Lam Moon Yuen v. Kin Ming Holdings International Ltd
Read the full judgment text of HCA 216/2008 on BabelCite. This High Court CFI judgment was delivered on 26 August 2008.
1. The defendant applies to strike out the plaintiff’s claim. The plaintiff applies to amend her statement of claim. Both summonses are being contested.
Cites 3 cases
|
HCA 216/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 216 OF 2008 ____________ BETWEEN
____________ Before: Deputy High Court Judge L. Chan in Chambers Dates of Hearing: 5-6 June 2008; 15 April 2009 Date of Decision: 26 August 2008 _____________ D E C I S I O N _____________ 1.The defendant applies to strike out the plaintiff’s claim. The plaintiff applies to amend her statement of claim. Both summonses are being contested. 2.The subject matter in this action has been referred to in my judgment in HCA 2350/2005 (“HCA 2350”) given on 27 January 2006. That was a judgment in default of notice of intention to defend. The defendant there did not appear at all. The defendant there is the plaintiff here and the plaintiff there is the defendant here. For convenience, I refer to the plaintiff here as Madam Lin and the defendant as Kin Ming. 3.In the application to strike out, I am provided with more facts than in HCA 2350. The dispute is on the meaning and effect of an agreement made between the parties on 16 April 2004 (“the Agreement”). Before referring to the Agreement, I would refer to the history of the matter. BACKGROUND 4.By an “Agreement for the Grant of State-Owned Land of Xiamen Municipal with Consideration” of ref. (98) Xia Land Contract No. (Public Contract) No. 001 and dated 9 May 1998 (“the 1998 Grant”), the Xiamen Municipal Lands Property Management Authority (“Xiamen Lands Authority “) assigned to one Cheong Ming International Investments Limited, a Hong Kong company (“Cheong Ming Intl”), the land use rights of a piece of waterfront land of about 8.8 million m2 at a place called Pupianqu. A fugitive Lai Cheong Sing, who is currently staying in Canada and fighting extradition proceedings, was the legal representative of Cheong Ming Intl. 5.The 1998 Grant was amended by a supplemental agreement dated 14 October 1998 whereby the grantee was changed to Xiamen Cheong Ming Construction Development Limited (“Xiamen Cheong Ming”). The supplemental agreement also spelt out the exact area of the lot at 872,757.273 m2 (“the Land”) and the consideration payable to the Government for the development right at RMB261,827,181.90 (or RMB300 per m2 as stipulated in the 1998 Grant). Before making the supplemental agreement, the Xiamen Municipal Planning Authority (“Planning Authority”) had already granted Xiamen Cheong Ming a licence for construction site planning no. 98D253 and dated 28 August 1998. The licence permitted Xiamen Cheong Ming to plan the construction on the Land a comprehensive development of commercial building called “the Strait City”. 6.On 29 September 1998, the Xaiman Municipal People’s Government (“Xaiman Government”) also wrote to Xiamen Cheong Ming under reference Xia Government [1998] Land No. 392 agreeing to assign the Land to it. The letter also spelt out the different tenure for different accommodation to be built on the Land. The letter also advised Xaiman Cheong Ming that it had to submit a construction plan to the Planning Authority for approval and to obtain a licence for construction planning. The licence had in fact been granted on 28 August 1998 as referred to in the last paragraph. 7.There was then a further supplemental agreement dated 26 July 1999 which changed the grantee to two entities namely Xiamen Cheong Ming and one Kin Ming (Xiamen) Properties Company Limited (“Xiamen KM”) with each owning 50% of the land use rights of the Land. The Land was rectangular in shape. It was divided into four smaller lots named A1, A2, A3 and A4. Lots A3 and A4 bordered the sea and A1 and A2 were at the back. The land use rights over lots A1 and A4, which were positioned diagonally to each other, were allocated to Xiamen KM and the rights over lots A2 and A3 were allocated to Xiamen Cheong Ming. 8.On 21 July 1999, the Xiamen Lands Authority granted Xiamen KM a Xiamen Land and Property Certificate of reference Land No. 00000396 to develop lot A4. The area of lot A4 was also specified in the certificate at 209,493.10 m2. The user was stated to be for integrated development of commercial housing (商品房). It also set forth the length of tenure for different types of accommodation to be built on the lot. The Xiamen Government later confiscated the rights of Xiamen Cheong Ming over lots A2 and A3 possibly because of the company’s connection with the fugitive Lai Cheong Sing. 9.Xiamen KM is a subsidiary of Kin Ming. On 16 April 2004, Kin Ming entered into the Agreement with Madam Lin. By the Agreement, Kin Ming sold the development rights of Xiamen KM over lot A4 to Madam Lin for RMB495 million. The Agreement stated that the useable surface area of lot A4 was 209,495.16 square metres which permitted a total building area of 335,192.16 square metres at a plot ratio of 1.6. The terms of the Agreement that have been referred to by the parties and those that are relevant to the arguments and their certified translations are:
10.It is clear from clause 6.2 of the Agreement that if the Xiamen Government should issue the notice to pay land fees on or before 30 June 2004, Kin Ming would receive from Madam Lin RMB495 million by stages and had to pay the fees for the integrated ancillary facilities on the Land and the land tax. The land tax was at RMB300 m2. Save the RMB495, Kin Ming and Xiamen KM would not derive any the profit or loss from the development and would have no say on how the development should take place. The development would however be carried out in the name of Xiamen KM with all the costs and risks to be borne by Madam Lin. Xiamen KM would only act as the façade for Madam Lin as the land use rights were granted to it. It would also have to do all the things necessary to facilitate Madam Lin’s work in carrying out the development. Indeed, Mr Neoh, leading counsel for Kin Ming, agreed in the course of argument that Kin Ming was holding the development rights (through Xiamen KM) for the benefit of Madam Lin. Kin Ming or Xiamen KM would not be exposed to any risk in the development of lot A4. 11.30 June 2004 came and went, but no notice for payment was issued by the Xiamen Government. Kin Ming then tried to repay the money to Madam Lin but Madam Lin refused to accept it. Kin Ming then brought HCA 2350. Madam Lin did not take part in it. Upon Kin Ming’s application for default judgment, I on 27 January 2006 declared in HCA 2350 as follows:
Madam Lin does not dispute my declarations. 12.The Xiamen Government did not issue the notice on 30 June 2004 probably because it had changed the intended land use of lot A4. It did not want lot A4 to be developed by Xiamen KM. It wanted to change the land use planning for the Land. In fact, when Kin Ming and Madam Lin entered into the Agreement, they were aware of the possibility of change of planning for Lot A4 by the Xiamen Government. Kin Ming had pleaded to this and a collateral agreement arising therefrom in the statement of claim of HCA 2350 as follows:
13.On 16 July 2004, the Deputy Mayor, the Supervisor and the Deputy Secretary of the Xiamen Government had a meeting with Kin Ming’s director and general manager, Mr Hsu Ming Chi (“Mr Hsu”) and its deputy general manager, Ms Wong. They discussed the problem of re-arranging land to Xiamen KM for development. Subsequently, a memorandum dated 21 July 2004 (“the 21 July 2004 memorandum”) was prepared and signed by the representatives of the parties. The 21 July 2004 memorandum recorded an agreement between the parties that the part of the Land for development by Xiamen KM would be adjusted and the adjusted land would remain within the Land but in another part of it. After the adjustment, the user, the land surface area and the building area for construction would remain as before. The infrastructure and public facility within Kin Ming’s land should be constructed by Kin Ming in accordance with the original agreement. 14.Xiamen KM later submitted a report to the Government on the coordination of the use of land in Strait City. Kin Ming has not produced this report in this application. The Government replied on 26 July 2004 and said, among other things, that it agreed with Xiamen KM’s request for land exchange within the Land (“the 26 July 2004 letter”). The 26 July 2004 letter further said that the user, surface area and building area would remain as before, the construction of the public ancillary facilities within Xiamen KM’s plot would remain the responsibility of Kin Ming as in the original agreement. 15.After some nine months and despite the 21 July 2004 memorandum and the 26 July 2004 letter, Kin Ming suddenly wrote to the Xiamen Government on 3 May 2005 saying that it had learnt of the Government’s plan to re-arrange the use of lots A1 and A4. It further said that it had already signed contracts with a related company to co-develop these lots. It therefore requested the Xiamen Government to allow it to develop the lots according to the original approved plan. 16.The Xiamen Government replied to Xiamen KM on 30 May 2005 and stated that the lots of Xiamen KM had to be adjusted according to planning requirement. The overall design of the project after adjustment should meet the planning requirement of the district and that the Planning Authority would decide the specific planning directions. After adjustment, Xiamen KM’s project of commercial housing should have overall planning and integrated development, and should not be divided. The Xiamen Government also said that according to the relevant law and regulation, it did not recognize the contract that Xiamen KM had entered into with relevant departments. 17.The Xiamen Government then issued a document of reference no. 05186 setting out the principle for adjusting the lots of Xiamen KM. The adjusted lot should be within the original Strait City. On 13 July 2005, the Xiamen Municipal Land Development Head Company (“the Land Development Company”) (a representative of the Xiamen Government) and Xiamen KM and entered into an agreement pursuant to document no. 05186. Under this agreement, Xiamen KM had to submit to the Land Development Company “an Opinion on the Choice of Construction Site” which would set out the boundary of the lot it would like to have by way of adjustment of its lots. The Land Development Company would in accordance with the area for the readjustment as set out in the Opinion carry out resumption and then assign the same to Xiamen KM per the Opinion. Kin Ming has not produced the Opinion of Xiamen KM in this application. 18.From a letter of the Xaiman Government and dated 16 June 2006, it appeared that Xiamen KM and one Lianfa Group Company (“Lianfa Group”) had on 30 May 2006 jointly submitted to the Authority various planning proposals with details for the re-grant of development rights with the Land. The proposals have also not been produced in this application. 19.On 15 September 2006, the Xiamen Government granted to Xiamen KM and Lianfa Group another “Agreement for the Grant of State-Owned Land of Xiamen Municipal with Consideration” of reference (2006) Xia Land Contract (Contract) 036 (“the 2006 Grant”). The 2006 Grant was for exchange with Xiamen KM of its development rights over lots A1 and A4 for new development rights. It granted Xiamen KM development rights over a new lot within the Land. This new lot covered the bulk of the original lot A1, the whole of the original lot A2 and about one quarter of the original lot A4 but not any part that bordered the sea. Its area is bigger than that of lot A4 but smaller than the total area of lots A1 and A4. The 2006 Grant provided that this new lot is adjustment land and no land fee would be payable for it while the land fee paid for lots A1 and A4 would not be refunded. It was a re-grant in exchange for lots A1 and A4. THIS ACTION 20.In this action, Madam Lin relied on clause 7.1 of the Agreement for its revival. She also pleaded in the statement of claim that the Agreement was partly oral (“the oral part”) and partly written. She set out the oral part in paragraph 8(g) of the statement of claim as follows:
21.She also pleaded in paragraph 10 that under the factual matrix of the transaction, the expression of “lot A4” in the Agreement meant and was understood and/or intended by the parties to mean any portion of the Land covering a building area commensurate with the total building area over which Xiamen KM possessed the development rights which portion included any re-granted lot or lots. 22.She then pleaded in paragraph 12 that by virtue of the Agreement, with or without the oral part, Kin Ming owed her fiduciary and/or contractual duties. The duties include the obligation to notify her when Kin Ming or Xiamen KM obtained or re-obtained or in a position to re-obtain the rights to develop the Land or lot A4 or any re-granted lot or lots notwithstanding termination pursuant to clause 6.2 of the Agreement and not to make secret profit directly or indirectly. 23.She also pleaded that prior to or in around July 2994, Kin Ming already knew that the Xiamen Government would exchange with Xiamen KM lot A4 for another lot from within the Land. She relied on the 21 July 2004 memorandum that recorded an agreement between the Xiamen Government and Kin Ming that the part of the Land for development by Xiamen KM would be adjusted and the adjusted lot would remain within the Land but in another part of it. 24.She then referred to the 2006 Grant and the fact that there was no settlement of land fees between the re-granted lot and the original lots A1 and A4. She therefore pleaded that Kin Ming had through Xiamen KM obtained the rights to develop commercial housing of at least 335,192.16 square metres over the re-granted lot and the rights were obtained within two years from the return of the funds that she had paid Kin Ming. 25.She claims that Kin Ming has, in breach of its duties to her, failed to notify her about the re-grant of development rights over the re-granted lot under the 2006 Grant and failed to co-operate with her to develop the re-granted lot pursuant to clause 7.1 of the Agreement and/or the oral part pleaded in paragraph 8(g) of the statement of claim. 26.By reason of the foregoing, she claims a declaration that the Agreement has revived pursuant to clause 7.1 of the Agreement and/or the oral part. She further claims a decree of specific performance that she and Kin Ming should develop commercial housing on the re-granted lot for building area of no less than 335,192.16 square metres in accordance with the 2006 Grant and the Agreement. She also claims an account of the development rights and damages from Kin Ming. 27.She now wants to add b y way of amendment that Kin Ming was and is her partner or agent and hence owes her the said fiduciary and/or contractual duties. These duties also include the duty not to receive any secret profit or personal benefit in circumstances where a conflict or significant possibility of conflict existed between its fiduciary duties to Madam Lin and its own interest in the pursuit of profit or benefit. The duties also prevent Kin Ming from receiving such interest and benefit by reason of its fiduciary position or knowledge resulting from such position. 28.She also wants to add that the Xiamen Government had by the 26 July 2004 letter agreed with Xiamen KM’s request for land exchange within the Land. The user, surface area and building area would remain as before. Therefore, Kin Ming through Xiamen KM had received or obtained a right to a new grant by the Xiamen Government of a lot within the Land (which later became the 2006 Grant) under which Xiamen KM would possess or come to possess the development rights to develop commercial housing on the lot amounting to at least 335,192.16 square metres. 29.She also wants to add a relief of a declaration that Kin Ming is holding its entitlement and/or interest in the re-granted lot by itself or through Xiamen KM as a constructive trustee for her. EVIDENCE ADDUCED IN THE APPLICATION TO STRIKE OUT 30.Kin Ming has applied to strike out Madam Lin’s claim on the grounds that it is scandalous, frivolous and vexatious or it is otherwise an abuse of process. It also relies on the inherent jurisdiction of this court. It later also added the ground that the statement of claim does not disclose any reasonable cause of action. 31.Mr Hsu made an affirmation in support of the application. He referred to HCA 2350 and my judgment of 27 January 2006. He then referred to the efforts made to serve the judgment on Madam Lin and to refund the RMB130 million to her. Eventually, Madam Lin’s solicitors appeared in June 2006 and represented her to finalize the taxation of costs in that action. 32.Madam Lin then instituted proceedings in the People’s High Court of Fujian (“the Fujian Court”) against Kin Ming for its breach of the Agreement. Kin Ming defended the action by arguing that the matter sued on by Madam Lin had been determined by this court of the HKSAR. 33.The Fujian Court held that the dispute between Madam Lin and Kin Ming had been determined in HCA 2350. It took the view that Madam Lin’s claim before that court which was to seek performance by Kin Ming and Xiamen KM of the Agreement was a re-litigation of the same matter. The Fujian Court therefore accepted Kin Ming’s argument on jurisdiction and dismissed Madam Lin’s action. 34.Madam Lin then appealed to the People’s Highest Court in Beijing. The Peoples’ Highest Court held that the dispute between the parties had been adjudicated by this court of the HKSAR pursuant to the parties’ agreement on jurisdiction. To avoid jurisdictional conflict between the Mainland’s courts and the courts of the HKSAR, the Peoples’ Highest Court did not regard it improper for the Fujian Court to dismiss Madam Lin’s claim. Her appeal from the Fujian Court was thus dismissed by the Peoples’ Highest Court. 