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 614 OF 2004 ----------------------- BETWEEN
----------------------- Before : Hon Chu J in Chambers Date of Hearing : 28 April 2005 Date of Judgment : 9 May 2005 ----------------------- J U D G M E N T ----------------------- 1.This is the plaintiff’s appeal against the decision of the Master made on 1 December 2004. By the decision, the Master struck out the plaintiff’s Statement of Claim as against the 1st and 2nd defendants, and refused the plaintiff’s application to amend the Statement of Claim. She further awarded the 1st and 2nd defendants the costs of the action. Background 2.The relevant facts of the case can be summarized as follows. 3.The 1st and 2nd defendants were and are the only shareholders and directors of the 3rd defendant (“the Company”). 4.By a provisional sale and purchase agreement dated 22 November 1997, the plaintiff agreed to purchase from Gold Future Limited a property together with a carpark in Repulse Bay (“the Property”). Completion was to take place on or before 22 June 1998. Pursuant to the agreement, the plaintiff paid HK$3,000,000 deposits to Gold Future Limited. 5.On 9 March 1998, the plaintiff and the Company entered into a provisional sale and purchase agreement in respect of the Property. Pursuant to the agreement, HK$700,000 was paid and received by the plaintiff as the initial deposit. Under the agreement, a further deposit had to be paid by 20 March 1998, but it was not paid. 6.On 17 March 1998, the Company commenced High Court Action No. 4151 of 1998 against the plaintiff, claiming rescission of the agreement, return of the initial deposit and damages for breach of agreement and/or misrepresentation. On 20 March 1998, the Writ was registered in the Lands Registry against the Property. 7.By way of counterclaim filed on 24 April 1998, the plaintiff claimed against the company damages for wrongful rescission of the agreement. 8.On 29 April 1998, the Company registered the provisional sale and purchase agreement in the Lands Registry against the Property. The registration was withdrawn on 17 September 1998. 9.It is the plaintiff’s case that as a result of the registrations against the Property in the Lands Registry, it was unable to find interested buyer for the Property and in turn to complete the purchase of the Property under its agreement with Gold Future Limited. Gold Future Limited forfeited the plaintiff’s deposits and subsequently resold the Property at a lower price. In High Court Action No. 1366 of 2000, Gold Future Limited claimed against the plaintiff in damages for breach of agreement and obtained judgment with damages to be assessed. 10.By a summons filed on 18 March 1999, the plaintiff applied under HCA 4151 of 1998 to strike out the Company’s claim and for summary judgment on the counterclaim. 11.On 20 and 30 April 1999, the Company declared and paid out to the 1st and 2nd defendants, dividends totalling HK$26,620,000, being the proceeds of the sale of a property at Ventris Road, Happy Valley owned by the Company. 12.By a judgment handed down on 22 November 1999, Yuen J (as she then was) held that the Company had wrongfully repudiated the agreement with the plaintiff by failing to pay the further deposit. The Company’s claim was ordered to be struck out, and summary judgment was entered on the counterclaim with damages to be assessed and costs. The plaintiff’s costs was taxed at HK$250,156.30 and the allocatur was issued on 17 July 2000. On 8 August 2000, Master Cannon gave directions for the hearing of the assessment of the plaintiff’s damages. 13.On 22 August 2000, the 1st defendant with the consent of the 2nd defendant applied to the Registrar of Companies under section 291AA of the Companies Ordinance for the de-registration of the Company. In the application, the 1st defendant stated that the Company had no outstanding liabilities. On 22 December 2000, the Company was struck off the Companies Register. 14.Upon discovery of this in 2001, the plaintiff applied under High Court Miscellaneous Proceedings No. 5998 of 2001 to reinstate the Company. By an order dated 21 May 2002, the Company was ordered to be reinstated to the Companies Register. 15.The Company did not pay the taxed costs. Neither did it comply with the directions for assessment of damages. Upon the plaintiff’s petition filed on 5 February 2004, the Company was ordered to be wound up on 14 April 2004. Provisional Liquidators had been appointed and they are looking into the affairs of the Company. 16.In the meantime on 16 March 2004, the plaintiff commenced the present proceedings. The Statement of Claim was filed on 25 May 2004. The 1st and 2nd defendants filed their defence on 21 June 2004. On 8 September 2004, the 1st and 2nd defendants applied by summons to strike out the plaintiff’s Statement of Claim against them under Order 18 rule 19 of Rules of the High Court. On 12 November 2004, the plaintiff applied by summons to amend the Statement of Claim. On 1 December 2004, Master decided both applications in favour of the 1st and 2nd defendants. 17.On 9 December 2004, the plaintiff brought the present appeal. By a summons filed on 14 April 2005, the plaintiff applied for leave to file and rely on the 2nd affirmation of Chan Kam Chuen so as to introduce information and documents obtained from the Liquidators of the Company. The 1st and 2nd defendants oppose the summons. At the hearing of the appeal, however, counsel agreed that the affirmation should be read de bene esse and the determination on the summons should be reserved to the conclusion of the appeal. The Statement of Claim 18.Under the original Statement of Claim, the plaintiff claims against the 1st and 2nd defendants damages for wrongful repudiation of agreement and damages for wrongful registration of the Writ and the provisional agreement. The plaintiff’s claim against the 1st and 2nd defendants can be summarized as follows:
The application to strike out 19.The 1st and 2nd defendants apply to strike out the Statement of claim against them on the following basis:
The proposed amendments 20.In the light of the striking out application, the plaintiff applies to amend the Statement of Claim as follows:
21.The 1st and 2nd defendants oppose the amendments, contending that:
Principles on striking out and amendment 22.Counsel have no disagreement on the relevant principles governing striking out and leave to amend. In brief, the summary power to strike out should only be exercised in clear and obvious cases. Where the legal viability of a cause of action is sensitive to facts, an order to strike out should not be made. The mere fact that a claim is weak, and not likely to succeed, is no ground for striking out the pleading. Disputed facts are to be taken in favour of the party whose pleading is the subject matter of the striking out application: Hong Kong Civil Procedure 2004 vol. 1 paras.18/19/4 – 18/19/6. 23.As to the discretion to grant amendments, Order 20 rule 5(2) & (5) of Rules of the High Court provide that:
24.An amendment to add or substitute a new cause of action after the expiry of the relevant limitation period may therefore be allowed if the additional or new cause of action arises out of the same facts or substantially the same facts as a cause of action that had already been claimed in the action. The fact that in establishing the new cause of action, additional facts have to be pleaded or supplemented does not take the case outside Order 20 rule 5(5): Leung Kin Fook v. Eastern World wide Co Ltd (unreported) CACV 165 of 1996. 25.With these principles in mind, I turn to deal with the parties’ applications. The claim of wrongful repudiation of the provisional agreement 26.The defendants’ first challenge to the claim of wrongful repudiation is that the averment of agency has no proper basis. Although in the majority of cases, an individual acts as the agent of a company, it is possible for a company to be the agent of an individual. What is critical in establishing the principal and agent relationship is the consent of the principal and agent. The parties will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it and even if they have professed to disclaim it. The consent must have been given by each of them, either expressly or by implication from their words and conduct: Garnac Grain Co. Inc. v. H.M. F. Faure & Fairclough Ltd. (Note) [1968] AC 1130, 1137 per Lord Pearson. 27.In the present case, the plaintiff relies on the following matters as giving rise to a principal and agent relationship between the defendants and the Company:
28.Mr Lau for the defendants argues that the evidence is flimsy and there is no basis for an inference that the Company was the agent of the 1st and 2nd defendants in entering into the provisional agreement. The test however is not whether the evidence at this stage is weak, but whether it is plain and obvious that the matters relied upon by the plaintiff cannot support the averment that the Company was the defendants’ agent. 29.For my part, I am not prepared to conclude that it is impossible for the plaintiff to establish a principal and agent relationship between the defendants and the Company. In particular, given that the auditor had audited and did not qualify the accounts of the Company for the relevant years, it can reasonably be inferred from the fact the payment and forfeiture of the $700,000 initial deposit was not reflected in the accounts and no provision was made in the accounts for the liability under the judgment, that (1) the initial deposit was paid by the 1st and 2nd defendants, who were and are the only shareholders and directors and controlled the Company, (2) the Property was intended to be their acquisition as admittedly the Company was used as their investment vehicle, and (3) the Company did not regard the Property as its acquisition and any liability in connection with the purchase of it to be its liability. 30.The fact that there is at present no evidence indicating on whose account the cheque for the initial deposit was drawn is immaterial. The point can be elucidated by discovery. It is also to be noted that the 1st and 2nd defendants had not indicated in the evidence leading the striking out application that the initial deposit came from the Company or was not provided by either of them. 31.I accept however, no material facts supporting the averment of agency were pleaded in the Statement of Claim. In this regard, the Statement of Claim is clearly inadequate and defective. Similarly, the draft Amended Statement of Claim also does not set out any material particulars. To this extent, the proposed amendment does not advance the plaintiff’s opposition to the striking out application any further. The plaintiff will need to improve the draft Amended Statement of Claim to set out the material facts relied upon for the plea of agency, including the matters mentioned in paragraph 27 above. 