BEACON COLLEGE LTD. v. YIU MAN HAU, ALFRED AND OTHERS

HCA4273/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4273 OF 2001

(formerly HCA2359/2001, 2529/2001 and 2532/2001)

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REASONS FOR DECISION

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1. This is the plaintiff's application by summons filed on 29 November 2002 to strike out paragraphs 18A to 18J of the Consolidated Re-Amended Defence and Counterclaim ("CRADC") of the 1st, 3rd to 5th defendants (collectively "the defendants").

2. I do not repeat the background of these proceedings. They had already been set out in previous interlocutory decisions. Suffice it to note that this is the plaintiff's second striking out application. The first application was heard on the first day of the 20 days' trial. The application was successful and two paragraphs in the Consolidated Amended Defence were ordered to be struck out.

3. Also on the first day of the trial, the defendants applied to re-amend the Consolidated Amended Defence and to add a counterclaim. The application was opposed, but leave to amend was eventually granted. Consequently, the CRADC was filed on 15 November 2002.

4. As a result of the re-amendments to the pleadings, the trial was aborted. The trial, now estimated to last 30 days, is re-scheduled to commence in September 2003.

The application

5. The plaintiff applies to strike out paragraphs 18A to 18J of the CRADC relying on all four limbs of Order 18, rule 19(1) of Rules of High Court and alternatively the inherent jurisdiction of the court. The paragraphs that are subject matter of the application form the entire bulk (except one paragraph i.e. paragraph 18K) of the re-amendment to the Consolidated Amended Defence.

6. Paragraphs 18A to 18J read as follows :

"18A.	It was an implied term and condition of the Contracts by necessary implication or by reason of business efficacy that:
	(a)	the Defendants should not be required to do or participate in an unlawful act or assist in any breach of any statutory regulations or requirements;
	(b)	the Plaintiff undertook to provide the Defendants with reasonable amount of work and/or reasonable working locations so long as the Contracts lasted;
	(c)	the Defendants should enjoy from their employments under the Contracts in addition to the remuneration an opportunity for publicity and reputation to advance their careers and reputation;
	(d)	the Plaintiff was under a duty to preserve trust and confidence that the Defendants should have in it.
18B.	In the event that the Contracts or any of them are found not to be terminable by notices or not to have been terminated by notices, the Defendants say that, in breach of the Contracts and the terms and conditions thereof:
	(a)	the Plaintiff wrongfully required the Defendants to do or participate in an unlawful act or assist in breach of statutory regulations, namely, Regulation 88(c) of the Education Regulations (Cap.279) ('the Regulations');
	(b)	the Plaintiff wrongfully failed or refused to provide the Defendants with any reasonable amounts of work and/or any reasonable working locations;
	(c)	the Plaintiff wrongfully denied or deprived the Defendants of an opportunity for publicity and reputation to advance their careers and reputation;
	(d)	the Plaintiff wrongfully failed to preserve trust and confidence that the Defendants should have in it.
		Particulars
	i.	During the continuance of the Contracts, the Plaintiff regularly and frequently enrolled, organized and arranged classes for the Defendants to teach after the commencement of the Contracts in breach of Regulation 88(c) of the Regulations in that the classes or tutorial courses taught by the Defendants exceeded 45 persons, inter alia, by means of live closed circuit television broadcast to students in other classrooms;
	ii.	When the 1st Defendant went to teach evening classes in October, 2001,
	a.	he was assigned to classes located at the Yuen Long branch only of the Plaintiff while he had previously been teaching in Tuen Mun, Yuen Long, Sheung Shui and Mongkok branches of the Plaintiff;
	b.	he was assigned to teach in the Yuen Long school where only about 8 students enrolled, while over 600 students had enrolled in his classes in the previous year;
	c.	higher fees were charged for his classes while a discount was offered to other comparable classes taught by other teachers with a view to minimizing or reducing the attraction of his classes;
	d.	by reason of the aforesaid matters, the 1st Defendant has suffered a drastic loss of income, publicity and reputation;
	iii.	When the 3rd Defendant went to teach evening classes in October, 2001,
	a.	he was assigned to classes located at the Yuen Long and Sheung Shui branches of the Plaintiff while he had previously been teaching in Tuen Mun, Yuen Long, and Mongkok branches of the Plaintiff;
	b.	he was assigned to teach in the Yuen Long and Tuen Mun branches where only 8 to 27 students enrolled, while about 230 students had enrolled in his classes in the previous year;
	c.	higher fees were charged for his classes while a discount was offered to other comparable classes taught by other teachers with a view to minimizing or reducing the attraction of his classes;
	d.	by reason of the aforesaid matters, the 3rd Defendant has suffered a drastic loss of income, publicity and reputation;
	iv.	When the 4th Defendant went to teach evening classes in October, 2001,
	a.	he was assigned to classes located at the Yuen Long branch only of the Plaintiff while he had previously been teaching in Tuen Mun, Yuen Long, and Yaumatei branches of the Plaintiff;
	b.	he was assigned to teach in the Yuen Long branch where only about 38 to 46 students enrolled, while about 400 students had enrolled in his classes in the previous year;
	c.	higher fees were charged for his classes while a discount was offered to other comparable classes taught by other teachers with a view to minimizing or reducing the attraction of his classes;
	d.	by reason of the aforesaid matters, the 4th Defendant has suffered a drastic loss of income, publicity and reputation;
	v.	When the 5th Defendant went to teach evening classes in October, 2001,
	a.	he was assigned to classes located at the Yuen Long and Sheung Shui branches of the Plaintiff while he had previously been teaching in Tuen Mun, Yuen Long, Sheung Shui and Yaumatei branches of the Plaintiff;
	b.	he was assigned to teach in the Yuen Long and Sheung Shui branches where only about 35 to 41 students enrolled, while about 350 to 420 students had enrolled in his classes in the previous year;
	c.	higher fees were charged for his classes while a discount was offered to other comparable classes taught by other teachers with a view to minimizing or reducing the attraction of his classes;
	d.	by reason of the aforesaid matters, the 5th Defendant has suffered a drastic loss of income, publicity and reputation;
	vi.	By reason of the matters aforesaid, the Defendants have lost all the trust and confidence in the Plaintiff who failed to preserve the same, wrongfully failed or refused to provide the Defendants with any reasonable amount of work and/or any reasonable working locations, and/or wrongfully denied or deprived the Defendants of an opportunity for publicity and reputation to advance their careers and reputation.
18C.	By reason of the matters aforesaid, the Plaintiff has evinced an intention no longer to be bound by the Contracts and has repudiated the same.
18D.	The 1st Defendant as he was entitled to do accepted the said repudiation by notice delivered on 14th May 2001 or alternatively by letter dated 1 November, 2001 or alternatively by his ceasing to teach for the Plaintiff at or about end of October 2001 or alternatively by the service of the Re-Amended Defence.
18E.	The 3rd Defendant as he was entitled to do accepted the said repudiation by notice delivered on 14th May 2001 or alternatively by his ceasing to teach for the Plaintiff in about March, 2002 or alternatively by the service of the Re-Amended Defence.
18F.	The 4th Defendant as he was entitled to do accepted the said repudiation by notice delivered on 14th May 2001 or alternatively by his ceasing to teach for the Plaintiff in late January, 2002 or alternatively by the service of the Re-Amended Defence.
18G.	The 5th Defendant as he was entitled to do accepted the said repudiation by notice delivered on 14th May 2001 or alternatively by his ceasing to teach for the Plaintiff in late January, 2002 or alternatively by the service of the Re-Amended Defence.
18H.	Further or alternatively, the matters pleaded hereinabove constituted constructive dismissal of the Defendants by the Plaintiff.
18I.	Further or alternatively, the matters pleaded hereinabove constituted ill-treatment to which the Defendants were subjected by the Plaintiff within the meaning of section 10(b) of the Employment Ordinance (Cap.57) and entitled the Defendants to terminate without notice or payment in lieu of notice which they did as pleaded in paragraphs 18E to 18G above.
18J.	By reason of the matters aforesaid, the Contracts have been terminated and have ceased to be effective or binding on the Defendants and the Defendants have suffered loss and damages."

7. Broadly speaking, the grounds for the application can be summarized as follows :

(1) No material facts giving rise to the second and third implied terms have been pleaded : paragraph 18A(b) and (c) of CRADC;

(2) The breaches pleaded in particulars (ii) to (vi) of paragraph 18B and the repudiation pleaded in paragraph 18C are based on events that occurred after the issue of the writs. They therefore cannot constitute defence to the plaintiff's claim in breach of contract : paragraphs 18B(ii) to (vi) and 18C of CRADC;

(3) The notice served by the defendants on 14 May 2001 cannot constitute notice of acceptance of the post-writ repudiation : paragraphs 18D to 18G of CRADC;

(4) The alleged breaches, if proved, only amount to breach of warranty and do not entitle the defendants to treat the contracts as repudiated : paragraphs 18A to 18G of CRADC;

(5) The defendants had elected to affirm the contracts and/or waived the alleged breaches.

8. The primary ground on which the defendants oppose the application is that the application amounts to an abuse of process and should be rejected. Alternatively, the defendants argue that the matters complained of do not warrant a striking out order.

Abuse of process

9. Mr Lin for the defendants argues that, as a matter of principle, it is an abuse of process to re-litigate a matter that has already been determined by the court. It is said that the bulk of the plaintiff's present complaints and submissions had been raised or, alternatively, could have been raised at the application for leave to re-amend. Given this and the fact that leave to amend had been granted, the plaintiff should not be permitted to re-open the merits of the defence case through a striking out application.

10. Miss Wong for the plaintiff meets this objection on three fronts. Firstly, it is said that the striking out application and the amendment application are two different applications. Secondly, the granting of leave to amend does not preclude a subsequent striking out application. Thirdly, if the pleading is demonstrably bad, then the court's discretion cannot be fettered and the pleading should be struck out notwithstanding that it was initially introduced with leave of the court.