35.Mr Hsu then referred to this action and said that Madam Lin had never raised her allegation of the oral part in the Mainland proceedings. He also submitted that its existence was inherently improbable. Madam Lin also did not apply to set aside my judgment in HCA 2350. He then submitted that I had already determined the issue in this action conclusively in HCA 2350. He said there should be finality in litigation and this action should not be allowed to proceed. He emphasised that Madam Lin had not applied to set aside my default judgment in HCA 2350 and in fact had taken part in the taxation of costs therein. He said it would be manifestly unfair to Kin Ming for this action to go on. 36.Madam Lin made an affirmation to oppose the application. She said neither the Fujian Court nor the Peoples’ Highest Court in Beijing had dealt with the merits of her Mainland action. It was dismissed for want of jurisdiction. 37.She referred to the Agreement and said that although the Xiamen Government did not issue the notice of payment on 30 June 2004, Kin Ming in fact did not repay her the RMB100 million within 15 working days thereafter. It was because Kin Ming already knew that the Xiamen Government would exchange lot A4 into another lot from within the Land. She relied on the 21 July 2004 memorandum and 26 July 2004 letter. Hence, she said that the Agreement after termination was revived as it was certain that Kin Ming through Xiamen KM would come to possess the right to develop certain lot within the Land. She further said that if the oral part of the Agreement did not exist, Kin Ming should have returned the RMB100 million to her within 15 working days after 30 June 2004. But Mr Hsu instead asked her to advance Kin Ming a further RMB30 million as Kin Ming was in urgent need of money. She paid Kin Ming this sum on 17 August 2004. The payment was made one month after 16 July when Kin Ming learnt from the Xiamen Government of its intention to effect exchange of lots within the Land. She therefore said that the payment was evidence in support of the fact that the Agreement was revived and remained ongoing after the town planning change. Kin Ming only refused to co-operate with her when she declined Kin Ming’s demand made on about 30 June 2005 for more money on top of the RMB495 million. 38.She further said that she was not seeking to re-litigate in this action the question of termination of the Agreement which was decided in HCA 2350. She is seeking in this action to sue Kin Ming for breaches under the Agreement as revived. In other words, she is not challenging my judgment in HCA 2350. She is bringing this action pursuant to it. It is thus unnecessary to set it aside. She also said that she did not collect the refund of payment by Kin Ming because the Agreement was revived and is ongoing. 39.Mr Hsu filed a second affirmation. He referred to the submissions by the parties in the Mainland proceedings and repeated that the oral part as now alleged by Madam Lin was never raised therein. 40.Regarding the payment of the RMB30 million, he said Madam Lin paid that money after knowing of the Xiamen Government’s decision not to allow the development of lot A4. But Madam Lin insisted that they should try to overturn the Government’s decision. That proved to be impossible after their having tried for a year. Thereafter Kin Ming tried to return the RMB130 million to Madam Lin but she refused to accept it. 41.I find Mr Hsu’s explanation a bit strange. Even if Madam Lin did not want to accept the Xiamen Government’s decision not to allow development of lot A4, it did not mean that she had to pay Kin Ming another RMB30 million. The Agreement with or without the oral part would not have obliged her to do so. However, I do not think this payment is germane to this application. The point that Madam Lin wants to make by relying on this payment can be made better by reference to the 21 July 2004 memorandum and the 26 July 2004 letter of the Xiamen Government. 42.Mr Hsu went on in his second affirmation to refer to the 2006 Grant and said that the project to develop the lot under this grant was completely different in scope and size from that of lot A4. This project also involved much more capital and completely different commercial risks. The new project was largely residential. It had been widely publicised in Xiamen. Kin Ming’s partner in the project was a substantial company listed in the Shanghai Stock Exchange. At least 60% of the apartments for phase I of the project had also been sold to the general public. 43.Madam Lin filed a second affirmation to respond. She tried to explain the reason for the oral part not having been mentioned in the Mainland proceedings. She said her Mainland Lawyers did not refer to it because the dispute was on jurisdiction. She referred to the payment of RMB30 million and the 21 July 2004 memorandum again. She re-iterated that she was not obliged to pay this sum even if she wanted to overturn the decision of the Xiamen Government. She further said that she did not try to overturn the decision because she was happy to develop the re-granted lot. 44.She then made various allegations on how Mr Hsu and his brother had tried to extract money from her in addition to the RMB495 million and her refusal to pay. However, I do not think these allegations are relevant to this application. 45.She also responded to Mr Hsu’s allegation that the 2006 Grant was completely new. She argued the simple point that the re-grant by the 2006 Grant just revived the Agreement and whether the 2006 Grant was completely new was irrelevant. She highlighted the fact of no settlement fee as between the 2006 Grant and the previous grant. 46.Mr Hsu made a third affirmation. He said Madam Lin insisted on the lobbying efforts and also insisted on paying Kin Ming the further RMB30 million. He thus gave her a receipt for the payment under the Agreement. He attacked the alleged oral part again. He also denied that he or his brother had tried to extract more money from Madam Lin. 47.He also delved into the details of the 2006 Grant and repeated that the development and planning conditions of this grant were very much different from those for lot A4. 