32.As to the viability of the claim of wrongful repudiation against the 1st and 2nd defendants as a matter of law, Mr Lau refers to Bowstead & Reynolds on Agency (17the edition) Article 84(1) and the comment at para.8-117. He argues that even if the 1st and 2nd defendants were indeed the principals, the judgment obtained by the plaintiff against the agent (i.e. the Company) in HCA 4151 of 1998 will operate as a bar to any proceedings against the principals (i.e. the 1st and 2nd defendants). Mr Cheung on the other hand argues that the point is not as settled and clear cut, relying also on passages in Bowstead and Reynolds and decisions of the US Courts and the High Court of Aukland. 33.Mr Lau also refers to the Court of Appeal decision in Bonus Garment Co (A firm) v. Karl Rieker GMBH & Co KG & Anor [1995] 3HKC 721 in which it was held that where a plaintiff makes two alternative claims against two defendants which are dependent upon mutually inconsistent allegations of fact, and takes a judgment against one, he cannot thereafter pursue his claim against the other. The act of entering judgment was equivalent to an election to sue that defendant and will operate as a bar to further proceedings against the other. 34.Article 84(1) in Bowstead & Reynolds states:
35.As explained in the comments at paras.8-114, 8-115 & 8-117, the established view in England is that the liability of agent and undisclosed principal is alternative as a matter of substantive law. Accordingly, if the third party obtains judgment against the agent of an undisclosed principal, he can no longer sue the principal, even though he obtained judgment in ignorance of the act that the agent had been acting for another, and so of his full rights, and even though the judgment is unsatisfied. There are two explanations for the rule. The first is the doctrine of merger which regards judgment against one as discharging the other. The second is the doctrine of election which regards the judgment as manifestation of the third party’s choice to pursue the agent. 36.Bowstead & Reynolds questions the assumption that the liability of agent and undisclosed principal is alternative and considers there is no real reason why there cannot be cases where the agent is liable together with the undisclosed principal. It points out that there is considerably authority in the United States rejecting the rule that the liability is alternative. In Elvin Grinder v. Bryans Road Building & Supply Co. Inc. 432A.2d 453(Ct. App/Md.1981), the Court of Appeal of Maryland considers that there are two distinct causes of action which are not inconsistent. The agent is liable because he made the contract while the principal is liable because he caused it to be made. 37.Bowstead & Reynolds also points out that the proposition in Article 84(1) may not be easily explained by the doctrine of election because under general principles, a third party is not able to make a valid election until he realises the existence of the undisclosed principal, i.e. when he is in possession of the all the relevant facts. In LC Fowler & Sons Ltd v. St Stephens College Board of Governors [1991] 3N2LR 304, a decision of the High Court of Auckland, Thomas J (at p.312) doubted whether it could properly be held that the cause of action had been merged in the judgment where the initial election was made by a plaintiff who did not possess all the relevant facts. He was further of the view that whether an undisclosed principal became known to the plaintiff before he elects to obtain judgment, and not whether judgment had been obtained, would be determinative of his right to sue the principal. 38.Therefore, while the English position is clearly that as stated under Article 84(1) of Bowstead & Reynolds, the proposition has been doubted and indeed not accepted in other jurisdictions. Underlying the English position is the assumption and rule that the liability of agent and undisclosed principal is alternative, not joint. The assumption is however open to doubts. Although our Court of Appeal had held in Bonus Garment Co that judgment against one defendant was equivalent to election to sue that one and a bar to further proceedings against the other defendant, the holding was in the context dealing with cases where the plaintiff’s right of action against the defendants is alternative. Whether the holding applies to the present case will depend on whether the liability of agent and undisclosed principal is to be viewed as alternative as a matter of substantive law. Counsel have not been able to identify any Hong Kong authority on the point. 