11. In my judgment, it is not unheard of for interlocutory applications to be renewed : see, for example, Order 24, rule 17 Rules of High Court and Order 32, rule 8 Rules of District Court. Ultimately, it is a matter of judicial discretion. Whether the applications are identical in terms of the statutory provisions relied upon or the relief sought is not definitive of the matter. What is important is whether the substance of the applications or the issues involved are essentially the same. If they are, then the subsequent application should not be entertained, unless :

(1) there is material change of circumstances; or

(2) the grounds or evidence relied upon for the subsequent application are matters that could not reasonably be expected to be adduced at the earlier application : Chanel Ltd v. Woolworth & Co. Ltd [1981] 1 WLR 485, 492H-493A and Habib Bank AG Zurich v. Mindi Investments Ltd 131 SJ 1455, at p.5 of the transcript.

12. In the present case, the summons to re-amend was issued one working day before the trial was due to start on a Monday. On the intimation that the re-amendments may be relevant to the striking out application, the two applications were heard together on the first day of the trial. It is fair to say that the plaintiff and its legal representatives had only been afforded very little time and opportunity to assess and deal with the defendants' application and also the proposed re-amendments. It is also fair to say that the issues involved in the implied terms introduced by the proposed re-amendments are not as straightforward as they appear to be on first blush. This is particularly so bearing in mind the very voluminous affirmations and witness statements that were introduced in the months shortly before the trial.

13. Nevertheless, the plaintiff had made a decision to oppose the amendments. It is true that the plaintiff could have applied for time to consider the amendments. But one must not overlooked the fact that the concern and focus at that stage was to try not to lose the entire 20 days allotted for the trial. The choice of seeking an adjournment of the application was in no way an appealing option having regard to the implications on costs and time as well as the defendants' known financial position. I note too that the plaintiff had indicated throughout the possibility and intention of an application to strike out the re-amendments.

14. It is also relevant to note that when the amendment application was made, the evidential or factual basis of the implied terms had not been identified in any details. The position then taken by Mr Lin was that no new facts need to be introduced since all the necessary facts were already in either the affirmations or witness statements filed. Since then, the defendants had, pursuant to my direction, filed a list of the evidence relied upon for the re-amendments. The defence case on the implied terms has to some extent been elucidated by the list of evidence.

15. Having regard to these matters, I do not consider that this is a case where the plaintiff's striking out application ought to be dismissed outright as amounting to an abuse of process. I also do not consider that the application ought not to be entertained as a matter of discretion. It would, at the least, be an incorrect exercise of the discretion to refuse the application if the pleading does merit striking out or rectification.

16. I turn now to deal with the merits of the application.

Lack of material facts : paragraph 18A(b) and (c)

17. It transpires from Mr Lin's submissions that the 1st and 4th implied terms (i.e. paragraph 18A(a) and (d)) are said to be implied by law whereas the 2nd and 3rd implied terms (i.e. paragraph 18A(b) and (c)) are implied by necessary implication or by business efficacy.

18. To the extent that the 1st and 4th implied terms arise by implication of law, Mr Lin does not disagree with my view that this should be specified in the beginning part of paragraph 18A.

19. I digress here to deal with a related submission that Miss Wong makes. It is that the evidence is overwhelmingly to the effect that the defendants were aware of the plaintiff's alleged practice in relation to the class size and on-line broadcast teaching before they entered into the contracts in question. In the circumstances, it is not possible to imply into their contracts a term that they would not be required to teach in manner contrary to Regulation 88(c), Education Regulation. Alternatively, there cannot be any breach of the contract on the basis that the defendants were required to teach classes of over 45 students and by means of on-line broadcasting.

20. I recognize the force of this submission. I also accept that this implied term may well be inconsistent with the defence case on the 2nd, and arguably, 3rd implied terms. It is trite law that the court will only be prepared to imply a term, not being one implied by law, where it can be inferred, either from the language of the contract or the circumstances under which the contract is entered into, that the parties must have intended the stipulation in question : Chitty on Contracts (28th Edition) Vol.1, paras.13-004. If, as the defendants had stated in their affirmations and witness statements, that the practice of the plaintiff had always been to organize or enrol classes with over 45 students by means of on-line broadcasting, there might not be room for the 1st implied term to arise and/or for the plea that the plaintiff had been in breach of it. But inference as to the intention of the parties is a matter of fact and evidence. It is inappropriate to conclude simply on the affirmations and witness statements, without the witnesses being cross-examined, that the parties' intention must be such as to leave no room for the implied term to arise or for the breach to be established.

21. Returning to the 2nd and 3rd implied terms, they are not terms that can be readily implied into contracts of employment, still less teaching contracts. They may be implied where the circumstances surrounding the contract or the relationship of the parties warrant it : Devonald v. Rosser & Sons [1960] 2 KB 728, 739-41, 744, Herbert Clayton & Jack Waller Limited v. Oliver [1930] 1 AC 209, 216.

22. Accordingly, it is incumbent for the pleading to set out the special circumstances or aspect of the parties' relationship that give rise to the terms. In this regard, the plaintiff's complaint of lack of material facts is well-founded.

23. The omission however is not fatal. It appears from Mr Lin's submissions that the defence case for the 2nd implied term is built upon, inter alia, the fact that the defendants' income under their contracts were referable to the amount of students enrolled in their courses and in turn affected by the locations that they taught. Mr Lin also referred to the fact that the defendants had in the past received substantial publicity and promotion by the plaintiff as supporting the 3rd implied term. These matters prima facie may provide some factual basis for giving rise to the 2nd and 3rd implied terms. Whether they provide the defendants with a strong or weak case is a matter for the trial. This deficiency in the pleading can be met by affording the defendants an opportunity to further amend.

Post-writ events : paragraphs 18B(ii)-(v), 18B(vi), 18C

24. The plaintiff's complaint is that for breaches alleged to occur in October 2001 and thereafter, they cannot amount to defences to the plaintiff's claim in breach of contracts because the cause of action accrued in May or June 2001. I do not understand Mr Lin to be disagreeing with this submission. According to him what the defendants seek to make use of the matters particularized in paragraphs 18B(ii) to (vi) and 18C are :

(1) to ground the counterclaim for damages;

(2) to resist the injunctive relief sought by the plaintiff; and

(3) to limit the quantum of any award of damages to the plaintiff.

25. I accept that the events alleged to have occurred in October 2001 and thereafter are relevant to the counterclaim and to the relief to be granted in the event the plaintiff succeeds in its claim. Miss Wong does not dispute this either. She however points out that the present pleading does not set out the relevance and limits of the use of these post-writ matters. The pleading is therefore ambiguous and embarrassing.

26. This criticism of the plaintiff is not unjustified. Although paragraph 22A of CRADC pleads that the plaintiff is not entitled to the injunctive relief, it is on the basis that the facts as alleged by the plaintiff does not in law justify the injunctions sought. The position is not improved by the blanket traverse in paragraph 24 that the plaintiff is not entitled to its claim and relief. To the extent that pleadings should set out the parties' case with precision and also identify the issues for resolution with clarity, the CRADC has not met these objectives.

27. That said, however, I agree with Mr Lin that this is not a matter incapable of being cured such that the paragraphs sought to be struck out.

Notice of 14 May 2001 : paragraphs 18D to 18G

28. The plaintiff's criticism in this regard is that the notice of termination served by the defendants on 14 May 2001 cannot amount to acceptance of any repudiation that took place afterwards. Logically, this must be right. The relevance of the notice of 14 May 2001 as acceptance of repudiation therefore can only be confined to the 1st implied term. In this regard, paragraphs 18D to 18G may well be improved by spelling the matter out clearly, but it is in no way a serious defect and certainly does not attract the draconian measure of striking out.

Breach of warranty : paragraphs 18A to 18G

29. This ground for striking out is based upon the case of Strongman (1945) Ltd v. Sincook [1955] 2 QB 525. In that case, the builder claimed against the developer, who was also the architect, for the price of work done. The architect defended the claim on the basis that the contract was illegal in that the building works were carried out without the licence required by law. The court accepted the building contract was one prohibited by statute and therefore illegal and unenforceable. The court however found as a matter of fact that the architect had promised to procure the necessary licence and also to stop the work if the licence was not obtained. It was therefore held that the architect had made a collateral warranty that the contract was legal and since the architect was in breach of that warranty, the builder was entitled to damages for the breach. Plainly, the case is distinguishable. The promise that was held to be a warranty was a promise relating to legality of the contract. This is not the same as the duty not to require an employee to undertake unlawful work. The case does not amount to a proposition that the 1st implied term is not a material term, the breach of which does not amount to a repudiation. This ground for striking out therefore fails.

Affirmation waiver and constructive dismissal

30. The plaintiff's argument is that the defendants, by continuing to teach with the plaintiff must be taken to have waived the alleged breaches and/or have affirmed the contracts. This is particularly so with regard to breach of the 1st implied term. Reliance is placed on Chitty on Contracts (28th Edition) Vol.1, paras.25-003, 25-006 and 25-007. It is said that on the case of the defendants, they, having had knowledge of over-sized classes and on-line teaching and that such was against Regulation 88(c), Education Regulation, nevertheless persisted in carrying out the contracts. In the circumstances, the defendants would be regarded as having affirmed the contracts and thus lost their right for repudiation.

31. The defendants, on the other hand, argue that the breaches are continuous in nature so that any waiver cannot affect their rights with regard to the breaches that occur subsequently. The plaintiff, however, says that if this is indeed the defence case, then the pleading should spell it out. It should for instance specify when or what the last breach that was relied upon.

32. In my view, affirmation or waiver are pleas that the plaintiff can raise either by way of reply or as defence to the counterclaim. The defendants will then deal with it in the rejoinder. It is in that context that the averment of continuous breach is to be pleaded. The defendants should not be expected to pre-empt the plaintiff's case in the CRADC. The pleading is not defective by failing to set out the allegation of continuous breach.