48.He filed a fourth affirmation to explain why the 2006 Grant was made to Xiamen KM and Lianfa Group. On about 10 August 1999, Xiamen KM entered into a contract with Lianfa Group to develop about half of the former lot A1. Lianfa Group was supposed to pay Xiamen KM RMB150 million to purchase the development rights for that part of lot A1. The Xiamen Government then issued a formal land and property ownership certificate to Xiamen KM and Lianfa Group for this part of the lot on 19 August 1999. Lianfa Group had participated in the negotiation for the 2006 Grant. That part of lot A1 that Lianfa Group was entitled to was then reduced by some 40% in the 2006 Grant. 49.Madam Lin then made a third affirmation to respond. She said Kin Ming’s arrangement with Lianfa Group was similar to the arrangement with her. However, I do not think I need to consider the arrangement between Xiamen KM and Lianfa Group as Madam Lin is suing on the Agreement and her rights, if any, depends on the terms of the Agreement and not on the arrangement between Xiamen KM and Lianfa Group. 50.Madam Lin also alleged a lot more factual details on the making of the oral part. In gist, she said the oral part was agreed between the parties whilst the drafter was drafting the Agreement in another room and was not aware of the oral part. When the drafting finished, Hsu’s brother hurried her into signing it in Hsu’s presence. She then signed it and the oral part was not incorporated in it. ARGUMENTS FOR AND AGAINST STRIKING OUT AND DECISION 51.There is no dispute on the applicable legal principles governing striking out applications. It is only in plain and obvious cases that the court should excise its summary powers to strike out pleadings (Hong Kong Civil Procedure 2009, Vol. 1, para. 18/19/4). Cases which are plainly unarguable or without foundation of law would be struck out (Byjoy Limited v Thorogood Estates [1985] 2 HKC 746). Cases which are hopeless or have been conducted oppressively can be struck out under the inherent jurisdiction of the court. No Reasonable Cause of Action 52.Kin Ming takes a number of points to argue that Madam Lin’s statement of claim does not disclose any reasonable cause of action. Entire Agreement and Inadmissibility of Parol Evidence 53.Kin Ming argued that clause 8 of the Agreement as cited above is an entire agreement clause. The Agreement on its face is also a complete contract. Clause 8 also expresses the intent of the parties that the Agreement in written form is to contain all the terms of the bargain. It therefore does not admit the oral part as alleged by Madam Lin which is inconsistent with the written terms. Kin Ming also relies on the parol evidence rule. 54.Mr Fung, leading counsel for Madam Lin, referred to the content of clause 8 and submitted that this clause is by definition not an entire agreement clause as it does not purport to say that the written agreement has set out the full agreement between the parties, nor does it say that any side agreement not contained in the written agreement is void and of no legal effect. 55.Clause 8 provides the machinery for amending the Agreement as well as to incorporate further matters to be agreed. It required the amendment and further agreements to be made in the form of written supplement which will form part of the Agreement. The machinery no doubt expresses the desire to have any amendment or further agreement to be in written form. The parties might have intended that all terms of the Agreement should be in written form. But clause 8 indeed does not say that the written agreement has set out the full agreement or that any side agreement not in writing is void. By definition, it is at least arguable that it is not an entire agreement clause. If the parties have not incorporated an entire agreement clause in the Agreement, I should not hold that the Agreement is an entire agreement by reason of the machinery in clause 8. I find that it is arguable that the written agreement is not an entire agreement and Madam Lin is entitled to argue that the Agreement is partly written and partly oral. 56.Mr Fung also submitted that the oral part does not contradict the written part as the written part has not dealt with land exchange whilst the oral part deals with the re-granted lot. He also argued that the oral part could stand as an independent collateral agreement to the Agreement (see para. 12-103 of Chitty on Contracts, 29th edn.). 57.I think it is arguable that the oral part is an independent collateral agreement providing for the revival of the written agreement in the event of land exchange and re-grant. It does not contradict the written agreement as it does not go against the purposes intent of the written agreement. I do not think the extension of life to the written agreement is a contradiction to it though it may vary the effect of the termination clause. I do not take any variation as a contradiction unless it goes against the purpose and intent of the original agreement, otherwise all variations are contradictions, but that cannot be right. 58.Regarding the argument of collateral agreement, Kin Ming had in fact also pleaded in HCA 2350 an oral collateral agreement to the Agreement which varied clause 6.2. Paragraphs 11 and 12 of Kin Ming’s statement of claim in HCA 2350 read:
59.In the premises, I hold that Madam Lin can at least argue for the oral part despite the parol evidence rule. Expiry of Clause 7.1 60.Kin Ming then argued that by my judgment in HCA 2350, the Agreement was terminated on 15 July 2004. 61.I do not think I have decided in that judgment that the Agreement was indeed terminated on 15 July 2004. I did mention this in my judgment when I summarized and recounted the facts contained in the affirmations of Mr Hsu, but I did not so decided. The termination date as provided in clause 6.2, as I then understood it, was upon or after the return of money by Kin Ming to Madam Lin. There was however no evidence in that action on the date of the first attempt by Kin Ming to return the money. Hence, according to my then understanding of the clause, I did not know when was the date of termination. I took that to be before the institution of that action as Kin Ming’s attempts to repay were pleaded therein. I therefore did not refer to the exact date of termination in my declarations in the judgment. 