39.As noted above, the summary power to strike out should only be exercised in plain and obvious cases. I do not regard the legal point of whether the plaintiff by obtaining judgment against the Company, has become barred from proceeding against the 1st and 2nd defendants a straightforward point with no room for argument to the contrary. In my view, the plaintiff should be allowed to pursue the claim in repudiation of agreement against the 1st and 2nd defendants, subject however to properly pleading the material facts in support of the agency averment. Registration of the Writ and the provisional agreement 40.It would appear from Mr Cheung’s submissions that he does not take issue with the defendant’s point that wrongful registration in itself cannot give rise to a cause of action or a claim for damages. What he seeks to do is to have the plea substituted by a plea of slander of title. There is no doubt that the limitation period for the claim in slander of title had expired in November 2004 when the plaintiff moved the amendment. The issue is whether the court should exercise the discretion under Order 20 rule 5(5) to allow the amendment. 41.The new claim of slander of title involves amendments to paragraphs 18 to 20 of, and the addition of paragraph 42, to the Statement of Claim. By the proposed amendments, the plaintiff pleads that the registration had caused estate agents to refrain from introducing the Property to potential buyers, gives particulars of the falsehood or the wrongful nature of the registrations and avers that the defendants had intended, as opposed to having knowledge of, the consequences of the registrations, namely, to impede the plaintiff from selling the Property or obtaining finance for completing the purchase of the Property. The new paragraph 42 also gives particulars of special damages. 42.In my view, the bulk of the material facts giving rise to the plea of slander of title had already been pleaded in the Statement of Claim in connection with the initial plea of wrongful registration. The additional averment that estate agents had refrained from introducing the Property to prospective buyers is but supplemental in nature. 43.Mr Lau, while prepared to accept for the purpose of the appeal that the knowledge of the 1st and 2nd defendants can be imputed to the Company, argues that the draft Amended Statement of Claim is bad in that the element of falsehood is missing. He submits whether the Company could have a lien over the Property is a matter of legal opinion and advice so that the acts of registration by themselves are not demonstrative of falsity. I do not agree. The question of the falsehood of the registrations is determined by whether the Writ and the provisional agreement were capable of being registered against the Property as encumbrances, when in particular the Company was claiming rescission of the agreement in the Writ. Whether the registrations were carried out pursuant to legal advice is only relevant to the question of malice. In this connection, it is to be noted that according to the company registration document, the1st defendant is a solicitor and will have legal training and knowledge. 44.Mr Lau further argues that there will be prejudice to the 1st and 2nd defendants if the new claim is allowed. It is said that with the incident being some 6-7 years ago, the defendants will have great difficulties meeting the new averment that because of the registrations, estate agents had refrained from introducing the Property to prospective buyers. In my view, this is not a difficulty or prejudice that flows from the amendment or from it being sought after the expiry of the limitation period. The ability of the plaintiff to re-sell the Property is a relevant and important issue when assessing the plaintiff’s loss and damages arising out of the repudiation of the agreement with the Company. Even without the amendment to add the plea of slander of title, the effect of the registrations on the prospect of the resale of the Property is a matter that the defendants have to address in connection with the assessment of damages under HCA 4151 of 1998. The 1st and 2nd defendants, being the only shareholders and directors of the Company, ought to have made preparations to deal with the point, since the directions for assessment of damages had been given in as early as 2000. 45.In short, notwithstanding the expiration of the limitation period for the claim in slander of title, I consider it appropriate to exercise the discretion under Order 20 rule 5(5) and to allow the amendment to put in the plea. Conspiracy to injure 46.On the conspiracy to injure on account of the registrations of the Writ and the provisional agreement, the main amendment takes the form of the averment and particulars of special damages in paragraph 41 of the draft Amended Statement of Claim. Plainly, the claim is based on similar set of facts that had already been pleaded. 47.Mr Lau however says that the proposed amendment fails to make out a case that the dominant intention was to injure the plaintiff. In his submission, the purpose of entering a registration against a property is to secure the party’s position in lien. It is therefore within the legitimate interest of the Company to effect the registrations against the Property. 48.In my view, the finding of dominant intention is very much a question of fact. While registrations in the Lands Registry often operate to protect or secure an innocent party’s rights, the purpose or intention underlying the registrations in the present case can only be determined by reference to the evidence. As noted above, the provisional agreement was registered as an encumbrance against the Property notwithstanding the claim of rescission in HCA 4151 of 1998. This is a matter that the trial judge will have to consider before concluding on the purpose and dominant intention for the registrations. 