Chow Sing Yuet Elton Trading Under the Name or Style of Elton S. Y. Chow & Associates (A Firm) v. Carry Express Investment Ltd

HCCT 18/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 18 OF 2007

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BETWEEN

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Before: Hon Saunders J in Chambers

Dates of Hearing:  9 & 22 October 2009

Date of Decision:  4 November 2009

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D E C I S I O N

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1.In these proceedings, Mr Chow, a structural engineer, and an Authorised Person, sues Carry Express for professional fees arising from a written contract made on 5 March 1991, whereby Carry Express engaged Mr Chow to perform architectural and engineering works in respect of a proposed building project in Conduit Road, Mid-Levels, Hong Kong. Those professional fees were to be determined as a percentage of the total construction costs of the project. There was also provision for a bonus payment which was to be calculated in relation to the approved gross floor area of the building exceeding a certain figure.

2.In the event, the construction of the building did not proceed. The contract contained a provision entitling Carry Express to terminate Mr Chow’s engagement by notice in writing. No such notice in writing was given to Mr Chow.

3.The case for Mr Chow is that he prepared the necessary building plans, structural plans and foundation plans for the project and obtained approval from the relevant government authorities for the development. Those plans were approved on 30 December 1997, but the work did not proceed. In November 1991, and April 1996, two sums were paid to Mr Chow, he says, in part payment of his professional fees.

4.Mr Chow says that he was not told by Carry Express that no further service under the contract would be required, until January 2006.

5.Mr Chow says that the actions of Carry Express have prevented him from earning his professional fees and payment of a bonus notwithstanding that he has performed all that was asked of him. Consequently Mr Chow sues for the balance of the professional fees that would have been payable, had the project continued to completion. He bases his claim upon an estimate of the of the total construction costs of the project, had it proceeded, and the bonus, upon the gross floor area approved by the relevant government authorities.

6.The case for Carry Express is that, at all times, Mr Chow knew that the project would not proceed, and that the contract with Mr Chow was never intended by the parties to be fully executed. The circumstances in which this contention is made are somewhat unusual.

7.Between 1988 and early 1991, Carry Express had acquired 22 units in an existing residential property known as Rockymount in Conduit Road. There were 22 other units in the development. Carry Express endeavoured to acquire the remaining units but the vendors were reluctant to sell, except at prices considered extortionate by Carry Express. Carry Express had also acquired land at the rear of Rockymount, known as the Remaining Portion Site.

8.The case for Carry Express will be that in order to encourage the remaining 22 unit holders in Rockymount to sell to Carry Express, what they describe in the proposed amended defence as “staging a play”, essentially a deception of those owners, was carried out. The deception involved a development proposal which was prepared in respect of the Remaining Portion Site with the intention of starting work, but with no intention of ever completing the project. The case for Carry Express will be that it was thought that the prospect of a new development at the rear of Rockymount would persuade the remaining unit holders in Rockymount to dispose of their properties quickly, before the development of the Remaining Portion Site, at the rear of Rockymount, was completed.

9.Carry Express says that it was in those circumstances, which it says were known to Mr Chow, that Mr Chow’s professional services were engaged.

10.The present proceedings were not issued by Mr Chow until 2007. Carry Express says that for seven years between 1998 and 2005, there was complete inactivity in respect of the project on the Remaining Portion Site, and that during that time, no demand was made by Mr Chow for fees. As the proceedings were not commenced until 2007, Carry Express raises a limitation defence.

11.The proceedings are set down for trial before me, to commence on 12 July 2010. Shortly after the issue of the writ in 2007, a defence was filed to the statement of claim. Now, having changed solicitors and counsel, Carry Express seek to amend the defence. Mr Chong for Mr Chow, objects to a substantial number of the amended paragraphs on a number of different grounds.

12.Mr Chong has made it clear that it is not his stance that Carry Express should not be allowed to amend. Instead he raises two objections. First he says that many of the proposed amendments should be disallowed as being irrelevant or inadmissible matters which in any event do not constitute a defence to the claim. Second he says that in the course of making the amendment, attempts have been made to withdraw admissions without explanation, for which no leave should be given.

13.Mr Chong has summarised the essence of the defences contained in the proposed amended defence, as he discerns them, in the following way:

(i)  the agreement, the subject of Mr Chow’s claim, was known by both parties to form part of a scheme to deceive the owners in Rockymount, and was known by both parties therefore to be a sham;

(ii)  clause 4 of the agreement, relating to payment of professional fees by stages, is too vague and uncertain to be performed;

(iii)  Mr Chow has failed to perform his duties under the agreement, and hence is not entitled payment of the professional fees;

(iv)  the parties agreed to rescind the agreement, hence Mr Chow is not entitled to payment;

(v)  consequent upon inactivity over a long period of time the agreement has been impliedly rescinded; and

(vi)  Mr Chow’s claim is time-barred or barred due to laches and delay.

