DCCJ5614/2006

DCCJ 5614/2006 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 5614 OF 2008 ------------------------ BETWEEN SHAHDAN LIMITED Plaintiff AND RICH LIFE INTERNATIONAL LIMITED (by original claim) Defendant AND RICH LIFE INTERNATIONAL LIMITED Plaintiff AND HENDERSON REAL ESTATE AGENCY LIMITED 1st Defendant SHAHDAN LIMITED 2nd Defendant SYLVIA CHIU CHUNG WAI MAN (by counterclaim) 3rd Defendant ------------------------ Coram: Deputy District Judge Raymond Tsui in Chambers (open to the public) Date of Hearing: 26th March 2009 and 3rd April 2009 Date of Handing Down Judgment: 8th July 2009 ------------------------ JUDGMENT ------------------------ This is an appeal brought by Rich Life International Limited ("Rich Life"), the Plaintiff (by Counterclaim), against the decision of Registrar Poon who, by an order dated 12th January 2009, ordered that the Counterclaim of Rich Life against the 1st Defendant (by Counterclaim) be struck out. The History It is necessary to look at the chequered history of the present case to better understand the issues in dispute. Shahdan Limited ("Shahdan") is the Plaintiff by Original Action and Rich Life is the Defendant by Original Action. Shahdan is the registered owner of the license area known as all those Kiosks Nos. 1 and 2 (the "Licence Area") immediately beside Shop No D, Knutsford Steps ("Shop D") of Miramar Shopping Centre, No. 132 Nathan Road and Kimberly Road, Kowloon, Hong Kong. Pursuant to a licence agreement (the "Licence Agreement") between Shahdan and Rich Life dated 8th June 2005, Rich Life was licensed to use the Licence Area as an outdoor seating area in connection with the business of Rich Life in Shop D. The Original Action is brought by Shahdan against Rich Life for arrears of licence fees, management fees and promotion contribution in the total sum of HK$206,352.40. By a summons dated and filed on 28th December 2006, Shahdan applied for summary judgment against Rich Life for the said sum of HK$206,352.40. The said sum was amended by another summons dated 18th April 2007 to HK$464,292.20. The Statement of Claim was correspondingly amended on the same day. On 17th January 2008, the application came before Master Lo who allowed the application and gave judgement in the sum of HK$514,383.29 after taking into account of some continuing losses. Rich Life appealed against the decision of Master Lo and the appeal was heard by HH Judge Chan who allowed the appeal on 11th April 2008 and granted leave to Rich Life to defend. Shahdan appealed to the Court of Appeal. By a judgement handed down on 9th December 2008, the Court of Appeal dismissed the appeal of Shahdan. The judgement of HH Judge Chan's has helpfully set out some of the background facts of the case. I shall respectfully quote the following from HH Judge Chan's judgement: "1. [Shahdan], a subsidiary in the Henderson Group of companies, promoted a development in Kowloon known as Knutsford Terrace and Knutsford Steps ("Development"). It was promoted as a unique dining and entertainment hub in Tsimshatsui, with specialty restaurants and verandah and terrace space for open air dining. 2. By an Offer Letter signed by [Rich Life] on 29 October 2004, and countersigned for and on behalf of Shahdan on 12 November 2004, Shahdan agreed to lease Shop D of the development to Rich Life, for use as a deluxe ice cream shop. Under the Offer Letter, Shahdan also agreed to grant a licence to Rich Life for Rich Life to use 2 kiosks immediately beside Shop D as an outdoor seating area in connection with Rich Life's business conducted in Shop D. Pursuant to the Offer Letter, the parties entered into a Tenancy Agreement on 8 June 2005 in respect of Shop D at the agreed rental of $100,000 per month. They also entered into a Licence Agreement on the same day in respect of the 2 kiosks, at the monthly licence fee of $50,000. … 4. In opposition to Shahdan's application for summary judgement, Rich Life originally claimed that prior to its signing of the Tenancy Agreement for Shop D and its signing of the Licence Agreement for the kiosks, Shahdan had made fraudulent misrepresentations to Rich Life, to the effect that Shahdan had made an application to the Buildings Department for approval of alteration and addition works to the Development, and that such application was being processed. 5. Rich Life claimed that it was only in December 2006 that it was discovered that no plans had been submitted by Shahdan for "the change of use" of the kiosks as seating areas, and that the kiosks were not shown in the approved building plans submitted for the Development. According to Rich Life, it was informed by the Buildings Department by notice dated 27 March 2007 that the staircase located behind Shop D and on which the kiosks were erected was an illegal structure and had to be removed. Rich Life claimed that as the Tenancy Agreement and the Licence Agreement were entered into in reliance on Shahdan's misrepresentations, it was entitled to rescind the Licence Agreement which it did when it ceased use of the kiosks in August 2006. A draft defence along these lines was exhibited to an affirmation of Mr Tong which was filed in opposition to the application for summary judgement. A counterclaim was included to seek damages sustained by Rich Life as a result of the alleged misrepresentations. … 12. The Offer Letter referred to the premises to be leased to Rich Life as 'No D, Knutsford Steps (more particularly shown on the floor plan attached … and … colored pink for identification purpose) of the Miramar Shopping Center registered at the Land Registry as Kowloon Inland Lot No. 6454 at Nathan Road, Tsimshatsui, Kowloon'. It also referred separately to an outdoor seating area of 172 sq.ft. known as kiosk No. 1, and an outdoor seating area of 107 sq ft. known as kiosk No. 2, and Shahdan agreed to grant and Rich Life agreed to take up a licence of these kiosks, which were colored orange on an attached floor plan. The term of the licence for the kiosks was to commence one month after the date of issuance of either a Frozen Confection Factory Licence or Frozen confection/Milk Permit for Shop D. 13. It is not in dispute that Rich Life's ice cream shop opened for business at Shop D on 5 January 2005, after a Frozen Confections Permit was obtained in December 2004. It is also not disputed that Rich Life took possession of the 2 kiosks in March 2005, and that pursuant to the Offer Letter, the Tenancy Agreement for Shop D and Licence Agreement for the kiosks were signed by the parties on 8 June 2005." It should be noted that the defence of misrepresentation was dismissed by both Master Lo and HH Judge Chan. Relying, among other reasons, on the express terms of the Offer Letter, both Master Lo and HH Chan found that the allegation of misrepresentation incredible. HH Judge Chan comprehensively dealt with this defence in her judgement: "27. It may be that there is no implied term in the Licence Agreement that the area to be used by Rich Life is free of any unauthorized structure, and on the evidence adduced, I consider that the claims of misrepresentation made by Rich Life are incredible and do not support any defence. On the express terms of the Offer Letter, Shahdan does not warrant that [Shop D] are fit to be used for the purpose of a deluxe ice cream shop, or any particular purpose, or that the kiosks are fit for any particular purpose or use proposed by Shahdan. Rich Life also agreed, under the terms of the Offer Letter, to be solely responsible for applying for all necessary licences or approval required by any competent authority for the use of the kiosks as an outdoor seating accommodation, and to comply with the regulations and ordinances for using the kiosks as an outdoor seating area… … 30. On the question of the alleged misrepresentations, as raised in the affirmations made by Mr Tong, I do not regard them to be credible for the following reasons. First, although it is claimed that the representation made by Ms Chung (on behalf of Shahdan) in about November 2004 was that an application had been made by Shahdan to the Buildings Department for approval in relation to the alteration and additional works to Knutsford Steps which would give rise to Shop D and the kiosks, the terms of the Rider inserted by Rich Life in the Offer Letter referred only to the requirement that Shahdan should obtain an acknowledgement letter from the Buildings Department with regard to the approval of alteration and additional works for Shop D only, and not to the kiosks. The Rider expressly provides for the remedies to Rich Life should such acknowledgement not be obtained by 31 January 2005, such remedies being Rich Life's right to terminate the Tenancy Agreement without compensation, and the right to a refund of the deposits paid under the Tenancy Agreement. These terms expressly contradict the representations allegedly made by Shahdan. 31. Second, the alleged representations were all made after the date of the Offer Letter, and could not have induced the Offer Letter as alleged by Rich Life. 32. Third, by 4 February 2005, Rich Life already knew that the kiosks might be illegal structures because they were unable to obtain insurance on that ground, as its solicitors so advised Shahdan's solicitors. Nevertheless, under legal advice, Rich Life finally executed the Licence Agreement on 8 June 2005. Even if there were any misrepresentation, as alleged, it is quite clear that Rich Life did not rely upon the representation allegedly made by Shahdan. 