Conclusion

33. For the above reasons, I do not consider that paragraphs 18A to 18J that so defective that they ought to be struck out in full or in part. I do, however, accept that a number of the plaintiff's objections and criticisms are well-founded so that the CRADC ought to be improved either by way of amendments or by provision of particulars.

34. I will now hear counsel on the terms of the order to be made.

Representation:

Miss Priscilla Wong, instructed by Messrs Anthony Chiang & Partners, for the Plaintiff

Mr Kenny Lin, instructed by Messrs Wan & Leung, for the 1st, 3rd to 5th Defendants

HCA4273/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4723 OF 2001

(formerly HCA2359/2001, 2529/2001 and 2532/2001)

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REASONS FOR DECISION

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1) There are two applications before the court. The first is the plaintiff's application to strike out part of the Consolidated Amended Defence filed on 11 October 2002 by the 1st, 3rd to 5th defendants (collectively referred to as "the defendants"). The second is the defendants' application to re-amend the Consolidated Amended Defence and to introduce a counterclaim.

The action

2) The background leading to these proceedings had been set out in my earlier decisions on the interlocutory injunction applications and also in other decisions given on other interlocutory applications. I do not repeat them here.

3) It is, however, relevant to these applications to set out briefly some of the development in these proceedings since the granting of the interlocutory injunctions in July 2001.

4) With the agreement of the parties, I had ordered for a speedy trial of these proceedings and given directions that the parties should endeavour to agree upon a timetable and also the directions on the interlocutory steps leading to the trial. Unfortunately and regrettably, too, despite a series of direction hearings, the subsequent conduct of these proceedings can by no means be regarded as expeditious. Owing to a variety of reasons, the trial, estimated to last 20 days, was only scheduled for 11 November 2002. In the meantime, there had been a number of intervening events, including change of representations and bankruptcy orders being made against some of the defendants on their own petitions. There had also been applications to vary or discharge the interlocutory injunctions. Further in July 2002, legal aid was granted to the defendants and the defendants were assigned a firm of solicitors and three counsel in succession. Mr Lin, who appears for them on these applications, is the third counsel to be assigned within the short span of four months and he was only assigned very shortly before the trial was due to begin.

5) On 7 October 2002, leave was granted to the defendants to amend their Defences and to introduce a counterclaim. However, the Consolidated Amended Defence filed pursuant to the leave did not include the counterclaim. The leave to amend was granted on the condition that the defendants also filed and served a concise statement of their case on the pleas of unconscionable bargain and illegality, as pleaded in paragraphs 14 and 25 of the Consolidated Amended Defence, and of the evidence sought to be relied on in support of these pleas. The primary purpose of ordering the concise statement was to address the plaintiff's concern that the pleas as pleaded are lacking in precision and particulars. It was also hoped that this will alleviate some of the prejudice caused by the late amendment in that the plaintiff did not have to plough through the voluminous affirmations that had been filed and ordered to stand as evidence-in-chief in order to identify the relevant evidence relied upon. Consequent upon the direction, the defendants filed the Statement of Pleas on 16 October 2002.

6) At the last pre-trial hearing, the plaintiff indicated that, notwithstanding the Statement of Pleas, it would be moving to strike out the pleas of unconscionable bargain and illegality. A summons was eventually issued on 29 October 2002 seeking to strike out paragraphs 14 and 25 of the Consolidated Amended Defence. Owing to the proximity to the trial, the summons could only be made returnable on the first day of the trial. Then on 9 November 2002, the defendants issued their summons for re-amendment. The proposed re-amendment does not affect the paragraphs that the plaintiff seeks to strike out.

7) Such is the relevant development in these proceedings. I now deal with the applications in turn.

Striking out application

8) The application to strike out is directed only at paragraphs 14 and 25 of the Consolidated Amended Defence, which contain respectively the pleas of unconscionable bargain and illegality.

Unconscionable bargain

9) The relevant part of paragraph 14 of the Consolidated Amended Defence reads :

"Insofar as it may be necessary so to argue, the Defendants aver that the Contracts were unconscionable bargains. The Plaintiff was at all material times in a position of economic advantage over the Defendants and dictated the terms upon which it chose to employ the Defendants."

10) Paragraphs 6 to 9 of the Statement of Pleas state the defendants' case on the plea to be as follows :

"AS TO THE ALLEGATION OF 'ECONOMIC ADVANTAGE' OF THE PLAINTIFF OVER THE DEFENDANTS in PARAGRAPH 14 OF THE CONSOLIDATED AMENDED DEFENCE

6) The plea of 'economic advantage' should be read as an adjunct to the extant plea of 'unconscionable bargain' in paragraph 14.

7) It is likely that the 1st, 3rd, 4th and 5th Defendants will only have recourse to this plea if the contentions of these Defendants that the material contracts are not, properly read, for fixed terms of 5 years and incapable of earlier determination on reasonable notice, and that the purported restrictive covenants are excessive, unreasonable and therefore unenforceable is rejected.

8) If the primary case for these Defendants is rejected the material contracts would be unfair and unduly onerous and the Court would in response to the plea consider whether the Plaintiff had taken unfair advantage of the fact that there was marked inequality of bargaining power between the parties.

9) If the Court were satisfied it was an appropriate case to do so it may strike down any such unfair or unduly onerous terms, or decline to enforce them or as an exercise of discretion refuse to enforce such terms by means of equitable remedies such as injunctions or decrees of specific performance, or where doing so would cause hardship to these Defendants or any of them"

11) The plaintiff moves to strike out this plea principally on the basis that no reasonable cause of defence has been disclosed on the pleading. It is submitted that even if it is established that the plaintiff was in a position of economic advantage over the defendants and dictated the terms of the Contracts, that is by itself insufficient to give rise to a defence of unconscionable bargain.

12) In Alec Lobb (Garages) Ltd & Others v. Total Oil Great Britain Ltd [1983] 1 WLR 87, 94-95, Deputy High Court Judge Millet (as he then was) observed that in the cases on this head of equitable relief, three elements are invariably present before the court will interfere. They are :

(1) One party has been at a serious disadvantage to the other, whether through poverty, ignorance or lack of advice, so that circumstances existed of which unfair advantage can be taken;

(2) This weakness of one party has been exploited by the other in some morally culpable manner; and

(3) The resulting transaction has been, not merely hard or improvident, but overreaching and oppressive.

It is also said that there must be some impropriety, both in the conduct of the stronger party and in the terms of the transaction itself, which "shocks the conscience of the court" and makes it against equity and good conscience of the stronger party to retain the benefit of a transaction he has unfairly obtained : at p.95C.

13) Alec Lobb was considered and applied in Lo Wo & Others v. Cheung Chau Ka & Anor [2000] 2 HKLRD 370. In that case, Waung J considered that the relevant factors in deciding whether to set aside for unconscionable bargain are (1) the serious disadvantage suffered by the exploitee, (2) the terms of the bargain being oppressive and (3) the conduct of the exploitee being morally culpable such that it shocks the conscience of the court. In the context of the last factor, Waung J pointed out in all cases where the courts have set aside for unconscionable bargains, the circumstances of the transactions are such as to suggest that the exploiter was aware of the disadvantage suffered by the exploitee and had taken advantage of the opportunity. The same point was noted by the Privy Council in Hart v. O'Connor [1985] 1 AC 1000, 1028-1029. The case concerns a contract for sale entered into between a vendor who was, unknown to the purchaser, of unsound mind. In allowing the purchaser's appeal, the Privy Council held that the vendor was not entitled to have the contract set aside for unconscionable bargain in that the purchaser was not aware of the vendor's unsoundness of mind and was guilty of no unconscionable conduct.

14) Bearing these legal principles in mind, when one looks at paragraph 14 of the Consolidated Amended Defence, the inescapable conclusion is that it is a hollow plea. The matters pleaded come nowhere near to either the three elements identified in Alex Lobb or the relevant factors set out in Lo Wo. The Statement of Pleas does not advance the plea any further. Paragraphs 6 to 9 of it do no more than repeating paragraph 14 of the Consolidated Amended Defence. But inequality of bargaining power, economic advantage and the onerous nature of the terms are by themselves insufficient to sustain a plea of unconscionable bargain. Economic advantage is not by itself a plea of defence in law.

15) The evidence identified in paragraph 10 of the Statement of Pleas also does not take the plea any further. The effect of these evidence is :

(1) The plaintiff is a reputable and well-known school that had undergone rapid expansion between 1998 and 2001 and had been generating substantial income by 2000;

(2) The 1st, 4th and 5th defendants were in very strained financial situation when they signed their respective contracts with the plaintiff;

(3) When the defendants were given the contracts to sign, it was either close to the beginning of a new school year or after the school term had started. Hence if they did not sign the contracts, it would be difficult for them to find employments with other tutorial schools;

(4) The 1st and 4th defendants signed their contracts either without knowing the details of the terms in the contracts or without taking a proper look of the terms;

(5) There was no room for negotiation on the terms; and

(6) In the case of the 5th defendant, he felt he was pressurized after he refused initially to sign the Evening School Contracts and the consent letter.

16) The evidence identified, if accepted, will only show a lack of bargaining power on the defendants' part and also that the defendants felt they had no practical alternative but to sign their contracts. It falls far short of supporting a defence of unconscionable bargain. It does not, for instance, show that the plaintiff was aware of any disadvantageous position suffered by the defendants or how the plaintiff had taken advantage of the opportunity. Neither does it reveal that the conduct of the plaintiff was so morally culpable that it shocks the conscience of the court.

17) 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 Ltd [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".

18) Clearly6 to , taken together, paragraph 14 of the Consolidated Amended Defence and paragraphs 10 unconscionable of the Statement of Pleas do not disclose a reasonable cause of defence in bargain.