62.I in fact treated the termination as happening on the date of judgment and the parties were discharged from their obligations in the Agreement by the judgment. In retrospect, I think I should have declared to the state of affairs in existence at or immediately before the launching of that action. In any case, I did not adjudge that the Agreement was terminated on 15 July 2004. 63.Mr Neoh, leading counsel for Kin Ming, also argued that clause 6.2 when properly interpreted would mean that if no notice to pay was issued by the Xiamen Government on 30 June, the Agreement would automatically terminate. I however think that it is arguable that the proper meaning of clause 6.2 is that termination would only take place upon Kin Ming’s repayment of money or at least upon a tender by Kin Ming. This is the meaning preferred by Madam Lin. This is in fact the meaning accepted by Kin Ming in paragraph 25 of its statement of claim in HCA 2350. This latter meaning also appears to be the plain and natural meaning of the clause. Madam Lin’s case on the payment of the further RMB30 million also negates the argument of automatic termination on 15 July 2004. 64.For the purpose of this application, the parties agreed that Kin Ming had after May 2005 asked Madam Lin to take the deposit back (see paragraph 4 of the third affirmation of Mr Hsu). I hold that it is arguable that the Agreement between Kin Ming and Madam Lin had only terminated after May 2006 but was subject to revival under clause 7.1. Interpretation of the Agreement: Factual Matrix 65.Kin Ming also argued that there was no revival of the Agreement by the 2006 Grant. It submitted that the revival referred to in clause 7.1 was only for the project to develop lot A4 and not any other lot or any re-granted lot. The project to develop lot A4 was in fact not revived. The 2006 Grant was for different development rights. 66.I have already held that Madam Lin can argue in this action for the oral part. That disposes of this argument. Furthermore, Madam Lin has pleaded that under the factual matrix of the transaction, the expression of lot A4 in the Agreement also means the re-granted lot. She submitted that the meaning of the project should be understood in the factual matrix of the transaction. I am of the view that Kin Ming has already pleaded part of the relevant factual matrix in paragraph 11 of the Statement of Claim in HCA 2350 as cited above. Mr Fung has also referred me to Reardon Smith Line v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995E-996F where Lord Wilberforce said that it is legitimate to have regard to the commercial purpose of the contract and this presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties operate. I also refer to Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912F to 913F where Lord Hoffmann referred to the speech of Lord Wilberforce in Reardon Smith Line and further said that:
67.However, Mr Neoh further argued for Kin Ming that the re-granted lot was for interchanging with both lots A4 and A1. The development on this lot would be on a landlocked combined site. When compared with the development of lot A4, which was a seafront lot, there would be a difference in value. The economics for developing the combined re-granted site would be completely different. Therefore Mr Neoh said that it was necessary to have a further agreement between Kin Ming and Madam Lin which contained specific provisions for developing the combined site. The inter-changeability of the former lot A4 for the re-granted lot as claimed by Madam Lin cannot be a reasonable conclusion from the factual matrix. 68.This argument however ignores the fact that the Xiamen government had by the 26 July 2004 letter agreed with Xiamen KM’s request for land exchange to take place within the Land and that the user, surface area and building area would remain as before. Furthermore, Xiamen KM and Lianfa Group had on 30 May 2006 jointly submitted to the Authority various planning proposals with details for consideration of the re-grant. The Xiamen Government has thus given Kin Ming an opportunity to indicate where the re-granted lot should be and how its boundary should be drawn. But Kin Ming has not produced in evidence the opinion or the proposals it submitted to the Xiamen Government on the location and boundary of the re-granted lot. There is no evidence to show what Kin Ming has done to perpetrate or preserve Madam Lin’s interest. This does not place Kin Ming under favourable light. This is particularly so as I will decide below in favour of Madam Lin that she can argue for fiduciary duties owed to her by Kin Ming. 69.In any case, the alleged difficulty of economics for Madam Lin to take part in the development of the combined re-grant site is just a matter for the architects and valuers. Without expert evidence, it cannot be said that Madam Lin cannot continue with the Agreement on the re-granted site or part or parts thereof. The assertion of difficulty by Kin Ming in this application cannot stop Madam Lin from proceeding with her case of interchange of lots in this action. 70.In the light of the background known to the parties and as pleaded by Kin Ming in HCA 2350, it is also open to Madam Lin to argue for an extended meaning for lot A4 as pleaded in her statement of claim. This is so despite the rights given by the 2006 Grant was to replace the rights in both former lots A1 and A4. I would also observe that if lot A4 should be given the extended meaning as contended for by Madam Lin, the meaning and effect of clause 7.1 would be very similar to those of the oral part. Inconsistency and Uncertainty 71.On this point, Kin Ming repeated its arguments of difference in value and commercial realities between the development of lot A4 and the development of the combined re-granted site. It also argued that the mechanics for developing the new site had yet to be agreed between Kin Ming and Madam Lin. It then submitted that reasonable parties would not make a deal that is uncertain and could leave either of them at a substantial disadvantage, therefore the intention of the Agreement must have been for lot A4 only and not cover the re-granted lot which would give rise to uncertainty. The development of the re-granted lot would be for a further agreement which would define the burdens and benefits for the parties. Hence, Madam Lin’s oral part is plainly inconsistent with the written agreement. 