33. As I have already observed in the course of the hearing, the parties to whom the alleged misrepresentations were made did not even make affirmations to verify the alleged representations made to them. This casts doubts on the assertions made by Rich Life." HH Judge Chan allowed the appeal on the ground of illegality. There are two aspects of this ground of illegality. The first one is that there was no legal subject matter which could be licensed by Shahdan to Rich Life as when the Offer was signed on 29th October 2004, the two kiosks were not yet in existence. In rejecting this argument, HH Judge Chan said at paragraph 14 of the judgement: "14. … The term of the Licence Agreement is expressed only to commence one month after the date of issuance of the Frozen Confection Factory Licence or the Frozen Confections Permit for Shop D, and such term in fact only commenced on 1 April 2005, after physical possession of the 2 kiosks had been delivered to Rich Life in March 2005. In the draft Defence exhibited to the affirmation of Mr Tong, Rich Life itself pleads that possession of the kiosks were handed over to Rich Life 'in or about end of March 2005'. The claim made in these proceedings is for licence fees outstanding and unpaid from August 2006. Rich Life does not dispute that it was in occupation of the kiosks until August 2006 when it claimed to have ceased use of the kiosks. The claim that the Offer Letter and/or the Licence Agreement is illegal on the ground of there being no subject matter cannot be established even on Rich Life's own evidence." The second aspect of the illegality argument is that the two kiosks were unauthorized structures under the Buildings Ordinance. HH Judge Chan observed that as gathered from a memo from the Buildings Department, it appeared that both Shop D and the two kiosks were located in and on unauthorized building work. Apparently it was on this basis that the application for the light refreshment restaurant licence for the business to be conducted in Shop D was refused. HH Judge Chan was of the view that Shahdan needed to plead the use of the kiosks which were unauthorized building works to support its claim for the licence fees. It was thus arguable that, as a matter of public policy, the court should not enforce the Licence Agreement. HH Judge Chan was not satisfied that there was sufficient evidence of all the circumstances before the court. As such, she ruled that the court should not determine the question of illegality raised. Leave to defend was thus granted to Rich Life. To complete the picture, an Amended Defence and Counterclaim was filed by Rich Life on 10th July 2008. The Counterclaim was amended whereby Henderson Real Estate Agency Limited ("Henderson") was named as the 1st Defendant by Counterclaim, Shahdan as the 2nd Defendant by Counterclaim and Chung Wai Man Sylvia ("Ms Chung") as the 3rd Defendant by Counterclaim. Ms Chung was an employee of Miramar Hotel and Investment Company Limited, which is within the Henderson Group of companies. She was alleged to have make the misrepresentations to the representatives of Rich Life. A Reply and Defence to Counterclaim was filed by Shahdan, Henderson and Ms Chung on 27th August 2008. A summons to strike out the Counterclaim under Order 18 Rule 19 of the Rules of District Court was taken out by Henderson on the same day and, as mentioned at the beginning of this judgement, was allowed by Registrar Poon on 12th January 2009 and hence this appeal. The Law Although the summons of Henderson seeks to rely on three grounds to strike out the Counterclaim of Rich Life, the submission of Mr Wong, counsel for Henderson, does not rely on the ground of disclosing no reasonable cause of action. Thus the grounds being relied on are that the Counterclaim is an abuse of process of the court or is frivolous or vexatious. It is trite law that the court would only strike out the pleadings in plain and obvious case and there should not be any mini trial on affidavits. In the event of dispute of facts, the version put forward by the respondent is to be adopted for the purpose of the application. Abuse of Process Mr Wong submitted that the three causes of action, namely, misrepresentation, deceit and breach of contract, pleaded by Rich Life were advanced on the same basis of misrepresentations allegedly made by Ms Chung who was the agent of Shahdan and Henderson. Mr Wong submitted that those misrepresentations were in substance the same as those raised by Rich Life at the hearing before Master Lo and HH Judge Chan which were conclusively found to be incredible and gave rise to no triable issue. As a result, the Counterclaim should be struck out. Mr Lai, counsel for Rich Life, countered that the issues before the court at the summary judgment hearings were different from those before me now. It is thus necessary for me to determine whether the issues decided at the summary judgement application were the same as those before me. Newly Raised Issues Mr Lai submitted that the following issues (the "Newly Raised Issues") were newly raised and were not or could not have been dealt with or adjudged in the summary judgement proceedings: (a) the kiosks were non-existent physically at the date of the Offer Letter; (b) Rich Life was induced to accept the Offer Letter because of the assurances: (i) that Shahdan and Henderson intended to build and create a new chic, European style upmarket dining hub to be known as Knutsford Steps; (ii) that Shahdan and Henderson would apply and did apply to the government for building approval of the building works; (c) the misrepresentations were first made in August 2004 before the Offer Letter was accepted; (d) the true history and effect of the Rider; (e) damages for misrepresentations and breach of contract; (f) Shahdan as successor in title. Mr Lai also submitted that the facts relating to the misrepresentations had a history spanning over almost one year. Every separate allegation of misrepresentation required a distinct finding of fact after all the evidence had been heard and assessed by the court. I pause to note that even though the misrepresentations had a history of spanning over one year, the court would only deal with the misrepresentations as pleaded. Pleadings are used to define the issues between the parties. To achieve that end, all the material facts must be pleaded. In a case where misrepresentations are the basis of the cause of action, each and every misrepresentation upon which Rich Life intends to rely must be pleaded. The court would deal with the pleaded case accordingly. Non-existence of the Two Kiosks This submission is incorrect because in paragraph 4(7) of the Draft Defence and Counterclaim exhibited to the Supplemental Affirmation of Mr Tong Hon Wah Harold, it is pleaded that: "In the course of the negotiations, the Defendant was given to understand that the Plaintiff intended to carry out alteration and addition works ("the Building works") to Knutsford Steps which would give rise to the Premises and the License Area." (my italics) In my view, it must be implicit in the phrase "give rise to" that the kiosks (i.e. the License Area as defined in the Statement of Claim) did not exist and would come into existence after the alteration and addition works. Thus, the non-existence of the kiosks is not a newly raised issue. The issue of non-existence of the two kiosks was dealt with by HH Judge Chan in the context of whether there was any defence to the claim of Shahdan for licence fees since August 2006 when there was no dispute that Rich Life was in occupation of the two kiosks until August 2006. It was in this context that it was ruled that the non-existence of the two kiosks at the time of the Offer Letter was not a defence to the claim of Shahdan. The present context is different as the existence of the two kiosks is, if my understanding of Rich Life's case is correct, part of the misrepresentation. I, however, do not think this is a misrepresentation as it is pleaded in paragraph 20 of the Amended Defence and Counterclaim that the two directors of Rich Life had been informed that "Miramar Hotel would build, amongst other things a new shop and two kiosks on the open flight of steps (to be reinvented as 'The Knutsford Steps') by the side of the Miramar arcade for the purpose of letting to an up-market design label ice-cream house." Although when this piece of information was conveyed is not clearly pleaded, it could be gathered from the Amended Defence and Counterclaim that it must have taken place before the signing of the Offer Letter. Rich life, therefore, on its pleaded case, knew of the non-existence of the two kiosks before the Offer Letter was signed. The Assurances Mr Lai submitted that the assurances were newly raised issues. The first assurance relates to the creation of an upmarket dining hub. I do not agree that this assurance is a newly raised issue although it is not pleaded in the Draft Defence and Counterclaim. In paragraphs 4 and 5 of the first affirmation of Tong Hon Wah Harold of Rich Life filed on 18th January 2007, it is stated that at a meeting between the representatives of Shahdan and Rich Life in late August 2004, the representatives of Shahdan represented that Shahdan "had designed and presented a concept of creating a mid-to-up market an exclusive venue for European fine dining, specialty restaurants and bars". Thus, the first assurance had been raised as a representation. HH Judge Chan referred to "a unique and entertaining hub" and "special restaurants" in paragraph 1 of the judgement. The fact that the assurance is not pleaded in the Draft Defence and Counterclaim does not mean that it has not been raised or dealt with, particularly in a summary judgment application where defence is yet to be filed and the application could always be determined upon affidavit evidence. However, I do not find in the Amended Defence and Counterclaim any plea embodying the 1st assurance set out in paragraph 15(b)(i) above. The closest I could find are the following pleas: (a) "… [Ms Chung] orally informed Pang and Or that Miramar Hotel would build, amongst other things a new shop and two kiosks on the open flight of steps (to be reinvented as 'The Knutsford Steps') by the side of the Miramar arcade for the purpose of letting to an up-market design label ice-cream house …" (para. 20) (b) "In a second follow-up meeting about one week later [Ms Chung] gave [Rich Life] floor plans, design perspective plans and colourful pamphlets with very high power text extolling the superior air of European culture in the project …" (para. 21) (c) "… The Defendants' [by Counterclaim] representation of creating an up-market European style fashionable retail hub on the Knutsford Steps also did not materialize …" (para. 35) (d) "Further or alternatively it was an express or alternatively implied term of contract that the premises and the licensed area would be lawful estates and part of a new, up-market, European style fine dining place to be created by the Defendants [by Counterclaim] which would be plied with quality customers …" (para. 37) This plea bears some resemblance to the 1st assurance. But this is pleaded as a term of the contract not as a representation. I am not satisfied that the Amended Defence and Counterclaim