19) Mr Lin in meeting this part of the striking out application refers to the Canadian case of Morrison v. Coast Finance Ltd 55 DLR (2d) 710, 1965 DLR LEXIS 2183. That case does not avail the defendants. The case holds that proof of inequality in the position of the parties and of substantial unfairness of the bargain obtained by the stronger party gives rise to a presumption of fraud which the stronger party may rebut by showing that the bargain was fair, just and reasonable. The case highlights the point that unconscionable bargain is a specie of fraud; it is constructive fraud : see also Halsbury's Laws of England Vol.16, para.666 and Vol.31, para.854. That being so, it is all the more important that a complete cause of action be properly pleaded.

20) Mr Lin also submits that paragraph 14 is included in the Consolidated Amended Defence not for the purpose of striking down the contracts in question, but as a matter relevant to the court's discretion on whether to grant the injunctions claimed by the plaintiff. This submission, to some extent, does help to clarify the uncertainties created by paragraph 9 of the Statement of Pleas, for which Mr Lin is not responsible as it is not his pleading. That said, it does not mean that the duty to plead a complete cause of action is any less than that when the plea is raised for the purpose of setting aside the contracts.

21) In short, I am of the view that paragraph 14 of the Consolidated Amended Defence should be struck out and I so order.

Illegality

22) Illegality is pleaded in paragraph 25 of the Consolidated Amended Defence. It reads :

"Further or in the alternative to the pleadings above, the Defendants' Contracts were illegal ones and unenforceable relying upon the matters below :-

(a) the number of students inside a classroom within lessons exceed the capacity prescribed by the law; and

(b) on-line teaching arrangement of lessons to other classrooms."

23) The defendants' case on illegality is stated in the Statement of Pleas to be as follows :

"1) Inter alia, the 1st, 3rd, 4th and 5th Defendants' evening school and tutorial contracts required them to diligently and faithfully provide teaching (etc.) services in the tutorial courses organized by the Plaintiff and to teach and instruct the students of the Plaintiff in classes and according to schedules arranged by the Plaintiff. The 1st, 3rd, 4th and 5th Defendants will at trial refer to all material contracts for their full terms and effect.

2) In reliance upon the evidence identified herebelow at the times the 1st, 3rd, 4th and 5th Defendants signed the material contracts and thereafter while they were staff members of Beacon College, the Plaintiff regularly and frequently enrolled, organized and arranged classes in breach of regulation 88(c) of the Education Regulations (under Cap.279) in that the classes (otherwise described as tutorial courses) exceeded 45 pupils, inter alia, by means of on-line teaching relayed to students in other classrooms.

3) The material contracts required the 1st, 3rd, 4th and 5th Defendants to teach such classes in breach of regulation 88(c) and accordingly the material contracts were illegal and void ab initio or otherwise became unlawful and unenforceable in their performance.

4) For the sake of convenient reference only, and without prejudice to the right to cite further authorities at trial, the 1st, 3rd, 4th and 5th Defendants cite and rely upon the legal principles stated and applied in:

a) Benson Pease & Co. Ltd. v. A. V. Dawson Limited [1973] AC 828; and

b) Intell Education Ltd. v. Siu Yat Ming and Ultra Idea Education Centre Ltd. (H.C.A. 169/2002 decision of Deputy High Court Judge Gill in Chambers, unreported, judgment 24 January 2002)"

24) In St. John Shipping Corporation v. Joseph Rank Ltd [1957] 1 QB 267, 283, Devlin J (as he then was) drew a distinction between a contract which is entered into with the object of committing an illegal act and a contract which is expressly or impliedly prohibited by statute. In the former situation, if the intent is mutual, the contract is not enforceable at all, and, if unilateral, it is unenforceable at the suit of the party who has the intent. In the latter situation, the intent of the parties is irrelevant. If the contract is prohibited by statute, then the contract is unenforceable. The latter situation may also cover a contract, which is otherwise lawful, but when performed is one prohibited by statute : see p.284. In the case of a contract where the consideration and the matter to be performed are both legal, the contract will not become unenforceable merely because the performance infringes the law : Wetherell v. Jones (1832) 3B and AD 221, Shaw v. Groom [1970] 2 QB 504. Such a contract will be enforced unless it is shown that the contract is of a kind prohibited by the statute : St. John Shipping Corporation at p.287 and Shaw p.516.

25) This plea of illegality was first raised in the 1st defendant's application for discharge of the interlocutory injunction in July 2002. At the hearing before Deputy High Court Judge Saunders, the 1st defendant's case was put on the basis that the defendants' contracts were lawful contracts but were performed in such a way as to contravene several of the provisions in the Education Regulation Cap.279, including Regulation 88(c). Deputy High Court Judge Saunders had also remarked in his judgment (paragraph 36) that the employment contract entered into by the 1st defendant was a lawful contract for the provision of teaching services that can be performed in a number of lawful ways.

26) In the Consolidated Amended Defence, which was filed subsequent to the judgment of Deputy High Court Judge Saunders, it gives no clue as to the basis of the defendants' case on illegality. The statute and section said to be offended were not even identified. The matter was not elucidated by the Statement of Pleas. Although it confines the plea to the Evening School Contracts and identifies Regulation 88(c) as the statute offended, the Statement of Pleas does not show whether the plea arises out of an object, be it unilateral or mutual, to commit an illegal act or that it is because the defendants' contracts are prohibited by statute. In this regard, paragraph 3 of the Statement of Plea is singularly unhelpful.

27) The plaintiff's application to strike out paragraph 25 of the Consolidated Amended Defence is principally on the ground that no reasonable cause of defence has been disclosed in that a breach of Regulation 88(c) does not automatically lead to the contracts being illegal and unenforceable.

28) I pause here to note that it is Miss Wong's submissions that the particulars pleaded in paragraph 25 do not support a breach of Regulation 88(c). Regulation 88(c) reads :

"In any school providing -

(aa) ...

(a) ...

(b) ...

(c)	primary, secondary or post-secondary education or any other educational course,
	not more than 45 pupils
	shall be taught at one time by one teacher, except in special cases with the
	permission of the Director."

29) Regulation 88(c) is therefore concerned with teacher-student ratio, but not with the capacity of classroom nor with the number of students present inside a classroom. Neither does it prohibit on-line teaching per se. Miss Wong therefore submits that particulars (a) and (b) when read together do not support the plea of illegality. I can see the force of this submission, but I need not decide on it. For the purpose of this striking out application, I will proceed on the assumption that the fact of contravention of Regulation 88(c) can be proved.

30) Miss Wong's submission, shortly put, is that even if breach of Regulation 88(c) is proved, the Evening School Contracts will not be unenforceable because they are not the class of contracts prohibited by the Education Ordinance or the Education Regulation. Reliance is placed on the well accepted principles that the court will not hold a contract to be prohibited by statute unless the statute, either by clear implication or by necessary inference, so intends, and that statutes are to be construed in the ordinary way such that one must have regard to all the relevant considerations and no single consideration, however important, is conclusive : St. John Shipping Corporation, p.287-288 approved and applied in Shaw p.518B and in Byjoy Ltd v. Thorogood Estates Ltd [1985] 2 HKC 746,759 and 761. Reference is also made to the judgment of Sachs LJ in Shaw at p.523H-524A when he said that :

"Today's generation is dominated by that ever mounting mass of legislative control to which reference has already been made: in support of that control numerous offences have been created each with its appropriate penalty, and it is for the courts to see that this does not result in additional forfeitures and injustices which the legislature cannot have intended."

This passage had been adopted in Richardson Greenfields of Canada (Pacific) Ltd v. Chow Paul [1989] 1 HKC 261, 269B. In that case, Bokhary J (as he then was) further observed that (p.269G):

"When the legislature sets out to regulate an industry, enacting rules and penalties by which to enforce them, the courts must be very careful not to adopt an overzealous construction of the enactment, for that may have highly counter-productive consequences, possibly including insolvency within the industry and all the ills that follow in its wake."

31) It is submitted that the Evening School Contracts between the plaintiff and the defendants are perfectly legal in its aims and purpose, namely, the provision of teaching or tutoring services for value. The purpose of the Education Ordinance is to promote education in Hong Kong and to supervise and control schools and the teaching therein. The purpose of enacting Regulation 88(c) is for the protection of students. Accordingly, the Ordinance does not forbid the core object of the Evening School Contracts. The illegality now alleged is only collateral and/or incidental to the performance of the Contracts and would not be falling within the kind of contracts prohibited by the Ordinance or the Regulation.

32) With regard to the cases of Ashmore Benson Pease & Co. Ltd v. A.V. Dawson and Intell Education v. Siu Yat Ming & Another cited in paragraph 4 of the Statement of Pleas, Miss Wong argues that they are distinguishable. She draws assistance from the judgment of Deputy High Court Judge Saunders (paragraphs 22 to 29) which holds the same view. In particular, it is pointed out that the Intel Education case involves the teaching by an unqualified teacher such that the performance of the teaching contract necessitates the commission of an offence. By contrast, the Evening School Contracts can be performed in a variety of lawful ways. It is further argued that insofar as Intel Education had relied upon the case of Ashmore Benson Pease & Co. Ltd (at paragraphs 41-43), it must be remembered that the law, as laid down in St. John Shipping Corporation and applied in other cases, including Shaw, Byjoy Ltd and Richardson Greenfields of Canada (Pacific) Ltd, is that illegality in the performance of a contract may only disable a person from suing on it, if he participated in the illegality, and this is so when the contract is prohibited by statue.

33) Mr Lin has advanced no substantial argument against the foregoing submissions of Miss Wong. He defends this part of the striking out application on another basis, a matter that I will come on later.

34) For my part, I am in agreement with the analysis of Miss Wong on the law and its application to the present case. The plea of illegality is bad and unsustainable if it is sought to be advanced on the basis as put before Deputy High Court Judge Saunders, namely, that the Contracts were prohibited by the Education Ordinance, or on the basis that the Contracts became illegal in the course of performance. In other words, if the defendants' case on illegality is the Evening School Contracts are unenforceable by reason of the second principle set out in Devlin J's judgment in St. John Shipping Corporation (at p.283), it is plainly and obviously unsustainable and ought to be struck out.