49.Mr Lau also argues that the 1st and 2nd defendants will be prejudiced by the amendment because they will have difficulties meeting the point about estate agents not introducing the Property to prospective buyers. For reasons indicate above, I do not accept this as a prejudice that should prevent the court from exercising the discretion against the plaintiff. In my view, the amendment to add a claim of conspiracy to injure on account of the registrations against the Property, despite the expiry of the limitation period, should be allowed. 50.I turn lastly to the new claim of conspiracy to injure on account of the de-registration of the Company. The limitation period for this claim has not expired since the acts of procuring the re-registration were done in August 2000. The main thrust of Mr Lau’s argument against this part of the proposed amendment is that the 1st and 2nd defendants owe no fiduciary duty to the plaintiff so that the unlawful act of de-registration is not actionable at the suit of the plaintiff, and any remedy should be sought through the Liquidators of the Company. Mr Lau also informs the Court that the Liquidators are in the course of pursuing against the 1st and 2nd defendants. 51.The main support of Mr Lau’s argument comes from the case of Yukong Line Ltd v Rendsburg Investments Corporation of Liberia (No.2) [1998] 1WLR 294. The plaintiff in that case brought an action against a Liberian company for damages for wrongful repudiation of a charterparty. The plaintiff later discovered that the director who signed the charterparty was the beneficial owner of the company and that on the date of repudiation, funds were transferred from the company’s account to another Liberian company controlled by the director and his family. The plaintiff therefore amended its claim to join the director and the other Liberian company claiming, inter alia, that they had conspired with the company to injure the plaintiff by transferring funds from the company’s account at the time of repudiation of the charterparty. Toulson J held that a director who acted in breach of his duty to the company by transferring the company’s assets in disregard of the interests of its creditors, owed no fiduciary duty to an individual creditor. Since the director in the case owed no fiduciary duty to the plaintiff, and since in an unlawful conspiracy, the unlawful act relied upon had to be actionable at the suit of the plaintiff, the plaintiff’s claim in conspiracy failed because the director’s breach of duty was not actionable at the suit of the plaintiff. 52.Despite the apparent similarity, there is an important difference between Yukong‘s case and the present case. In Yukong, although the plaintiff had sought to claim against the director for wrongful repudiation of the charterparty, Toulson J held that the director was not personally liable for the company’s repudiation. Accordingly, the plaintiff was only a creditor of the company and could not seek remedy against the director for removing the funds from the company, which Toulson J found was for the predominant purpose of advancing his own interest: at p.311. In the present case, the plaintiff is claiming against the 1st and 2nd defendants in wrongful repudiation of the provisional agreement as undisclosed principals and also slander of title. These are personal claims against the 1st and 2nd defendants. If the plaintiff succeeds in either or both of these claims, the 1st and 2nd defendant will be personally liable for the damages. Their shareholding and interests in the Company was part of their assets. In disposing of the assets of the Company and in causing its de-registration, the 1st and 2nd defendants had inflicted harm to the plaintiff not only in the capacity as creditor of the Company, but also as the defendants’ own creditors, by putting their assets beyond the reach of the plaintiff and any judgment it may obtain against them. 53.Thus analysed, it is arguable that the unlawful act relied upon by the plaintiff, namely, the procurement of the de-registration of the Company is actionable at the suit of the plaintiff. The plea is therefore arguable and the amendment ought to be allowed. Conclusion 54.In conclusion, the original Statement of Claim is defective in that it had failed to properly set out the claim against the 1st and 2nd in wrongful repudiation of agreement, and that the claim for damages for wrongful registration is bad in law. The Master was therefore correct in striking out the Statement of Claim. For the reasons above, however, I consider that the plaintiff should be allowed to amend the Statement of Claim to properly plead the claim in wrongful repudiation of agreement and to add the new claims in slander of title and conspiracy to injure. The appeal on the dismissal of the summons to amend is therefore allowed. 55.As to the plaintiff’s summons for leave to file and use the 2nd affirmation of Chan Kam Chuen, given that the information and documents disclosed in the affirmation are relevant to the applications before the court, the application should be allowed. 56.Accordingly, I make the following orders:
Mr Earnest Cheung instructed by Messrs J Chan & Lai for the plaintiff. Mr Raymond Lau instructed by Messrs William Sin & So for the 1st and 2nd defendants. |
Cases cited in this judgment