contains a plea embodying the 1st assurance contended. The second assurance set out in paragraph 15(b)(ii) above relates to the application to government for approval for building work. In paragraphs 4(7), (8), (10), (12) and (13) of the Draft Defence and Counterclaim, it is pleaded that: "(7) In the course of the negotiations, the Defendant was given to understand that the Plaintiff intended to carry out alteration and addition works ("the Building works") to Knutsford Steps which would give rise to the Premises and the License Area. (8) The Building works were proposed, designed and to be carried out by [Shahdan] which would be responsible for obtaining all necessary approvals from government authorities including the Buildings Department. (10) In or about November 2004, Miss Chung represented to Mr Pang Man Ho ('Mr Pang'), director of [Rich Life], and Miss Or Yi Tung ('Mss Or'), Managing Director of [Rich Life] that an application for Buildings Department approval in relation to the Building Works had been made to and was being processed by the Buildings Department ('the 1st Representation'). Miss Chung even anticipated that necessary approval would be obtained prior to 31st January 2005. [Rich Life] was led into a reasonable expectation that necessary approval was likely to be obtained. (12) In or about December 2004, [Rich Life] successfully obtained a Frozen Confections Permit from the FEHD. The ice-cream shop named "Da Dolce" formally opened for business on 5th January 2005. (13) By that time, [Shahdan] however indicated that possession of the License Area was still unable to be delivered. When [Rich Life] requested Mr Chan Fun Kei …, the representative of [Shahdan], for documents from the Buildings Department showing the necessary approval had been granted in relation to the Building works, Mr Chan represented that the approval application was still being processed which would normally take quite some time ("the 2nd representation")." Again, the second assurance, which is termed as the 1st Representation, has been raised in the Draft Defence and Counterclaim and is not a newly raised issue. There may be an ambiguity as to when the representation referred to in the above quoted paragraph 4(10) was made. Paragraphs 5 and 6 of the judgement of Master Lo clarify that counsel for Rich Life advocated that "in about November" covered 29th October 2004 (the date on which Rich Life signed the Offer Letter). This was accepted by Master Lo. In any event, these are the matters taken by HH Judge Chan to be the "fraudulent misrepresentations" made to Rich Life (see paragraph 4 of HH Judge Chan's judgement). Time when the Representations were made Mr Lai submitted that in the Draft Defence and Counterclaim, it was incorrectly pleaded that the representations were made after the Offer Letter had been signed when in fact the representations were first made in August 2004. I pause to note that paragraph 25 of the Amended Defence and Counterclaim pleads that the relationship between the parties was actually governed by the Offer Letter but not the subsequent Licence Agreement and the Tenancy Agreement. If that is the position of Rich Life, all representations made after the Offer Letter would be irrelevant. That would include the 2nd representation pleaded in paragraph 4(13) in the Draft Defence and Counterclaim and the representations pleaded in paragraphs 26-32 of the Amended Defence and Counterclaim. In any event, HH Judge Chan dealt with the representations after the signing of the Offer Letter in paragraph 32 of the judgement quoted in paragraph 6 above. I respectfully agree and adopt the reasoning. I would add that I find the contention that the Offer Letter instead of the Licence Agreement or the Tenancy Agreement was the document governing the relationship between the parties unconvincing. In fact, I do not think Mr Lai had put forward any argument in support of this contention at all. For a start, this argument was not raised at all at the stage of the summary judgement application where the claim of Shahdan was entirely based on the Licence Agreement. Further, both the Licence Agreement and the Tenancy Agreement contain an "entire agreement clause". Without expressing any view on the effects of the "entire agreement clause", I would have thought that any sensible argument would be advocating the Licence Agreement and the Tenancy Agreement as the governing documents but not the other way round. It is quite clear that the timing of the misrepresentations is only one of the reasons why the defence of misrepresentations was not accepted by HH Judge Chan. There are other equally, if not more, compelling reasons in rejecting misrepresentations as a defence. To that extent, the timing of the representations dose not change any aspect of the case. If necessary, I shall respectfully adopt the reasoning of HH Judge Chan in rejecting the defence of misrepresentation. History and effect of the Rider In paragraph 24 of the Amended Defence and Counterclaim, the history of the Rider is explained. Rich Life proposed in the rider that if food licence was not granted by the government through no fault of Rich Life, Rich Life could terminate the tenancy. This was rejected by Shahdan who put forward its version of the rider whereby if Shahdan failed to obtain acknowledgement from the Buildings Department on or before 31st January 2005, Rich Life could terminate the tenancy agreement. It is further pleaded that Ms Chung persuaded the representative of Rich Life that the two versions were more or less the same as it was expected that the government confirmation would be obtained before the January 2005 deadline. Also pleaded in paragraph 24 of the Amended Defence and Counterclaim is the fact that the representative of Rich Life was led to believe that the pending application also covered the two kiosks as it was repeatedly emphasised by Ms Chung that the tenancy of Shop D and the kiosks were not severable. These appear to be matters not raised in the summary judgement application. But it is more apparent than real. In my view, what is important is what Rich Life understood the representations meant. Otherwise, a party could always amend his pleading by adding some more facts to make it appear to be different from the pre-amendment version. It is pleaded in paragraph 25 of the Amended Defence and Counterclaim that Rich Life "understood the representations aforesaid mean that Henderson would submit and had in fact submitted design and building plans for modification of land use to the government for approval, and permission to commence buildings works was only a pending formality." But such an understanding has actually been pleaded in paragraph 4(10) of the Draft Defence and Counterclaim in which it is stated that Rich Life "was led into a reasonable expectation that necessary approval was likely to be obtained." There is nothing new in this issue. Damages for Misrepresentations and Breach of Contract Mr Lai submitted that the two assurances and the damages for misrepresentations or breach of contract were not raised in the draft Defence and Counterclaim at the stage of the summary judgment application and escaped the attention of the court. Damages for misrepresentations or breach of contract would only be considered after liability has been established. So far, all proceedings are related to the issue of liability. I do not see how they affect or are relevant to the application before the court. Successor in Title Mr Lai suggested that Shahdan was a successor in title of Henderson. Nothing pleaded in the Counterclaim of Rich Life says anything about how Shahdan became the successor in title of Henderson. Mr Lai explained that Rich Life entered into various agreements only because of Henderson, which was a well-known company compared with Shahdan which was an unknown company. In other words, they had faith in Henderson and was attracted to the idea as put forward. They thus invested heavily in the enterprise. When later Rich Life was required to enter into the formal Licence Agreement and Tenancy Agreement, it then realized that Shahdan was the contracting party. Mr Lai argued that Shahdan became the successor in title because Shahdan took the benefits of the Licence Agreement and the Tenancy Agreement by receiving the licence fees and rents under the Licence Agreement and the Tenancy Agreement. No authorities were cited in support of this submission. I think the fact that Shahdan received the benefits was, at best, merely a result of being a successor in title not the legal process whereby it became the successor in title. It is also pleaded in paragraph 17 of the Amended Defence and Counterclaim that Shahdan had adopted the tort of Henderson and Ms Chung. There is no explanation as to how the adoption came about. As employer of Ms Chung, Henderson could be vicariously liable for the tortious act of Ms Chung if the same was committed in the course of her employment. I do not see how the fact of Shahdan being a successor in title would be relevant to the liability of Henderson. Certainly, no authorities were cited in support. I could not accept this contention. In my view, this argument simply could not be right. If Shahdan, as Rich Life subsequently realized and as submitted by Mr Lai, was the contracting party, how could Shahdan be the successor in title of Henderson who had never been the contracting party? Assuming for a moment that Henderson was the contracting party, without a proper assignment of the Licence Agreement and the Tenancy Agreement (or the Offer Letter which, according to Rich Life, is the governing document) from Henderson to Shahdan, Shahdan could not become the successor in title. If Shahdan had somehow become the successor in title of Henderson by, as submitted by Mr Lai, taking the benefits of the various agreements, should Shahdan not also have assumed the liabilities under those agreements so that Henderson would be now out of the picture? In any event, I am satisfied, from the discussion below relating to the agency principle, that Shahdan had all along been the contracting party to the Offer Letter, Tenancy Agreement and the Licence Agreement and that Henderson signed all these documents as agent of Shahdan and did not assume any personal liabilities. To sum up from the discussion above, I do not agree with Mr Lai's submission that Rich Life has in substance