35) It is perhaps in recognition of this that Mr Lin does not advance the defendants' case on this basis in his oral submissions. I say oral submissions because even in his written submission lodged before the bearing, Mr Lin was proceeding on the basis that the Evening School Contracts were unenforceable by reason of the manner in which they came to be performed. What Mr Lin seeks to argue at the hearing is this. The plaintiff has been adopting a policy of organizing classes that have more than 45 students and by means of, inter alia, on-line teaching. Hence the inference is that when the Contracts were made, they were made with an object to contravene Regulation 88(c). The object was an unilateral one, being that of the plaintiff alone. Relying therefore on the first principle set out in Devlin J's judgment in St. John Shipping Corporation, the Evening School Contracts are unenforceable.

36) In my judgment, this attempt to rely on the first principle must fail. It is stretching one's imagination to say that the object of the Evening School Contracts, whether unilateral or mutual, is to provide teaching or tutoring services in an illegal manner. Even if on-line teaching or over-sized classes were within the contemplation of either or both of the contracting parties, it would only be one of the contemplated modes of performing the Evening School Contracts. It cannot be that either or both of the parties intended that the Contracts would or should only be performed in contravention of Regulation 88(c). To say that the only purpose or the purpose of entering into these Contracts was to procure or commit a breach of Regulation 88(c) is certainly not borne out by the evidence identified in the Statement of Pleas, or indeed those now before the court. At any rate, the pleading, including the Statement of Pleas, nowhere contains an averment of illegal object. Neither has it identified what the illegal object was.

37) Mr Lin has referred to the judgment of the English Employment Appeal Tribunal given by Browne-Wilkinson J in Coral Leisure Group Ltd v. Barnett [1981] ICR 503, [1981] IRLR 204. The case does no more than illustrate the distinction between a contract that imposes an obligation to do an unlawful act and a contract where the obligations can be performed lawfully, but had been performed illegally. The case in fact highlights the rule that where the illegality lies in the performance only, a party is not barred from enforcing the contract because he performs it in an unlawful manner. The contract will only be unenforceable if it is a contract forbidden by the statute or the common law. The case does not advance the defendants' case. The plea of illegality is plainly and obviously untenable.

38) Another reason put forward for striking out the plea of illegality is that the pleading is embarrassing. I had already pointed out the inadequacy of paragraph 25 of the Consolidated Amended Defence and paragraph 3 of the Statement of Pleas. Apart from that, paragraph 2 of the Statement of Pleas in stating that the plaintiff has been enrolling or organizing classes that have 45 students is referring to the size of classes. This is to be contrasted to Particular (a) under paragraph 25 of the Consolidated Amended Defence that refers to the number of students in a classroom. Yet both paragraphs apparently are relied upon as supporting a breach of Regulation 88(c).

39) The embarrassing and unsatisfactory nature of the pleading on illegality is well-illustrated by the twists and turns in the arguments advanced in the course of the striking out application on behalf of the defendants. The pleading is so imprecise and fluid that it is unclear as to what the defendants' case is. In C.S. Low Investment Limited v. East Asia Warburg Limited (unreported), Civil Appeal No.37 of 1990, at p.4, it is said that a party must plead his case with sufficient particularity to enable the other party to gauge its strength, to admit or deny the allegation. The plea of illegality clearly falls short of this requirement for it not only prevents a demurrer but also gives the plaintiff no knowledge of what the defendants' case is. It is therefore embarrassing : see Philipps v. Philipps (1878) 4 QBD 127, 132.

40) Mr Lin submits that if it is a matter of form, the court should not strike out the pleading but should either call for amendment or particulars. That may well be so in the general bulk of cases. But here for the reasons stated above, the plea is bad in law. Additionally, I cannot overlook the fact that the defendants had been afforded an opportunity to properly set out their case on illegality by serving a concise statement. And if the Statement of Pleas is the best that they can do, there is no justification not to strike it out.

41) For these reasons, I am of the view that paragraph 25 of the Consolidated Amended Defence should be struck out and I so order.

42) I turn now to deal with the defendants' application to re-amend.

Application to re-amend

43) The proposed re-amendment seeks principally to introduce a new cause of defence in breach of implied terms and also to advance a counterclaim for declaration and damages on the basis of breach of those implied terms. A total of four implied terms are being introduced. They are :

(1) a duty not to require the defendants to do or participate in an unlawful act;

(2) a duty to provide the defendants with reasonable amounts of work and/or reasonable working locations;

(3) a duty to afford the defendants an opportunity for publicity and reputation so as to advance their careers and repudiation; and

(4) a duty to preserve the defendants' trust and confidence in the plaintiff.

44) It is alleged that the plaintiff had breached the implied terms. The breach of the first implied term is premised on the point of over-sized classes and on-line teaching. As for the breach of the other three implied terms, it is rested upon the events that occurred after the imposition of the interlocutory injunction.

45) I have to say I have considerable reservations as to the merits of the proposed re-amendment. I had for instance pointed out to Mr Lin that the complaint about reduction in class size after the defendants returned to teach at the plaintiff's evening school does not sit comfortably with their complaint that previously they were required to teach over-size classes in breach of the law. And in the context of the alleged breach of the first implied term, it cannot be forgotten that under the Evening School Contracts, the bulk of the defendants' income is linked to the number of students enrolled in their classes. I had also observed in the course of submissions that, while the duty under the third implied term may readily be implied in an artist's or performer's contract, it may not readily arise under a teacher's contract.

46) I do not consider it appropriate to go into a detailed analysis of the merits of the proposed re-amendment at this stage as I do not wish to prejudge the matter. Suffice to say I am not prepared to conclude that the proposed re-amendment is bound to fail such that it will be futile to allow it to be introduced. That being the case, it remains for me to consider the other factors relevant to the exercise of my discretion.

47) There is no doubt that this is a very late attempt to amend and the amendment involves raising new cause of defence and action. The only reason for the late amendment is the change in representation and more specifically the change of counsel. I had said in other cases and I repeat it here. I consider that the court ought to be slow to allow parties to seek amendment to pleadings or variation of interlocutory orders and discretions merely because they have engaged different lawyers, who take a different view of or approach to the cases. This is particularly so when the amendment or variation is sought at a late stage. If the court is to condone such practices, the court will not be able to effectively discharge its duty of ensuring that cases be conducted fairly, expeditiously and economically. I have therefore to say that I do not find the defendants' reason for amendment to be appealing or satisfactory.

48) Having said that, I am conscious that it is ultimately a question of doing justice according to the circumstances of the case. In deciding whether to grant leave to amend, the guiding principle has been to allow all amendments that are relevant to the question in issue so long as any prejudice occasioned can be compensated by costs or adjournment : Hong Kong Civil Procedure 2002, Vol.1 para.20/8/6.

49) In this case, the proposed re-amendment will no doubt occasion prejudice to the plaintiff. It has been said that no new facts or evidence will be introduced. That may be so for the defendants, but I am not sure that the same goes for the plaintiff. Miss Wong has suggested that, for instance, evidence of the reasons leading to reduced number of students enrolled in the defendants' classes and of the practices of other tutorial schools in the context of the third implied term may have to be explored. I accept there is force in this analysis.

50) Consideration as to the prejudice occasioned to the plaintiff is complicated by the fact that the defendants are legally aided and some of them had been adjudicated bankrupt. There is therefore some uncertainty as to the prospect of enforcing or recovering any costs ordered in favour of the plaintiff on the amendment. Mr Lin, however, helpfully points out that the proposed re-amendment also involves a counterclaim. While costs order against a legally aided defendant cannot be enforced against the Director of Legal Aid, there is no similar restriction on enforcement of costs order against a legally aided plaintiff or a legally aided defendant in respect of his counterclaim.

51) Weighing all these considerations and bearing particularly in mind the paramount concern of the court to decide the rights of the parties by reference to all the relevant issues, I am led to the conclusion, though reluctantly, that the application to re-amend should be allowed. Since the proposed re-amendment contains some clerical errors, I will grant leave for the Consolidated Amended Defence to be amended in substantially the same form as the draft attached to the defendants' summons. Additionally, I order that the defendants do, for the purpose of avoiding further delay, provide a list of evidence sought to be relied upon. The case will in the meantime be adjourned to enable some preparatory steps to be taken.

52) There is no reason to depart from the rule that costs follow event in the case of the striking out application. As for the amendment application, I accept that in appropriate cases, a distinction should be drawn between costs of the application, which should be borne by the applying party, and costs of the hearing on the application. In the latter where the opposition is unmeritorious or unreasonable, the opposing party should be disallowed his costs or even be ordered to bear the costs of the applying party. In the present case, it cannot be said that the plaintiff's opposition to the application is unreasonable or wholly devoid of merits. There is no reason for not following the usual practice of awarding costs against the party seeking the court's indulgence to amend. The plaintiff is to have the costs of and occasioned by the re-amendment. As to costs thrown away, it is reserved for the time being.

Conclusion

53) The orders that I make are :

(1) Paragraph 14 (save the first sentence) and paragraph 25 of the Consolidated Amended Defence be struck out.

(2) Costs of the plaintiff's summons filed on 29 October 2002 be to the plaintiff against the 1st, 3rd to 5th defendants to be taxed if not agreed.

(3) Leave to the 1st, 3rd to 5th defendants to re-amend the Consolidated Amended Defence in substantially the same terms as the draft annexed to the summons filed on 9 November 2002.

(4) The Re-Amended Consolidated Defence be filed and served within three days from the date of the decision.

(5) The 1st, 3rd to 5th defendants to file and serve by 12 noon on 16 November 2002 a list setting out the evidence relied upon in support of paragraphs 18A to 18K, 27 and 28 of the Re-Amended Consolidated Defence and Counterclaim.

(6) Leave to the plaintiff to file and serve a Re-Amended Reply and Defence to Counterclaim by 12 noon on 23 November 2002.