I did not understand Ms Lan to take exception to that description.

14.Ms Lan did not draft the original statement of defence. That was prepared by Carry Express’s then solicitors, not their present solicitors.

15.In seeking to properly plead the case for Carry Express Ms Lan has sought to put a line right through the whole of the original defence and to completely re-draft the document. What was originally contained in 14 paragraphs over 7 pages now constitutes 77 paragraphs over 30 pages.

16.There can be no objection to approaching an amendment by completely re-drafting the document. On many occasions a statement of claim or defence has originally been so poorly drafted that it is better to adopt this method of amendment rather than to attempt to tidy up a badly drafted document. But if this course is to be followed great care must be taken to ensure that admissions made in the original defence are maintained, or an appropriate application is made to the court to withdraw the admission: see O 13A r 2(3).

17.The guiding principle has always been that pleadings must be succinct: see Bullen v Leake & Jacob’s Precedents of Pleadings §1.25. In Hong Kong the requirements are set out in O 18 rr 7-12. The pleading must be a statement in a summary form of the material facts on which the party pleading relies for his claim or defence, as the case may be but not the evidence by which those facts are to be proved, and the statement must be as brief as the nature of the case admits: see O 18 r 7.

18.It is important that the pleader, in drafting either a statement of claim or a defence, remembers that all the facts which tend to prove the facts in issue will be relevant at the trial, but they are not necessarily “material facts” for pleading purposes. It is no answer to a prolix document such as this amended defence to say that the facts pleaded are facts upon which the defendant will rely at trial.

19.The reason for the distinction is twofold, as Mr Chong pointed out. First, it is necessary for the other party to respond to a pleading. Second it is the pleadings upon which the scope of issues such as discovery are determined.

20.In an action for breach of contract the material facts constitute the contract, and the facts relating to the particular breach. It is right that, following the decision in Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896, HL, the court will, in constructing a contract, have regard to the surrounding circumstances, or the factual matrix, in which the contract was made. But it is not necessary to plead that factual matrix. The proper place for assertions as to the surrounding circumstances is in the witness statements.

21.If facts are pleaded in a statement of claim it will be necessary for the defendant to investigate those facts before determining whether or not he admits or denies those facts, and he must respond to the pleading. Where facts which are not material to the claim, but are relevant at the trial, and are contained within a witness statement, the other side may elect not to respond in any particular way to those facts. Of course, facts asserted in a witness statement may not be answered at the other parties peril, but unlike an allegation in a pleading that other party may make such an election. If facts are pleaded there must be a proper response to the pleading.

22.This case contains a prime example of that situation. It is part of the case that Carry Express, between 1988 and 1991, prior to entering into the agreement with Mr Chow, accumulated a number of apartments in Rockymount with a view to redeveloping the whole property. These are facts which will be relevant at the trial, but they are not facts which are material to the claim or to the defence. The pleadings in this respect are contained in paragraphs 2-7 of the amended defence. They do not belong in the defence.

23.Throughout the amended defence there are numerous other examples of the pleading of facts which will be relevant at trial but which are not material to the defence. If Mr Chong’s summary of the defences sought to be pleaded is correct, then the amended defence ought to plead the material facts which constitute each of those defences.

24.In the course of argument Ms Lan accepted that admissions made in paragraph 8(a) in the defence as filed, as to the approval of plans, appeared to be withdrawn in the proposed amended defence. If the withdrawal is to be persisted with, leave must be sought with a proper explanation for the withdrawal.

25.Mr Chong argued that an assertion contained in paragraph 8(a) as to a sum of $800,000 paid to Mr Chow, constituted an admission that Mr Chow was entitled to a bonus under clause 5 of the agreement. He further argued that an assertion in paragraph 8(b) of a sum was paid “being the balance of the bonus payment” also constituted an admission that Mr Chow was entitled to the bonus. The phrases referred to need to be read in their entire context in the pleading, and when done so, in my view, do not constitute an admission of entitlement to the bonus.

26.In its present form I am not prepared to give leave to file the amended defence. The summons for leave to amend the defence is adjourned sine die, to be brought on at seven days notice, when the amended defence has been redrafted. Although the trial is not due to commence until July 2010, if the defence is to be amended steps must be taken promptly.

27.Costs are reserved.

Mr K M Chong, instructed by Messrs Johnnie Yam, Jacky Lee & Co, for the Plaintiff

Ms Gekko Lan, instructed by Messrs V Hau & Chow, for the Defendant