raised new matters by way of the Amended Defence and Counterclaim. The Newly Raised Issues are irrelevant or have been raised before in the summary judgement application. I am satisfied that there are no real or practical differences between the matters raised in the summary judgement application and the Amended Defence and Counterclaim. If Rich Life wants to challenge the ruling on misrepresentations, it should do so by filing a cross appeal against HH Judge Chan's judgement. Issue Estoppel Mr Wong submitted that the doctrine of issue estoppel applied to the present case so that it would be an abuse of process for Rich Life to re-litigate the same issues that had been determined by Master Lo and HH Judge Chan. In the present case, Rich Life raised the issue of misrepresentation as one of the defences to the claim of Shahdan. The defence was dismissed by Master Lo and HH Judge Chan as being incredible in the summary judgement application. Since the Counterclaim of Rich Life is entirely based on misrepresentation, if Rich Life is precluded from raising this issue, it would effectively mean that there would not be any cause of action that could be maintained against Henderson by way of Counterclaim. As I have held earlier in this judgement that some of the Newly Raised Issues have been raised before or are not pleaded or are irrelevant, prima facie, the principle of res judicata applies. If I am wrong, I have to determine whether the wider principle of res judicata applies in the sense that those Newly Raised Issues should have been raised at the summary judgement application. Mr Wong suggested that the doctrine of issue estoppel would operate in subsequent proceedings in the same suit and thus parties to the same proceedings were bound by the conclusive findings made by the court in the earlier interlocutory applications. In support of this submission, Fidelitas Shipping Co Ltd v Exportchelb [1966] 1 QB 630, 642B-F was cited in which Lord Diplock commented as follows: "In the case of litigation the fact that a suit may involve a number of different issues is recognised by the Rules of the Supreme Court which contain provision enabling one or more questions (whether of fact or law) in an action to be tried before others. Where the issue separately determined is not decisive of the suit, the judgement upon that issue is an interlocutory judgement and the suit continues. Yet I take it to be too clear to need citation that the parties to the suit are bound by the determination of the issue. They cannot subsequently in the same suit advance argument or adduce further evidence directed to showing that the issue was wrongly determined. Their only remedy is by way of appeal from the interlocutory judgement and, where appropriate, an application to the appellate court to adduce further evidence … [Issue estoppel] operates in subsequent suits between the same parties in which the same issue arises. A fortiori it operates in any subsequent proceedings in the same suit in which the issue has been determined." I do not think there is any dispute on this general principle. What is disputed by the parties is whether the general principle is applicable to the present case. Mr Wong cited Wong Wang Sum v Lee Kam Engineering Co (a firm) & Anor [1996] 3 HKC 627 in which Cheung J reviewed at p. 630-631 various cases on estoppel: "The authorities in this area is well established. In Stephenson v Garnett [1898] 1 QB 677A-L, Smith LJ held that: It would be an abuse of process of the court to allow a suitor to litigate over again the same question which has been decided against him. Though the court ought to be slow to strike out a statement of claim or defence, and to dismiss an action as frivolous and vexatious, yet it ought to do when, as here, it has been shown that the identical question sought to be raised has been already decided by competent court. In Carl Zeiss Stiftung v Rayner & Keeler Ltd (No.3) [1970] Ch 506, Buckley J held that: To make good a claim of estoppel per rem judicatam, the party asserting the estoppel must establish: 1. that there has already been a judicial decision by a competent court or tribunal; 2. of a final character; 3. of the same question as that sought to be put in issue in respect of which the estoppel is claimed; 4. between the same parties or their privies, as the parties between whom the question is sought to be put in issue. At 537, Buckley J held that: More subtle consideration may, however, arise where the case is not one of cause of action estoppel but of 'issue estoppel', as in the present case. If the circumstances are such that one party is barred by issue estoppel from raising an issue which he nevertheless seeks to raise two courses are open to his opponent: he can plead the estoppel and leave the matter to be dealt with at the trial or, as in the present case, he can attempt to have the offending plea struck out of the pleadings. If he adopted the latter course the court has, in my judgement, as I have indicated a discretion to strike out the plea or not. In Yat Tung Investment Co Ltd v Dao Heng Bank Ltd and Arnold v Nat West Bank plc [1973-1976] HKC 194, [1975] AC 581, the Privy Council, following Henderson v Henderson (1843) 3 Hare 100 held that: But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which would and therefore should have been litigated in earlier proceedings. In Arnold v Nat West Bank plc [1991] 2 AC 93, Lord Keith of Kinkel commented on the distinction between cause of action estoppel and issue estoppel. At 104, he stated that: 1. Cause of action estoppel arises where the cause of action in the later proceedings is identical to that in the earlier proceedings, the latter having been between the same parties or privies and having involved the same subject matter. In such a case, the bar is absolute in relation to all points decided unless fraud or collusion is alleged, such as to justify setting aside the earlier judgement. The discovery of new factual matter which could not have been found out by reasonable diligence for use in the earlier proceedings does not … permit the latter to be reopened. 2. The cause of action estoppel extends also to points which might have been but were not raised and decided in the earlier proceedings for the purpose of establishing or negativing the existence of a cause of action. (Henderson v Henderson (1843) 3 Hare 100). 3. Issue estoppel may arise where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant, one of the parties seeks to reopen that issue. 4. Issue estoppel too has been extended to cover not only the issue where a particular point has been raised and specifically determined in the earlier proceedings, but also that where in the subsequent proceedings it is sought to raise a point which might have been but was not raised in the earlier." It was held in Ngai Few Fung v Cheung Kwai Heung (CACV No. 147 of 2007, 7th December 2008) that the true basis of Henderson or Yat Tung principle is based on abuse of process. Cheung JA went on to comment that: "22. …it is not permissible to adopt a mechanistic approach by simply saying that since the cause of action or defence could have been raised in an earlier proceedings then it should have been so raised so that the subsequent raising of those issues in the later proceedings will necessarily become abusive." Ultimately, therefore, the court would have to decide whether the Counterclaim of Rich Life is an abuse of process. The onus is on Henderson. Mr Lai cited the case Bradford & Bingley Building Society v Seddon Hancock [1999] 1 WLR 1482 for the proposition that for issue estoppel, there may be special circumstances that allowed relaxation of the rule that special circumstances were required and that the court should be cautious to avoid restrictive rules barring people from access to courts. I think the following passage at p. 1494D-F best sums up the approach to be taken by the court: "I do not consider the references in the Henderson rule and in a various modern authorities to the need for a 'special' case or circumstances to justify litigating a matter that should have been litigated on an earlier occasion an obstacle to my interpretation of the law relating to abuse of process as distinct from res judicata. To do so, it seems to me, would undermine the basis of the court's jurisdiction as it has developed, namely, to look for some element additional to mere 're-litigation, to avoid restrictive rules and to be cautious before barring people from access to the courts --- in short, … to determine on the facts of the case whether the proceedings before the court are an abuse of process." This approach accords with the approach suggested by Cheung JA in Ngai Few Fung. I shall discuss below whether the Counterclaim of Rich Life is an abuse of process when the alternative argument raised by Mr Wong is explored. The Alternative Argument There is no dispute that the principle of issue estoppel only applies to the same parties or their privies. Henderson is not a party to the judgements of Master Lo and HH Judge Chan. But is Henderson a privy to Shahdan? In China North Industries Investment Limited v Ronald RC Chum & Ors (CACV No. 321/2006), the issue of "privy" was discussed by the Court of Appeal. Stock JA explained as follows: "81. … The required commonality is a direct interest in the subject matter of the litigation, a parallel or corresponding interest in that subject matter and not simply a financial interest in the result of the action: Genesee Enterprises Ltd v Abou-Rached, so that: 'Privies include any person who succeeds to the rights or liabilities of the party upon death or insolvency, or who is otherwise identified in estate or interest. It is essential the party to be estopped by privity must have some kind on interest, legal or beneficial, in the previous litigation or its subject matter. Privity was described by the US Supreme Court as a mutual or successive relationship to the same right of property, although this cannot be exhaustive.' Spencer Bower, Turner and Handley Res Judicata" On the basis of the pleaded case of Rich Life, Henderson, as principal, must have a direct interest in the subject matter of the present action or whatever is decided in the summary judgement application. Henderson is a privy and the principle of issue estoppel applies. Mr Wong argued that even if the principle of issue estoppel did not