(7) The plaintiff and the 1st, 3rd to 5th defendants to file and serve, as soon as practicable, a list or a revised list, as the case may be, setting out the witnesses to be called at the trial together with the issues to which the witnesses' evidence relates. Whenever possible, the list or revised list should also identify the parts of the witnesses' affidavits or witness statements that are to be adopted as evidence-in-chief.

(8) These proceedings are adjourned to 10 a.m. on 25 November 2002.

(9) The costs of and occasioned by the 1st, 3rd to 5th defendants' application to re-amend be to the plaintiff in any event. Costs thrown away by the re-amendment be reserved.

(10) The 1st, 3rd to 5th defendants' own costs be taxed in accordance with the Legal Aid Regulations.

Representation:

Miss Priscilla Wong, instructed by Messrs Anthony Chiang & Partners,for the Plaintiff

Mr Kenny Lin, instructed by Messrs Wan & Leung,for the 1st, 3rd to 5th Defendants

HCA 4273/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4273 OF 2001

____________

______________________

_______________

J U D G M E N T

_______________

1. Three short points arise following my decision on 5 September 2002. The first is as to the interpretation of the order made by in me. The second is as to the order nisi made on costs. The third is a summons by the 1st defendant for an order for an inquiry as to damages.

2. It has apparently been suggested by the solicitors for the plaintiff that the order made is ambiguous. They say that it is open to argument that it is not clear that it was the intention of the court that the injunction should remain in force except in so far as it restrained the 1st defendant from teaching evening classes. They ask in that the order, instead of being an order in discharging the injunction as to its restraint upon teaching evening classes, be an order varying the injunction to permit the 1st defendant to teaching evening classes.

3. To suggest that there is any difference between the two formulations borders upon the farcical. Fortunately, counsel for the plaintiff accepted that the order was clear and did not require either explanation or amendment under the slip rule.

4. In the judgment an order in nisi for costs in favour of the 1st defendant was made. It was made in those terms primarily on the basis that he had succeeded in obtaining a discharge of at least part of the injunction. Now, two competing arguments arise.

5. First, the 1st defendant says that because the court found that there had been a breach of the undertaking given by the plaintiffs to support the injunction obtained there should be indemnity costs in favour of the 1st defendant. It is right that there is authority to say that where there has been a breach of an undertaking by a plaintiff where that undertaking has been given in support of an application for an injunction the defendant, on the succeeded in discharging the injunction should have indemnity costs. See: Leung Yee & Anor v Ng Yiu Ming & Anor [2001] 1 HKC 342 C.A.

6. On the other hand the plaintiff says first, that of the voluminous affidavits filed, and the time spent in court, 80% was relevant to issues upon which the 1st defendant failed in the application to discharge the injunction. It is also right that there is authority to say that where when one party succeeded in part, but fails in part, and the other party also both succeeds and fails in part, there should be an appropriate apportionment of costs. See: John Richardson Computers v Flanders (No. 2) [1994] 144.

7. The trial of the substantive issues between the parties is to take place soon, commencing 11 November 2002. Many of the issues that were relevant on my consideration of the application to discharge the interim injunction will be the subject of findings of fact in the course of the trial. In the circumstances therefore I consider it appropriate to vary the costs order made and substitute therefor an order reserving costs on the application to discharge the interim injunction in order that the questions of costs, and issues of in both indemnity and apportionment can be dealt with at the conclusion of the trial in the light of the findings of fact made at the trial. There will be an order accordingly. The order that the 1st defendant shall have his costs taxed upon Legal Aid Regulations remains.

8. Finally, he 1st defendant says that, having succeeded in part in discharging the interim injunction, upon the basis that the plaintiff has been a breach of its undertaking, he is entitled to damages. He asks for an inquiry as to damages. In the course of argument on the matter counsel for the 1st defendant sensibly accepted that the findings of fact to be made at trial will be integral to any conclusions upon damages and that consequently the issue of damages ought to be considered only after the trial. There will therefore be an order adjourning the 1st defendant's summons for an inquiry as to damages sine die, pending the conclusion of the trial, to be restored upon 7 days notice.

9. Costs on the applications before me to be reserved, the 1st defendant's costs to be taxed upon Legal Aid Regulations.

Representation:

Ms. Priscilla Wong, instructed by Anthony Chiang & Partners, for the Plaintiffs

Mr. Kenny C. P. Lin instructed by Wan & Leung, for the 1st Defendant

HCA 4273/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4273 OF 2001

____________

______________________

_______________

J U D G M E N T

_______________

Background:

1. In May 1999 the first defendant, (Mr. Yiu), entered into a two contracts with the plaintiff (the College) to provide teaching services, one contract for day school teaching, the other for evening school tutorial teaching. Under the contract Mr. Yiu was paid a base salary for day school teaching and a fee for evening school tutorial teaching that was based on a percentage of the gross fees received from the students who enrolled in classes he took. The day school contract was terminable on one month's notice and Mr. Yiu gave notice in terms of that contract and has ceased day school teaching. There is however a dispute between the parties as to whether there has been proper termination of that contract. That is an issue for trial. The evening school contract, with which this application is concerned, makes no provision for termination by notice on the part of the teacher and is for a term of five years commencing on 1 September 1999 and ending on 31 August 2004.

2. The contract contains a restrain of trade, a confidentiality provision and a restriction on being involved with any other similar school or enticing students away from the College to any other school. The relevant part of clause is itself in three parts. The effect of clause 8(c)(i) is to prevent the teacher from teaching in any other school for the duration of the contract. Clause 8(c)(ii) prevents the solicitation or enticement of students from the College. Clause 8(c)(iii) prevents the teacher from being involved on the ownership, administration or management of any other school. I shall refer to clause 8(c) as "the restrictive covenant".

3. In May 2001 Mr. Yiu, together with other teachers who are also defendants in this action, purported to terminate the evening school contract. The College immediately brought proceedings in which it sought damages and injunctions to enforce the contractual provisions. The matter first came before Chu J on 11 June 2001 when an inter partes interlocutory injunction was sought against Mr. Yiu and the other teachers. As the teachers required time to file evidence the matter was adjourned to 15 June 2001 when the College sought interim injunctions, ex parte on notice. After hearing leading counsel for both the College and the teachers Chu J granted an interim injunction restraining the teachers from breaching the restrictive covenant. The effect of the injunction is not only to restrain the teachers from enticing students from the College to any other school, or from being involved in the administration of any other school, but also to restrain the teachers from teaching evening tutorial classes in any other college.

4. On 20 July 2001 the matter came back before Chu J by way of return day on the interim injunction that had been granted. All recognised that the College faced difficulties in enforcing a contract for personal services by way of injunction. However under the principles in the well known case of Lumley v Wagner (1852) 1 De GM & G 604, [1843-60] All ER Rep 36, the negative covenant restraining the teachers from working at other evening school classes falls into a different category, as an injunction could be granted so long as the employee had a reasonable means of earning a living. That would be the case if the teachers were not restrained from any other form of day school teaching.

5. The teachers were able to seek to obtain day school teaching as, although the parties were in dispute as to whether the day school contracts had been properly terminated, no injunction was sought to restrain them from day school teaching. In order to overcome the teachers' complaint that the enforcement of the negative covenant in clause 8(c)(i) against teaching in other schools exposed them to the whims of the College in any evening class teaching for the College, the College, by its counsel, gave an undertaking in the following terms:

"(1) the defendants will be given the same classes and same schedule as they had been given for the past year;

(2) the plaintiff will not cancel any class to be taught by the defendants; and

(3) [payment provision; not relevant in this application]".

6. On the basis of this undertaking an interlocutory injunction was issued restraining the teachers from breaching the whole of the restrictive covenant and thus from teaching evening classes at any other school. An order for speedy trial was made, but various matters have interceded, particularly difficulties faced by Mr. Yiu in obtaining legal aid, difficulties which were surmounted only after appeals. Thus, despite Chu J's admirable determination to bring the matter to a speedy conclusion, the trial is not due to start until 11 November 2002. Now Mr. Yiu seeks to discharge the interlocutory injunction. He does so on four grounds.

The grounds for discharge:

7. First it is contended that there has been material non-disclosure by the College of such a nature that the injunction ought to be discharged. Specifically it is said that the College failed to disclose to the Court that it was committing a number of offences under the Education Regulations, Sub Leg A Cap. 279 (the Regulations). The consequence of this is said to be that the contract between the parties is accordingly illegal and unenforceable.

8. Second, it is argued that, having regard to illegality of the contract, it is inevitable that Mr. Yiu will succeed at trial and so he should not have to wait any longer for the matter to be concluded.

9. Third, it is argued that the College is in breach of the undertaking given. The contention is first, that by requiring Mr. Yiu to teach at schools solely in Yuen Long, instead of the specific places he taught in during the previous academic year, albeit the same class levels and same times, the undertaking as to "classes and schedules" has not been met. Second, it is argued that higher fees were charged for Mr. Yiu's services than for other teachers, and that for other teachers a "bursary", in reality a discount, was offered for the fees to their classes, but not for Mr. Yiu. The combined effect of these two facts, it is argued, was that Mr. Yiu's classes were not popular and there were virtually no students, and accordingly little prospect of maintaining the income level from the previous year.

10. Finally, it is argued that there has been a change of circumstances, such that the balance of convenience now falls in Mr. Yiu's favour. The argument in this respect is that Mr. Yiu has been unable to obtain any sort of day school teaching job, that he has gone bankrupt, and that accordingly in order to support himself he needs to be able to teach evening school classes.

Fall back position:

11. In the course of argument Mr. Li made it clear that while he sought a complete discharge of the interim injunction Mr. Yiu would be content if he could teach night school in other schools. He would abide by the remaining obligations of the restrictive covenant, such as those not to be involved in the management or administration of a competing school or not to entice students away from the College. He simply sought to teach to earn a living.