72.Kin Ming also argued that Madam Lin’s interpretation of lot A4 in the Agreement to include the re-granted lot is bad for uncertainty. It argued that it is unclear how the extended meaning of lot A4 would have operated to swap A4 into the re-granted lot. For the development on the re-granted lot to take place to the extent of the Total Building Area in accordance with the terms of the Agreement will leave too many questions to be resolved by a further agreement. The extended meaning of lot A4 thus seeks to swap lot A4 for the unknown. 73.I however agree with Mr Fung that Kin Ming’s real complaint here is not insistency, but that the mechanics for Madam Lin to take part in developing the new lot remain to be agreed. This argument of Kin Ming overlaps with its last argument of factual matrix. Mr Fung submitted that the Agreement after revival could still be carried out. He said the subject matter of the Agreement after revival was certain. Madam Lin and Kin Ming were aware since July 2004 that lot A4 would be exchanged for another lot within the Land. The key is the Total Building Area. The parties should therefore continue to develop the Total Building Area on the re-granted lot according to the terms of the Agreement. 74.Mr Fung further submitted that to the extent any further agreements are necessary, the Agreement itself has the machinery catering for them. Clause 2.2 provides a mechanism for adjusting the amount payable by Madam Lin to Kin Ming upon variation of the total Building Area. Clause 8 provides a mechanism to incorporate amendment and further agreements of the parties to be made. Clause 5.2(c) contemplated application by Madam Lin to change the layout plans and provided the incidence of the consequences upon change. Mr Fung further submitted that the practicalities of the Agreement after revival should be left to be addressed by experts and it is premature to strike out this action without such evidence. 75.Mr Fung further referred me to Scammell & Nephew Ltd v Quston [1941] AC 251 at 255 where Viscount Maugham said:
76.Kin Ming raised the specific problem that the Land fees payable by it under the 2006 Grant may be different from the Land fees originally payable for lot A4, hence, the RMB495 million payable by Madam Lin under the Agreement may not be the right compensation to it. I understand that the net benefit to Kin Ming under the Agreement for developing lot A4 was ascertainable as a matter of arithmetic. If the development should take place on the re-granted lot as contemplated by the parties, it should still be a matter of arithmetic to calculate the amount of compensation payable by Madam Lin so as to secure Kin Ming’s benefit. Kin Ming has not explained why its interests under the Agreement cannot be secured if it should allow Madam Lin to develop the re-granted lot. 77.Regarding the difference between lot A4 and the re-granted lot, Mr Fung further referred to Xiamen KM’s role in choosing and demarcating the re-granted lot. He submitted that if the re-granted lot should appear different from the original grant, that was just evidence of Kin Ming’s breach of the Agreement. The difference should not exculpate Kin Ming from its breach. 78.I agree with Mr Fung on these submissions. I do not think Madam Lin should be barred from arguing the oral part or the extended meaning of lot A4 in the Agreement on the grounds of inconsistency or uncertainty. I do not think Kin Ming has demonstrated that the differences in value of the lots and in the economics or commercial realities for the different developments can justify a conclusion that the parties cannot continue to develop the re-granted lot in accordance with the terms of the Agreement together with terms necessarily implied. Madam Lin should be allowed to continue to argue her case of oral part and an extended meaning of lot A4 despite Kin Ming’s assertions that there are too many questions to be resolved. I think Madam Lin can argue that there is in the Agreement a workable framework for co-operation on the development of the re-granted lot. Scandalous, Frivolous and Vexatious 79.Kin Ming repeated its argument of commercial reality for this ground. It also referred to my judgment in HCA 2350 and said that I have implied in the judgment that Kin Ming could redevelop the re-granted lot. However, I was only summarizing the evidence of Mr Hsu rather than expressing my own view. My declarations clearly do not support such argument. 80.Kin Ming also argued that the oral part alleged by Madam Lin reinforced the argument that her allegations are frivolous. It submitted that clause 8 of the Agreement required such matters to be evidenced in writing. However, I have already held that it is at least arguable that clause 8 is not an entire agreement clause. This argument does not help Kin Ming. 81.Kin Ming also said that this action is vexatious and oppressive as Kin Ming is already developing the re-granted lot with a company listed in the Shanghai Stock Exchange. But Mr Fung has rightly pointed out that Kin Ming in co-operating with this other partner might have breached the Agreement. The possible breach cannot be a ground for striking out this action. Prejudice, Embarrass and Delay Fair Trial 82.For this ground, Kin Ming repeated its submissions made under the grounds of inconsistency and uncertainty. It further submitted that with these problems in existence, it could not fairly be expected to be able to defend itself. I suppose Kin Ming is saying that it is unable to defend itself. It further said that since there was no agreement on the many uncertainties, it was impossible to quantify what duties and obligations the parties had undertaken so as to ascertain the consequences of any breach. 83.I have already dealt with the complaints on inconsistency and uncertainty. I do not think Kin Ming has presented any concrete case of difficulty in defending this action so as to justify a striking out. 84.Kin Ming has a further argument of embarrassment in defending this action. It referred to the fiduciary and/or contractual duties pleaded by Madam Lin. Madam Lin pleaded the terms of the Agreement, the oral part, the extended meaning of lot A4 and her payment to Kin Ming of the total sum of RMB130 million. By reason of these matters, she further pleaded that Kin Ming owed her fiduciary and/or contractual duties which included the following:
85.Mr Neoh submitted that there was no pleaded factual basis for inferring a fiduciary duty in a commercial contractual relationship, nor can it be said that a fiduciary duty can fairly arise from the facts pleaded. 86.On Madam Lin’s application to amend to add that Kin Ming was and is her agent or partner by virtue of the Agreement and hence owes her the said fiduciary and/or contractual duties, Mr Neoh argued that the Agreement was an arms length commercial contract wherein the parties’ rights and responsibilities were defined. Kin Ming had not undertaken in the Agreement to act for Madam Lin and the Agreement was not for the joint pursuit of profit. Therefore, Kin Ming said there could not be any agency or partnership. I am also referred to Bowstead On Agency and the Partnership Ordinance for the definitions of agents and partners. 87.Mr Fung however referred to Snell’s Equity. Paras 7-07, 7-08 and 7-11 of the 31st edition of Snell say:
88.Madam Lin also relies on various obligations of Kin Ming in the Agreement to justifythat Kin Ming was and is her agent or partner. But I think the most important argument is that Madam Lin has agreed under the Agreement to pay Kin Ming RMB495 million in return for the development rights as defined in the Agreement. She will have to bear all the risks and be entitled to all the profits of the development to the exclusion of Kin Ming. Nevertheless, the project in the meantime would be held in the name of Xiamen KM until the final stage when the land certificate would be transferred to her. Under clause 5 of the Agreement, Kin Ming had to be responsible for this project and to unconditionally co-ordinate with her in its development and construction. Kin Ming did not assume these duties gratuitously but did so for good consideration. Her entire rights in the project from time to time are in the hands of Kin Ming until the transfer of the land certificate. In the light of all these, it is certainly open to her to argue that the circumstances in which Kin Ming has undertaken to act for her have given rise to a relationship of trust and confidence. Hence, it is arguable that Kin Ming owes her the fiduciary duties as pleaded. Abuse of Process 89.Kin Ming’s grounds of abuse by Madam Lin are that she had sued Kin Ming for the same subject matter in the Mainland courts and that she did not take issue with the default judgment in HCA 2350. 90.Regarding the Mainland proceedings, they were disposed of for lack of jurisdiction. The Mainland courts did not find it necessary to go into the merits of Madam Lin’s claim at all. This action is the first time that the merits of her claim will be scrutinized. I therefore do not think that Madam Lin is trying to re-litigate decided issues. The merits of her claim have not been decided so far. Kin Ming also repeated the point that she only alleged the oral part in this action. I do not think it would have made any difference even if she should have alleged the oral part in the Mainland proceedings. I do not think Kin Ming has been prejudiced because she had not done so in the Mainland proceedings. 91.Regarding HCA 2350, Madam Lin did not take part in it and is not disputing the declarations therein. She is claiming in this action the revival of the Agreement which was expressly preserved in those declarations. She is therefore suing pursuant to the declarations. I see no reason for her to apply to set aside the default judgment. Even if she should have wanted to ventilate the oral part, that would still not be a ground to apply to set aside the default judgment as the oral part does not impinge upon the declarations at all. 92.I do not think the principle of res judicata is applicable here. In the premises, I do not find this action an abuse of process. RESTRICTED PROCEEDINGS ORDERS 93.Since I have disagreed with Kin Ming on its grounds for striking out, I would dismiss this application. There is therefore no basis for making any restricted proceedings order. AMENDMENT 94.Regarding the amendments, the claim of agency appears to be a reasonable one and Madam Lin should be allowed to argue it. The claim of partnership may appear a bit slender. But I do not think I should shut out Madam Lin from arguing it at this early stage. I would therefore allow the amendments sought by her. 95.Madam Lin also seeks to add by way of amendment the duties of Kin Ming not to obtain any profit in circumstances of conflict of duties or by using its fiduciary position. I also allow these amendments. 96.There are also some proposed amendments which are for filling in more details on the development of the re-grant and the consequences of breach. I also allow them. DECISION 97.For the above reasons, I dismiss Kin Ming’s application to strike out. I also make an order nisi that Kin Ming do pay Madam Lin the costs of the application. 98.I also grant leave to Madam Lin to amend the Statement of Claim herein in terms of her summons filed on 2 June 2008. I also direct her to amend the date of the 2006 Grant in paragraph 17 of the Statement of Claim by correcting it to 15 September 2006. I also make an order nisi that Madam Lin do pay Kin Ming the costs of and occasioned by her application to amend save and except the costs of the argument of this application which should be paid by Kin Ming to her.
Mr Patrick Fung, SC and Ms Frances Lok, instructed by Messrs Jesse H Y Kwok & Co., for the Plaintiff Mr Anthony Neoh, SC leading Ms Barbara Wong and Mr Antonio Da Roza, instructed by Messrs Simon Si & Co., for the Defendant |
Cases cited in this judgment
Further hearings and rulings under HCA 216/2008