apply, he could still rely on an alternative argument, namely, the court in the exercise of its inherent power to prevent an abuse of its process may occlude an attempt to re-litigate a decided issue in the earlier proceedings even though the issue in question was not decided between the same parties. It would thus appear that both the application of the principle of issue estoppel and the alternative argument suggested by Mr Wong depend on a finding of an abuse of process. In support of this principle, Mr Wong cited the judgement of Lord Diplock in Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 541B-C: "The abuse of process which the instant case exemplifies is the initiation of proceedings in a court of justice for the purpose of mounting a collateral attack upon a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made." This principle was recognised by Stock JA in China North Industries Investment Limited who commented at paragraph 50 that: "[t]he assertion that the Hong Kong proceedings constitute an abuse of process is founded on an extension to the res judicata doctrine, an extension that recognizes where the doctrine does not strictly apply there may nonetheless be circumstances in which a collateral challenge to a previous decision offends the principle underlying the doctrine." His Lordship further stated in the judgement: "52. The source of the remedy by which a court will, in an appropriate case, occlude an attempt to re-litigate a decided issue, even though not between the same parties, is its inherent power to prevent an abuse of its process, an inherent power: '… which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people. The circumstances in which abuse of process can arise are very varied; … It would … be most unwise if this House were to use this occasion to say anything that might be taken as limiting to fixed categories the kinds of circumstances in which the court has a duty (I disavow the word discretion) to exercise this salutary power.' per Lord Diplock in Hunter v Chief Constable of the West Midlands Police and Others." Insofar as the parties to the two actions were not the same, Stock JA was of the view that the same principle applied. His Lordship derived support from the judgment of Lord Hoffman in Arthur JS Hall & Co v Simons [2002] 1 AC 615 from which the following passage was quoted: "The law discourages relitigation of the same issues except by means of an appeal. The Latin maxims often quoted are nemo debet bis vexari pro una et eadem causa and interest rei publica ut finis sit litium. They are usually mentioned in tandem but it is important to notice that the policies they state are not quite the same. The first is concerned with the interests of the defendant: a person should not be troubled twice for the same reason. This policy has generated the rules which prevent relitigation when the parties are the same: autrefois acquit, res judicata and issue estoppel. The second policy is wider: it is concerned with the interests of the state. There is a general public interest in the same issue not being litigated over again. The second policy can be used to justify the extension of the rules of issue estoppel to cases in which the parties are not the same but the circumstances are such as to bring the case within the spirit of the rules." It must be recognized that not all collateral challenge is an abuse of process. In the situation where the parties to the later proceedings were not the same parties or privies of those who were parties to the earlier proceedings, a collateral attack would only be an abuse of process if either manifest unfairness or the bringing of justice into disrepute is shown. Moreover, as pointed out by Stock JA, not all re-litigation constituted a collateral attack. The following passage from Johnson v Gore Wood & Co [2002] 2 AC 1 was cited: "… Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same manner. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interest of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to an abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgement which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could or should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result, may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances." (Emphasis added by Stock JA) His Lordship concluded at paragraph 61 of the judgement that the court would look at all the circumstances to determine whether a collateral attack was manifestly unfair or an affront to the administration of justice in the minds of right-thinking people. Coming back to the present case, the explanations of Rich Life on its failure to raise the issues are set out in a letter dated 3rd October 2008 from the present solicitors for Rich Life to the solicitors for Shahdan (p.379-381 of the Bundle). In short, the inadequacies of the evidence of Rich Life at the stage of the summary judgement application are admitted and the previous legal team is blamed for giving wrong legal advice. Mr Lai further explained from the Bar table that Rich Life did not want to have any adverse cost order by filing further affidavit evidence at a late stage of the summary judgement appeal before HH Judge Chan. Where do these explanations lead to? In China North Industries Investment Limited, the court had to determine whether raising of an issue in subsequent proceedings after some newly discovered evidence would be caught by the principle of estoppel, Stock JA observed as follows: "68. The basis upon which the discovery of new material might, in cases of estoppel, avail a plaintiff, and the circumstances in which it will not, are these: 'If the party can show that at the time of the former proceedings he was excusably ignorant of some matter, which would have altered the whole aspect of the case, he is entitled to claim that no issue estoppel shall take effect against him. The estoppel however stands if there was no newly discovered fact, if it was newly discovered only in the sense that the party realised its importance, if the party had actual knowledge of the fact or might with reasonable diligence have acquired such knowledge, or if it was not sufficiently material.' Spencer Bower, Turner and Handley "Res Judicata 69. The same principle must apply, so it seems to me, to cases of extended res judicata …" Was Rich Life excusably ignorant? It could be gathered that the true difference between the case put forward at the summary judgement application and the Newly Raised Issues is one of degree but not one of kind in the sense that more detailed accounts of the events are now put forward. But the substance is the same. It is not a case where new evidence or new documents were discovered that triggered a new approach to the proceedings. The "new" facts covered by the Newly Raised Issues were within the knowledge of the staff of Rich Life. I would thus answer this question in the negative. Alternatively, those facts were newly discovered only in the sense that the importance of those facts was subsequently realized by the new legal team. In any event, I do not think that the Newly Raised Issues "would have altered the whole aspect of the case". The explanation contained in the said letter from the previous solicitors of Rich Life dated 3rd October 2008 is simply unconvincing and inadequate. Mr Lai argued that Rich Life should not be regarded as abusing the legal process as it acted according to the legal advice of the lawyers. I am sceptical of this argument because otherwise all legally represented litigants would be immune from the doctrine of estoppel whereas the unrepresented litigants could not enjoy this advantage. Taken to the extreme, a party could avoid the doctrine of estoppel by changing his legal team at different stages of the proceedings. Nor is the blame put on the previous team of lawyers entirely correct as Mr Lai who appeared before me today also appeared before HH Judge Chan in the summary judgement application appeal hearing. Rich Life was the appellant when the appeal was heard by HH Judge Chan. One would have thought that Rich Life would have put all relevant matters in the appeal in order to succeed in the appeal. When the summary judgement application appeal was heard by HH Judge Chan, the counterclaim based on the misrepresentations had already been put into the Draft Defence and Counterclaim. The significance of this is that Rich Life, being legally represented, must know that since both its defence and counterclaim depended on the same misrepresentations, failure to defend the summary judgement application would basically mean the end of the counterclaim as well. In these circumstances, it is crucial to the case of Rich Life that all material facts must be put before HH Judge Chan. Mr Lai's explanation from the Bar table that Rich Life was prepared to take the risk and decided not to file further affirmation to put forward the whole case for the appeal would, if accepted as evidence, even render Rich Life's position less tenable. For it would then be an informed and considered choice on the part of Rich Life. Finality of litigation requires that a party should not put forward his case by instalments. If Rich Life made an informed choice of not putting forward the whole case, it must be prepared to face the results of its decision which might not be the same it hoped for. Furthermore, if Rich Life were to impeach the ruling on misrepresentations against it so as to preserve the Counterclaim based on the same set of facts, the impeachment must be done by way of cross appeal against the decision of HH Judge Chan and by putting forward the Newly Raised Issues although it must be doubtful that it could satisfy the stringent tests in Ladd v Marshall. Thus it is even more important that all the relevant facts should have been put forward before HH Judge Chan when leave to file further evidence would usually be more readily granted. Allowing Rich Life to raise the misrepresentations in the Counterclaim would be tantamount to allowing it to attack the judgement of HH Judge Chan and the Court of Appeal through the back door. Another disadvantage of allowing Rich Life to continue with the Counterclaim is that there would be the possibility of conflicting judgements on the issue of misrepresentations which would bring the administration of justice into disrepute. Furthermore, as noted by Stock JA in