12. I invited the parties to consider this matter but was subsequently told only that the College was made an open offer, that remained alive during the remainder of the hearing, that Mr. Yiu was welcome to return to teach at the College if he wished. This offer was rejected.

Should the application be made at trial?:

13. Before I pass to consider these arguments I record that Mr. Liao S.C., for the College, sought to argue that with the trial as imminent as 11 November 2002, these matters should not be argued now, but at trial. I acknowledge the strength of the argument. But a contract for personal services, and one which restricts a man from following his trade or profession except for a particular employer, falls into a special category. The fact that the defendant is a school teacher adds a special dimension to the matter.

14. First, putting aside any reasons for the fact, Mr. Yiu has been unable to get any other day school teaching position. The evidence establishes that he has made a large number of applications for positions as a day school teacher but he has not succeeded in any application. It must be remembered that the basis upon which Chu J was prepared to exercise her discretion in favour of the injunction was first, that the undertaking had been given, and second that the prospect of teaching in day schools was a reasonable alternative for the teachers. However Mr. Yiu has not been able to get a day school job and he presently has no income. That situation may be relieved if he is able to teach evening classes. It must be wrong to delay a hearing that may relieve a man of a situation where he has no income.

15. Second, the new academic year is about to begin. If Mr. Yiu is to be successful on any of the points raised, he ought to be able to do so as soon as possible so that he can seek a position for the new academic year. I am satisfied that had legal aid been granted earlier, this application would have come before the court earlier. In all of the circumstances I required the matter to proceed before me without further delay.

Material non-disclosure:

16. It is clearly established that when seeking an ex parte injunction the applicant must proceed "with the highest good faith": R v Kensington Income Tax Commissioners, ex parte de Poliganc [1917] 1 KB 486, Chu Hung Chung v Chan Kam Ming & Ors [2001] 1 HKC 396 CA. Where material non-disclosure is established the Court will ensure that the party seeking to obtain the injunction is deprived of any advantage derived from a breach of the duty as to disclosure. The rationale for the rule is set out in Hong Kong Civil Procedure 2002 29/1/39:

"The rule that an ex parte injunction will de discharged if it was obtained without full disclosure has a twofold purpose. It will deprive the wrongdoer of an advantage improperly obtained and it serves as a deterrent to ensure that applicants realise that they have a duty to disclose and of the consequences (which may include a liability in costs) if they fail in that duty."

17. It is significant that at both of the hearings before Chu J Mr. Yiu was represented by leading counsel. Although the first hearing may be described as "ex parte upon notice", there is no doubt at all that the hearing on 20 July 2001 was an inter partes hearing. Mr. Yiu had the opportunity to put any evidence upon which he wished to rely before the Court, but apparently elected not to do so. Thus the matter was concluded with evidence from the College only, but after both parties had been heard.

18. There is no similar rule requiring a high duty of disclosure in relation to an injunction granted inter partes. That is presumably because the court, having heard from both parties, may be satisfied that all relevant matters have been adduced. In the present case Mr. Li was obliged to acknowledge that the matters relating to the alleged breaches of the Education Regulations were all known to Mr. Yiu at the time of the hearings before Chu J, and that he elected, upon advice, not to take those points. I accordingly conclude that it is not now open to Mr. Yiu, on an application to discharge an interlocutory injunction, to raise this matter by way of "material non-disclosure". The first ground to discharge the injunction must fail.

19. I should add this. Neither counsel were able to cite any decision in which material non-disclosure has resulted in the discharge of an interlocutory injunction, granted inter partes. However, I would not, for myself, be prepared to say that the rule as to material non-disclosure would not be invoked against an successful applicant for an interlocutory injunction granted inter partes, where the applicant has failed to disclose to the court a material matter, known only to the applicant and not known, at the time the injunction was granted, to the other party. In such a circumstance there is plainly a strong argument, simply based upon the rationale for the ex parte rule, that the applicant should not be able to take advantage of his non-disclosure.

The alleged illegality of the contract:

20. The failure of the non-disclosure point does not end the consideration of the argument as to the illegality of the contract. Mr. Li contends that the law is that if the defendant is so likely to succeed then, notwithstanding the balance of convenience, he is entitled to have the injunction lifted. In this he relies upon N.W.L. Ltd. v Woods; "The Nawala" [1979] 2 Lloyd's LR 325 at 331.

21. Assuming, without deciding the issue, that the defendant may raise this issue at this time, I consider the allegations made.

22. First it is said that there were an excessive number of students in the class. By Reg. 88(c) of the Regulations the maximum size of a class is limited to 45. Mr. Yiu contends that by a device, using live closed circuit television broadcast of his lesson to other rooms, he was in fact teaching to more than 45 persons and accordingly there has been a breach of Reg. 88(c). The College does not in terms deny that this method of teaching was used, but asserts that there was no breach of the Regulations. In particular it is argued that there was a suitably qualified teaching assistant present for every 45 students addressed by Mr. Yiu in the course of the class. I have grave doubts that this will provide an acceptable answer, but do not decide the matter now.

23. Second it is contended that classes went beyond 9.30 p.m., contrary to Reg. 89(1) which prohibits lessons after 9.30 p.m. without the permission of the Director of Education. Again the College does not, in terms, deny that lessons went beyond 9.30 p.m.; indeed brochures for lessons specifically show that lessons in some classes went to 9.45 p.m. But again they deny that there has been a breach of the regulations. Finally it is argued that school fees were collected in advance, contrary to Reg. 62 which requires that fees shall be collected on a monthly basis. To this the College says that the students were offered an option to pay in advance, and not required to make advance payment and accordingly there has been no breach of the regulations.

24. There are two reasons why I reject the argument that the contract is, by virtue of these alleged breaches, illegal and accordingly unenforceable. First, at this interlocutory stage, it is entirely inappropriate to reach a decision on the facts as to what occurred, without proper evidence and cross-examination. This is not an issue that can be determined on the affidavits. Consequently it is a matter for trial. That the facts were known to Mr. Yiu at the time of the grant of the interlocutory injunction will not be a bar to him raising the matter at trial.

25. Second, and more significantly, I am not persuaded that, even if the alleged breaches were established, that the contract is thereby illegal. Mr. Li relied primarily on the decision of the English Court of Appeal in Ashmore, Benson, Pease & Co. Ltd. v A.V. Dawson Ltd. [1973] 1 WLR 828. In that case a contract for road haulage that was made was, as the court notes, perfectly legal. But the haulage company provided a vehicle which was, to the knowledge of both parties at the time the vehicle was provided, underweight, thereby rendering the execution of the contract by way of an illegal method. Thus the court held that the performance of the contract was illegal, and damages were not recoverable by the plaintiffs for negligent damage to the load. The decision is not straight forward and must be seen in the light of the way in which the contract was performed and the nature of the action in which it came into question. The context was that the load had been damaged by negligence on the part of the driver and the owner of the load sued for damages from the transport company, which raised the illegality, of which both knew, by way of defence.

26. In the present case it cannot be argued that the contract is, per se, illegal. It is a perfectly lawful contract for the provision of teaching services. It may be performed in a number of perfectly lawful ways. But the fact that an offence may be committed under the Regulations in the course of the otherwise lawful performance of the contract, does not necessarily make the contract itself unenforceable. As is demonstrated by St. John Shipping Corporation v Joseph Rank Ltd. [1957] 1 QB 267, the fact that a offence has been committed in the course of the performance of a contract does not mean that it will always be unenforceable. There a load line offence was committed by a ship operator in carrying the defendant's goods. The goods having been safely delivered the defendant contended that the offence released him form the obligation to pay for the carriage. The argument was rejected because the plaintiff's right to payment was not a right that was brought into existence by the crime. To hold otherwise would mean that each time a construction contractor committed an offence under the Construction Regulations the contract for labour of the workman involved would become illegal and unenforceable, presumably by either side. I am not persuaded that the fact that offences may have been committed by the employer in the past, means that the employer cannot enforce the future performance of the contract by lawful means.

27. The St. John Shipping case has been followed in Hong Kong in Richardson Greenshields of Canada (Pacific) Ltd. v Chow [1989] HKC 261, and Byjoy Ltd. v Thorogood Estates Ltd. [1985] 2 HKC 746.

28. Next Mr. Li relied upon Intell Education v Siu Yat Ming & Anor (unreported HCA 169/2002). In this matter, on similar issues as in the present case, a school teacher, qualified to teach up to Form 3 was employed by a contract to teach up to Form 5. The case is plainly distinguishable. The teacher was simply not lawfully qualified to teach the class level required by the contract. It would have been an offence for him to have taught Form 5. The very performance of that required by the contract was an offence. In the present case Mr. Yiu is properly qualified to teach as required by the contract and there is nothing to say that he cannot lawfully perform the contract, which does not, by its terms, require oversize or over duration classes.

29. The argument for illegality must fail at this stage, but may be revived at trial.

Breach of the undertaking:

30. The third argument for Mr. Yiu is that there has been a breach by the College of the undertaking. The contention is twofold. First, when Mr. Yiu went back to teach evening classes at the beginning of the academic year in September 2001 he was assigned to classes located at the Yuen Long Main School branch of the College. Previously he had been teaching in schools in Tuen Mun, Yuen Long, Sheung Shui and Mongkok. In the 2000-01 academic year over 600 students had enrolled in his classes and he earned a very considerable income from that fact. In the 2001-2 year, when he was assigned to a Yuen Long school 8 students enrolled. It is his case that the term "classes and schedule" implies that he would teach at the same times and in the same location as the previous year. There is no dispute that he was allocated classes at the same level, thus meeting the "classes" aspect of the undertaking. Second, as I have described, he complains that higher fees were charged for his classes and that a discount offered for other teachers classes, but not for his, rendered his classes financially unattractive to students.

31. I dispose of the second argument first. The undertaking is restricted to "classes and schedules". I am quite unable to see how that expression can encompass fees. No undertaking was given as to the level of fees, either for the teachers or for those not involved in the litigation. On this argument Mr. Yiu fails.