paragraph 73 of the judgement, a re-run of the case meant that judicial time and resources would be engaged; "a fact that should sit ill with the right-minded observer in the absence of good reason for the proposed exercise". The same could be said in our case. I am, therefore, satisfied that the raising of the misrepresentations in the Counterclaim would bring the administration of justice to disrepute. It would also be manifestly unfair to Henderson who, as far as the contractual claim of Rich Life is concerned, was only an agent in the transactions between Shahdan and Rich Life. As to the tortious claim of Rich Life, Henderson should not be forced to be a party to the present action when the alleged misrepresentations are, based on the discussion in this judgement, plainly unarguable. The estoppel, therefore, stands against Rich Life even though Henderson is not a party to the summary judgement application. Moreover, as a result of the discussion above, I rule that the Counterclaim is an abuse of process and the principle of issue estoppel applies to the Newly Raised Issues. Estoppel Applicable to Interlocutory Application There was argument whether the doctrine of res judicata could be applied to a determination of a summary judgement application. Mr Lai submitted that there was no decided case on the scope of effect of a summary judgement for the purpose of the application of the principle of res judicata. Mr Lai also cited the case Kung Wong Sau Hin v Sze To Chun Keung (HCMP No. 1990 of 1614, para. 17) for the general proposition that issue estoppel did not arise unless the question which had been decided was the same and was final in the sense of being final and conclusive on the merits and the cause of action must be extinguished by the decision which is said to create the estoppel. Kwan J said in Re Chime Corp Ltd (No.2) [2003] 2 HKLRD 945, 953E-F: "An issue estoppel arises in the situation where a party is precluded from contending the contrary of any precise point which, having once been distinctly put in issue, has been solemnly and with certainty determined against him. The other conditions are the same as in a cause of action estoppel, regarding the identity of parties and the finality of the judicial decision said to create the estoppel (see Halsbury's Laws of England (4th ed.) Vol. 16, para. 977)." One of the arguments before Her Ladyship was whether a judgement on an interlocutory application can be final and conclusive for the purpose of res judicata. Her Ladyship further said at p. 945, 954E-F: "For my part, I do not think there is any conflict in the authorities. I do not find it particularly helpful to categorise the determination as interlocutory or procedural. Whether the determination on an interlocutory application is capable of giving rise to issue estoppel would depend on the nature and substance of the ruling." As a matter of general principle, I do not think there is any conflict between the propositions of law in Kung Wong Sau Hin and Re Chime Corp Ltd (No.2). The "nature and substance of the ruling" emphasized in Re Chime Corp Ltd (No.2) is another façade of the requirement that the decision must be "final and conclusive on the merits" required in Kung Wong Sau Hin. Another case cited by Mr Lai is Gridway v Knitters Ltd v Tak Lak Hong Ltd [1989] 1 HKLR 363 for the proposition that very considerable care must be taken when applying issue estoppel to interlocutory judgement. Gridway is a case on dishonoured cheque. It was held that where the goods of the underlying contract had not been rejected, the unsatisfactory quality of the goods was not a defence to action based on dishonoured cheque. The only issue before the court was whether the defendant was liable on the dishonoured cheque. The issue of the quality of the goods had not been considered by the court at all. The defendant was thus not estopped from raising the issue of the quality of the goods in a subsequent action. The words used by Hunter JA at p. 370A are "… the basic application of issue estoppel is to final judgements and not to interlocutory judgements, and therefore it has to be applied to the judgements with very considerable care". (italics added) It would appear from the words in italics that Hunter JA did not rule out the application of the principle of issue estoppel to interlocutory application. His Lordship only cautioned that considerable care must be exercised in applying issue estoppel to interlocutory judgments. Mr Lai also sought to rely on Carl Zeiss Stiftung v Rayner & Keeler Ltd (No.2) [1967] AC 853. Lord Reid comments on the practical difficulty of issue estoppel at p. 917: "The difficulty which I see about issue estoppel is a practical one. Suppose the first case is one of trifling importance but it involves for one party proof of facts which would be expensive and troublesome; and that party can see the possibility that the same point may arise if his opponent later raises a much more important claim. What is he to do? The second case may never be brought. Must he go to great trouble and expense to forestall a possible plea of issue estoppel if the second case is brought? This does not arise in cause of action estoppel: if the cause of action is important, he will incur the expense: if it is not, he will take the chance of winning on some other point. It seems to me that there is a room for a good deal more thought before we settle the limits of issue estoppel. But I have no doubt that issue estoppel does exist in the law of England. And, if it does, it would apply in the present case, if the earlier judgement had been a final judgement of an English court." This same sentiment was echoed by Lord Upjohn at p. 947B-E where His Lordship suggested that the court should bear in mind the reasons behind the failure of raising the issue in the earlier proceedings as an overriding consideration. Lord Wilberforce observes at p. 965D that "[t]he fact the task of the court in the subsequent proceeding must include that of satisfying itself that the party against whom the estoppel is set up did actually raise the critical issue, or possibly, though I do not think that this point has yet been decided, that he had a fair opportunity, or that he ought, to have raised it." If my reading of Carl Zeiss Stiftung is correct, Their Lordships did not rule against application of the doctrine to interlocutory judgement. Kwan J's decision in Re Chime Corp Ltd (No.2) is in fact a direct authority in favour of such an application. Thus, in my view, where the nature and substance of the earlier ruling, which may be interlocutory, are the same as those of the subject matter of the subsequent proceedings, the doctrine would apply. In order to determine whether the issues raised are the same, the court would first have to compare the factual basis of the earlier ruling and that of the subject matter in the subsequent proceedings. Where there is no real or practical difference, the doctrine would prima facie apply, subject to the discretion of the court after taking into account of all the circumstances as in Ngai Few Fung where the court refused to apply the doctrine of estoppel. In the present case, I do not, as noted, find any real or practical difference between the factual basis between the earlier ruling and the subject matter of the present application. Mr Lai emphasized that the nature of a summary judgement application and that of a striking out application were very different. He argued that a finding of no triable issue in misrepresentation for the purpose of resisting summary judgement on the Shahdan's claim for arrears of licence fees was different from dismissing a Rich Life's claim of misrepresentation for want of merit, the reasons being that the earlier decision could only be "final" in relation to arrears of licence fees as the Counterclaim was not pleaded and that the Counterclaim had not been considered fully with viva voce evidence. The argument that the earlier decision could only be final in respect of the arrears of licence fees could not stand. What is important is not whether the issue was raised as a defence or as a cause of action but whether it was raised at all for the court's consideration and determination. It is clear that HH Judge Chan had considered the issue of misrepresentation as a defence in the summary judgement application. Mr Lai suggested that Master Lo and HH Judge Chan failed to consider the background facts of the case when construing the express clauses of the Offer Letter and the Licence Agreement. I do not know which express clauses were being referred to. In the Draft Defence and Counterclaim, the only clauses pleaded is Clauses 5(9)(a) to the Fourth Schedule and 3(c) of the Eighth Schedule of the Tenancy Agreement, which relate to the deposit paid and are not relevant to the issue under consideration. With regard to Amended Defence and Counterclaim, no express clause is pleaded. This argument is a non-starter. I am thus satisfied that the Counterclaim of Rich Life should be struck out on the ground of abuse of process. Vexatious Claim Mr Wong further argued that the Counterclaim should be struck out for being a vexatious claim. Paragraph 18/19/8 of Hong Kong Civil Procedure 2009 Vol 1 sets out the general principle relating to this ground of striking out a pleading as follows: "The object of the rule is to stop cases which ought not to be launched --- cases which are obviously frivolous or vexatious, or obviously unsustainable … The expression 'frivolous or vexatious' includes proceedings which are an abuse of process … A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed. A proceeding is vexatious when it is oppressive and/or lacks bona fides …" Mr Lai suggested that the object of Order 18 was to stop cases which ought not to have been launched and which were obviously frivolous or vexatious, or obviously unsustainable. This ground of striking out encompasses the situation where the proceedings are an abuse of process. Thus, on the basis of my earlier ruling that the Counterclaim is an abuse of process, I am of the view that the Counterclaim should also be struck out on this ground. Mr Wong further submitted that there was no viable claim for breach of contract against Henderson. It should be noted that all documents, including the Offer Letter, the Licence Agreement and the Tenancy Agreement, between Shahdan and Rich Life were signed by Henderson. In all those documents, the capacity of Henderson was qualified as an agent of Shahdan by the phrase "for and on behalf of" or "as agent". Mr Wong pointed out the general rule as stated in paragraph 9-001, Bowstead on Agency, 8th edn is that "[i]n the absence of other indications, when an agent makes a contract, purporting to act solely on behalf of a disclosed principal, whether identified or unidentified, he is not liable to the third party on it. Nor can he sue the third party on it." It is observed in paragraph 9-036 that: "The question whether the agent is to be deemed to have contracted personally, in the case of a contract in writing other than a deed, a bill of exchange, promissory note or cheque, depends upon the intention of the parties, as appearing from the terms of the written agreement as a whole, the construction of which is a matter of law." It is further observed in paragraph 9-037 that: "(c) But if the agent adds words to his signature, indicating that he signs as agent, or for or on behalf or on account of a principal, he is deemed not to have contracted personally, unless it is plain from other portions of the document that, notwithstanding such qualified signature, he intended to bind himself. This is so even though he does not name his principal. But this proposition should be read subject to Article 102(2) regarding the liability of agents under trade custom." There are two matters that are note-worthy from the above quoted passages from Bowstead on Agency, namely, whether there is any trade custom regarding liability of an agent and whether, as a matter of construction of the documents, the parties intend the agent to contract personally. In our case, no trade custom was suggested. Thus, the caveat at the end of the quoted paragraph from Bowstead on Agency does not apply. Furthermore, I could not find any clauses in all those documents that show that Henderson intended to contract personally. In fact Mr Lai agreed that there were no such clauses in the relevant documents. He submitted that the circumstances of the present case were such that Henderson had contracted personally. It is clear from the above quoted passage that I should only look at the document to see whether there exists an intention that the agent also contracts personally. Even if I were to look at all the circumstances of the case, Mr Lai did not suggest what those circumstances were that would manifest such an intention. In the absence of clauses or circumstances showing an intention that Henderson was to contract personally, it is clear that Shahdan was the principal and Henderson was no more than an agent. To overcome this difficulty, Rich Life, I believe, introduced the idea of Shahdan being the successor in title. I have dealt with this idea above. Mr Wong suggested in his submission that Mr Lai had conceded at the hearing before Registrar Poon that Henderson signed as an agent of Shahdan and did not assume any liability. The actual words used by Mr Lai as recorded in the transcripts are: "Yes, as a basic agency principal (sic) I agree, yes." It appears to me that the concession made by Mr Lai is nothing more than an acceptance of the general principle that an agent does not assume personal liability. I would not treat the acceptance as a concession of Rich Life that Henderson is not liable. Mr Wong submitted that Rich Life had failed to plead the express terms which Shahdan or Henderson was alleged to have breached. That must be right. The Amended Defence and Counterclaim is to a very large extent devoted to the circumstances relating to the making of the representations. There is no express averment that the representations had been incorporated into any of the written agreements between Rich Life, Shahdan and Henderson. Without such averment, the representations remain nothing more than representations. Mr Wong also complained about two aspects of the alleged implied terms. The first complaint is that the factual basis upon which the terms were to be implied is not pleaded. To this end, I should refer to paragraph 18/12/16 of Hong Kong Civil Procedure 2009 in which it is commented that "[w]here an implied contractual term is pleaded, particulars should be given of the material facts upon which the basis of which the implied term is said to arise." The case Willy Fine Limited v Janyet Investments Limited (HCA 4430/2001, 6th January 2003) is cited in support. In Willy Fine Limited, there was an application for amendment to introduce a plea of implied term and a new cause of action in breach of the implied term. Chu J commented as follows: "21. The present proposed amendment is however objectionable in that it contains no particulars of or material facts upon which the implied term is said to rise. It is in fact unclear from the proposed amendment whether the term is implied by business efficacy or operation of law or otherwise. In Wharf Properties Limited & Anor v Eric Cumine Associates Architects Engineers & Surveyors (a firm) [1989] 1 HKLR 556, 565E, the Court of Appeal, referring to Bruce v Odham Press Limited [1936] 1 All ER 287, 294, pointed out that a complete cause of action is only pleaded where there is a statement in a summary form of the material facts upon which the party pleading relies for his claim…" In the present case, I do not agree that Rich Life has failed to plead the material facts giving rise to the implied term. The very comprehensive description of the whole process of negotiations serves the purpose of giving the factual background against which the implied term arises. The absence of any averment stating whether the term is implied by business efficacy or operation of law or otherwise is not fatal. Such an averment is an inference or a result to be drawn from the facts pleaded. I reject this argument of Mr Wong. The second complaint of Mr Wong is that the implied term is contradictory to the express terms. The implied term as pleaded in paragraph 37 of the Amended Defence and Counterclaim is as follows: "…that the premises and the licensed area would be lawful estates and part of a new, up-market, European style fine dining place to be created by the Defendants which would be plied with quality customers…" Mr Wong submitted that the implied term is contrary to Clause 19 of the Offer Letter. I agree. The relevant part of Clause 19 reads as follows: "[Shahdan], however, will not guarantee or warrant that the License Area fit for any particular purpose or use proposed by [Rich Life]. [Rich Life] shall satisfy itself on such condition and shall be solely responsible for applying all necessary license or approval required by Food and Environmental Hygiene Department or any other competent authorities for the use of the License Area as an outdoor seating accommodation. Rich Life shall also comply with the regulations and ordinances as set out by the relevant government authorities in respect of using the License Area as an outdoor seating area and shall fully indemnify for any loss, claim and/or damage that may be suffered by [Shahdan] arising out of or resulting from the use of the License Area by [Rich Life]." Clauses 6, 8.1, 18.4 and 23.4 of the Licence Agreement are provisions with wording similar to that used in Clause 19 of the Offer Letter. They are as follows: "6. USER The License Area shall only be used as an outdoor seating area in connection with the Business of [Rich Life] in [Shop D] PROVIDED THAT [Shahdan] shall not guarantee or warrant that License Area is fit for any particular purpose or use proposed by [Rich Life] and [Rich Life] shall satisfy itself on such condition and shall be solely responsible for applying all necessary license or approval required by Food and Environmental Hygiene Department or any other competent authorities for the use of the License Area as an outdoor seating accommodation. [Rich Life] shall also comply with the regulations and ordinances as set out by the relevant government authorities in respect of using the License Area as an outdoor seating area and shall fully indemnify for any loss, claim and/or damage that may be suffered by [Shahdan] arising out of or resulting from the use of the License Area by [Rich Life]. 8.1 [Rich Life] shall be answerable and responsible for the consequences of any breach of any ordinances regulations bye-laws, rules and requirements of any Governmental or other competent authority or the management company of the building in respect of the use of the License Area and indemnify [Shahdan] against any damage, loss, fine or any other consequences caused by any such breach or contravention. 18.4 In the event that any Government or Public Authorities require that the License Area be removed or demolished or that the License Area be terminated pursuant to the direction of any Government or Public Authorities, this license shall be determined and in all circumstances neither [Shahdan] or [Rich Life] could claim against the other for loss, damage or compensation in any form whatsoever EXCEPT for any antecedent rights or claim accrued prior to the date of termination. 23.4 [Rich Life] shall have the right to use the area under Kiosk No. 1 ('the Storage Area') for the use if storage ('the Storage Right') of its belongings, tables, seats and furniture during the term of tenancy. [Rich Life] shall comply with the regulations and ordinances as set out by the relevant government authorities in respect of using the Storage Area and shall fully indemnify for any loss, claim and/or damage that may be suffered by [Shahdan] arising out of or resulting from the use of the Storage Area by Rich Life. In the event the License of Kiosk No. 1 and Kiosk No. 2 and/or the tenancy of [Shop D] be terminated for whatsoever reasons, [Rich Life] understands and agrees that the Storage Right shall be ceased and terminated forthwith …" It seems that Clause 6 is in the clearest possible term that Shahdan would not guarantee that the License Area (i.e. the two kiosks) was fit for any particular purpose or use. It is clear that the implied term pleaded in the Amended Defence and Counterclaim is contrary to the express term of the Offer Letter and the Licence Agreement. Any claim based on the implied term could not be sustained. Mr Lai suggested that in determining whether the misrepresentations were inconsistent with the express terms, the court should consider all relevant contract clauses. He argued that the "pre-condition" that the kiosks must be taken with Shop D and the two stand or fall together should be taken into account. The "pre-condition" being referred to is contained in one of the paragraphs of Clause 19 of the Offer Letter which provides that: "…The formal license agreement should be signed at the same time and simultaneously with the formal Tenancy Agreement. Should [Rich Life] fail to sign the formal license agreement for whatsoever reason and/or fail to take up the license of the License Area in accordance with the provisions of this clause, [Rich Life] shall be deemed to have acted in breach of this Offer Letter and upon such event all the deposits paid by [Rich Life] under this Offer Letter shall be wholly forfeited to [Shahdan] …" Mr Lai, however, did not elaborate as to how this "pre-condition" affected the construction of the Rider so that the misrepresentations would not be inconsistent with the Rider. I do not see how the "pre-condition" could alter the clear terms of the Rider which only cover Shop D but not the kiosks. Mr Lai argued that the court could only construe a document in the light of the circumstances surrounding its making when all relevant facts are before the court. In the absence of all the relevant circumstances, as in the present case, the court should not embark on the exercise of construing the documents. He cited Ng Chun Kong v First Star Development Ltd [2007] 3 HKLRD 281 in support. The case Ng Chun Kong was an application under Order 14A or alternatively Order 18 rule 19. The issue to be determined was whether there was, by way of business efficacy, an implied term that the retainer between the plaintiff and the defendant would not be terminated by the defendant so as to deprive the plaintiff of the opportunity of earning its fees. The agreement in question was not formally drawn up but consisted of four brief letters. Knowledge of the surrounding circumstances was thus necessary. It is obvious that our case is not about whether there could be the implied term, or the precise ambit thereof, as pleaded in the Amended Defence and Counterclaim so that the court has to look at the surrounding circumstances in order to properly construe the documents to determine whether the implied term could arise. The issue in the present application is whether there could be the implied term as pleaded when it is contrary to the express terms. To that extent, Ng Chun Kong is not relevant. In reply, Mr Lai argued that Rich Life's case on contract was one of collateral contract. He submitted that the contract was first between Henderson and Rich Life with Shahdan subsequently stepping in as a successor in title to Henderson. There being no pleas on the considerations of this collateral contract, I have no idea how this could amount to a collateral contract and I really do not find any difference between this collateral contract and the contract as expressed in the Offer Letter. Anyhow, in terms of pleadings, a collateral contract is not different from any other contract. The parties, the considerations and the terms thereof must be pleaded. Rescission based on Misrepresentation Besides contractual claim based on breach of any express or implied terms discussed above, there is one more aspect to the contractual claim, namely, whether the claim for rescission based on misrepresentation is open to Rich Life. There are at least two conditions to be satisfied before the claim for rescission against Henderson could be maintained. The first condition is that Henderson must be a party to the Offer Letter, the Tenancy Agreement and the Licence Agreement. I have already ruled that Henderson is not a party to these contracts. It is sufficient to dispose of the claim for rescission against Henderson based on misrepresentation. The second condition is that those representations were made. This is a question of fact. The general principle requires the court to take the case of Rich Life to the highest. Mr Wong submitted that the principle of res judicata applied as a result of the judgements of Master Lo and HH Judge Chan. I accept this submission as discussed above. The following factors, and the cumulative effects thereof, were put forward by Mr Wong in support of his contention that the Counterclaim should be struck out on the ground of being vexatious and unsustainable: (a) the misrepresentations on which the Counterclaim was based were ruled by Master Lo and HH Judge Chan to be flatly contradicted by the express terms of the Offer Letter and the Licence Agreement; (i) the reasoning and analysis of Master Lo and HH Judge Chan were unimpeachable; (ii) European style retail hub was provided as could be seen from the photographs; (b) since Rich Life was aware that the Licensed Area might be illegal structures, there was no reliance on the misrepresentations; (c) there were different versions, which had been confirmed on oath, of the misrepresentations allegedly made by different persons on different occasions; (d) the matters pleaded in the Counterclaim linking Henderson with the complaints of Rich Life were incomprehensible, incapable of argument and without substance. In this regard, Mr Wong drew my attention to the following: (i) the allegation of "successor in title" was incomprehensible and contradicted by documentary evidence which described Henderson as "leasing agent"; (ii) the allegation that the Offer Letter was made by Henderson when the express terms of the Offer Letter provided that Shahdan was the landlord; (iii) the plea that the relationship between the parties were governed by the Offer Letter but not the Licence Agreement was without legal or factual foundation, contrary to the express terms of the written agreements and contradicted by Mr Lai's submission that the Offer Letter was a sham; (iv) the implied term was contradicted by the express terms; (e) after Shahdan had started the present action, a Mr Pang Man Ho, who was a director of Rich Life, allegedly published some defamatory remarks to the effect that the Henderson Group was guilty of knowingly misleading Rich Life in relation to the licensing arrangements. Another action was commenced by Shahdan and Miramar Hotel & Investment Company Limited against the said Mr Pang for defamation. One of the defences relied on by Mr Pang was justification. The particulars of justification, which were set out in the defence filed on behalf of Mr Pang, basically repeated the misrepresentations allegedly made by Ms Chung on which the Counterclaim was based. In view of the inexplicable and incomprehensible pleas in the Counterclaim, Mr Wong invited the court to draw the inference the joining of Henderson as a defendant in the present action was a litigation tactic used by Rich Life to support the defence of justification advanced by Mr Pang. Sub-paragraphs (a)(i) and (b) are matters considered under the heading of abuse of process. Based on my ruling concluded in relation thereto, these two sub-paragraphs fall within the category of "frivolous" which include cases which could not possibly succeed. In my view, the Counterclaim could be struck out on this basis. As to sub-paragraph (a)(ii), I do not think I could draw any conclusion by simply looking at the photographs. As such, I could not rely on any submission in reliance on the photographs. Sub-paragraph (c) is very much a matter of credibility of the witnesses in the sense that their explanations may or may not be accepted by the court after trial. I could not conduct a mini trial on affirmation evidence. Therefore, I do not think I could strike out the Counterclaim on this basis. Sub-paragraph (d) is an attack on various pleas of the Counterclaim. However, assuming that all or some of them are to be struck out, I still have to take an overview of the pleading to see whether, without those struck out pleas, the Counterclaim should be struck out. Even if all those pleas are not supported by any legal principles, it does not necessarily follow that the Counterclaim could not possibly succeed or would become unarguable. A short answer to the submission relating to sub-paragraph (d) is that this sub-paragraph only deals with the contractual aspect of the Counterclaim. I agree that insofar as the claim of Rich Life in the Counterclaim is based on contract, the same should be struck out on this ground for the reasons discussed above. I do not, however, think that the tortious claim of Rich Life could be struck out on the basis of matters raised in sub-paragraph (d) alone. Sub-paragraph (e) in essence invites the court to draw an adverse inference against Rich Life that the Counterclaim is not bona fide as it has an ulterior motive to serve, namely, to support the defence of Mr Pang in the other defamation action. I accept that there is some force in this argument. But on the whole, I do not think it is plain and obvious that the Counterclaim could be struck out on this basis. The fact that a claim should be struck out on some grounds does not mean that it must have been brought mala fide. I could not draw that inference suggested by Mr Wong. Finally, Mr Lai suggested that as a matter of practice, the right answers to the criticisms levelled against the Counterclaim should be a request for further and better particulars but not a striking out application. I think the answer really depends on the circumstances of the case. The starting point is that the applicant in a striking out application does not have the obligation to improve the pleadings of the respondent by requesting further and better particulars if the pleadings are defective. If the pleas are actually not supported by any legal principles, I see no reason why the applicant should not make an application to strike out the pleadings. As a result of the above discussion, I have to dismiss the appeal of Rich Life. The Orders I shall make are as follows: (a) the Appeal of the Plaintiff by Counterclaim shall be dismissed; (b) there shall be a cost order nisi that costs of the appeal be to the 1st Defendant by Counterclaim with certificate for counsel, to be taxed if not agreed; (c) the cost order shall become absolute in 14 days. (Raymond Tsui) Deputy District Judge Representation: Mr. Thomas Lai instructed by Messrs S. K. Wong & Co. for the Plaintiff (by counterclaim). Mr. Anson Wong instructed by Messrs Pang & Associates for the 1st Defendant (by counterclaim).