32. The College make two answers to the allegation. First, it is contended that the expression "schedule" simply does not cover location, but is confined to time of the classes. Second, it is argued that as Mr. Yiu failed to give a reasonable undertaking that was sought by the school prior to the commencement of the academic year until so late that classes could not be arranged at the same schools. Accordingly, if there was a breach of the undertaking, it arose from Mr. Yiu's own default.

33. The teachers, including Mr. Yiu, did not assist themselves after the grant of the interim injunction. Postings were made to a web site, apparently operated by the teachers, from which the clear inference is that, notwithstanding the undertaking enabling them to continue evening teaching at the College, they did not intend to continue teaching, wrongly arguing that they were prevented from teaching. But on 16 August 2001 solicitors for four of the teachers, including Mr. Yiu, wrote to the solicitors for the College stating that they would attend evening classes. Attached to the letter was a timetable which set out the dates, locations, class levels and times of the intended classes. It is necessary to examine the correspondence which followed closely.

34. On 23 August 2001, after a delay of 7 days, the College's solicitors responded to the advice that the teachers would return to evening school. First they confirmed that the College would honour its undertaking. Second, they pointed out that the timetable was incorrect. Details of the corrections to the timetable were given. They indicated that further matters would be raised.

35. On 25 August 2001 the College's solicitors wrote again this time referring to the postings on the web site. They sought confirmation of the corrections. Paragraph 4 of the letter said as follows (P. 484):

"You will appreciate that the precise location of where classes are to be conducted has always to be kept flexible and within the discretion of the school, and at any rate cannot be inflexible, or at the call of your clients. Please confirm that the precise location will be, as always, at the discretion of our client."

They dealt also, in paragraph 5, with the issue of a requirement that the teachers confirm their availability, in these terms:

"...please let us have your clients confirmation that once offered, your clients will be positively bound to teach such classes until at least July 2002."

36. On 27 August 2001 the teachers' solicitors replied to the letter of 23 August 2001 confirming that the corrections to the timetable were acceptable to the teachers. On the same day a second letter was dispatched. It contained the following paragraph (P. 487):

"The locations of the classes form part of your client's undertaking. Different classrooms differ in facilities, size, convenience and capacity. Locations affect our clients' income. Location cannot be at your client's discretion."

37. On 27 August 2001 the College's solicitors replied. Notwithstanding the clear statement on 23 August 2001 that the corrections to the schedule were accepted it was asserted that there had been a failure to respond and that there were two versions of the schedule. That was plainly wrong. Again, confirmation was sought that the teachers would be committed to teaching the classes until the end of the school year in 2002. The precise terms of the letter were (P. 496):

"...without proper confirmation from your clients that they will be committed to teaching such classes in confirmed schedules until at least the end of the school year in 2002 (or at least until a definite time on which the School and students can place reliance)..."

This request was repeated in a letter dated 28 August 2001. In that letter the matter of location was referred to in the following terms (P. 496):

"With respect, locations of classes do not and cannot form part of our client's undertaking. Indeed, this is not entirely within our client's discretion."

38. That letter received a reply from the teachers' solicitors on 30 August 2001. The letter said as follows (P. 498):

"A. Our clients are professional teachers. It goes without saying or confirmation that they would teach in professional manner. Our clients do not understand why there is a need to make any confirmation.

B. Our clients do not accept that confirmation is required before you could do anything regarding the offering of the classes. Your client is bound to perform the undertaking to the Court. If your client thinks that it is necessary, confirmation is now given." (Emphasis added)

Thus, on 30 August 2001, the confirmation sought was given in plain and unequivocal terms. As to location, the letter said this (p. 499):

"Our clients do not wish to find that their income is affected by the change of locations. Your client's undertaking to the Court has the purpose of ensuring that our clients would not be unfairly treated by your clients. Locations have a direct and strong bearing on our client's income and hence livelihood.

Our client agrees that your client has the freedom to allocate the classrooms provided that the facilities and sitting capacity are the same and are within the same branch location. These factors are income-bearing."

The position taken by the teachers was that if a class had been taught in Mongkok in the previous year, it must be taught there in the coming year, but may be taught in a different classroom.

39. When I suggested to Ms. Wong, who argued this aspect of the case, that an unequivocal confirmation had been given, I was told that the College's solicitors took the view that the date to which the commitment was given was not clear. But they did not say so in subsequent correspondence, repeating the original terms of the request for confirmation several times. At no stage did they offer any other date than "the end of the school year in 2002", a date which, if not precise in calendar terms, was quite clearly ascertainable and unequivocal. There was no restriction to the confirmation and it would have hardly been open to the teachers to say, that in the light of the confirmation they were not committed to teach until "at least July 2002". I am satisfied that a clear and unequivocal undertaking to teach, in the precise terms requested, had been given on 30 August 2001.

40. The College's solicitors replied to that letter on 5 September 2001. Notwithstanding the clear confirmation of the commitment to teach to the end of the 2002 year it was quite wrongly asserted that the teachers had refused to give such a confirmation. The matter of location was dealt with in the following terms (p. 511):

"Regarding locations, we maintain what we have stated before. Our client is indeed surprised to see your allegation that your clients' income will be affected by the change of locations (or facilities even within the same branch). This is indeed contradictory to your clients' case whether as stated on affirmations or in argument before Her Ladyship quite recently. We are pleased to note your clients' agreement that our Client has the freedom to allocate classrooms but you have added the condition that facilities and sitting (sic) capacity must be the same and within the same branch location. Whilst we do not agree with your clients position, our client shall try their best to accommodate such request. Your client must, however, realize that as a result of their own default in conducting classes, our client has had no alternative but to reorganize schedules as a result. Consequently classrooms which have been previously taught by your clients have been allocated for use by other classes and/or teachers. It would, of course, be quite unrealistic, if not impossible, for classrooms already allocated for other use to be re-allocated yet again on short notice, especially in view of the history of the matter, for which your clients are solely to blame. Our client makes it clear that it will use its best endeavours to secure the same classrooms and/or comparable classrooms for use by your clients as requested by you in your letter under reply. However, your clients must appreciate that such will take time and might not always be possible even with the bets endeavours and intentions."

41. On 11 September 2001 the teachers solicitors wrote in respect of two teachers stating that those two would, as no new timetable had been issued to those teachers, attend at Yaumati branch of the College, in accordance with the previous years timetable and await instructions. On the same day the College's solicitors replied. They pointed out first, that there had been no reply to their letter of 5 September 2001, again seeking the confirmation of a commitment to teaching, although the confirmation had been given and the College had stated its position in respect of location. On 12 September 2001 the teachers' solicitors replied reminding that the confirmation sought had been given on 30 August and repeating it. They raised again the issue of location in these terms (P. 523):

"Our clients insist classes must be arranged at the same locations. Our clients deny the allegation of default and fail to see how their conduct has lead to the re-organisation of the Schedules. Your client knows they have to accommodate our client's teaching as early as 23 July 2001. it is your client's obligation they have undertaken to the Court and should not be depending on our clients notice. Our clients do not understand why they should be blamed for the present situation now in. Your client's use of best endeavours is unsatisfactory. Your client's undertaking to the Court ought to be strictly observed." (sic)

42. A second letter was written by the teachers' solicitors on the same day. It dealt specifically and in detail with the matter of confirmation of the teachers commitment to teach until July 2002. Yet again the confirmation was given in clear terms. This brought a reply on 15 September 2001 in which it was asserted, for the first time, that a date had to be given. The letter in which the first request for a commitment confirmation was made said that the commitment should be:

" until at least the end of the school year in 2002"

There is nothing in the terms of the commitment given on 30 August 2002 by the teachers' solicitors, on their behalf, which in any way suggested that the period requested for the commitment was not accepted.

42. It has been suggested by the College that a statement in a letter by the teachers' solicitors that the commitment was to teach up to "the last class of the academic year, presumably 31st May 2002" confused the issue by suggesting an alternative date. The argument is quite devoid of merit for it ignores the use of the word "presumably" which makes it clear that the commitment given was that sought, namely to the end of the academic year.

43. By letter dated 15 September 2001 the College's solicitors reiterated the College's position in respect of location, namely that best efforts would be made to locate the classes in the same schools but that the delay in starting meant that this may not be possible. On 20 September 2001 the teachers' solicitors replied asserting that the teachers were not concerned as to how the undertaking was carried out, impliedly asserting the right of the teachers to teach in the same schools as in the previous year.

44. On 9 October 2001 the College's solicitors sent to the teacher's solicitors the timetables. These contained the locations at which the classes would be taught. On 11 October 2001 the teacher's solicitors replied in the following terms (P. 547), returning the timetable, with location corrections (p2097):

"All our clients object to the changes of the locations. Such changes would have amounted to breaches of your clients undertakings to the Court. In the circumstances, our clients would attend the classes but with their protests and with all their rights reserved, including especially their right to apply for discharge of the interlocutory injunctions and to claim against your client for all the losses and damages they have and would have suffered. Our clients would discharge their duties in teaching the evening classes subject to the foregoing.

Finally, on 13 October 2002 the College's solicitors repeated their assertion that location was not a matter relating to the undertaking, but accepted the position taken by the teachers in these terms (P. 549):

"Our client is glad to note the your clients would discharge their duties in teaching the Evening Classes (subject to their stance on the locations)."

45. Mr. Yiu duly reported for evening classes at Yuen Long on 23 October 2001. There were no students enrolled in his class although I understand that 8 later enrolled, a vastly fewer number than the 600 he had taught at different locations in the previous academic year. On 24 October 2001 the teachers' solicitors wrote to the College's solicitors informing them that they considered that the College had re-located the classes against the teachers protest and that unless the matter was resolved within three days application would be made to discharge the injunction.

46. I have felt it necessary to set out the correspondence at length as only then can the dispute be seen in a proper light. It is plain that the college knew right from the outset that the teachers considered the issue of location as important and a part of the undertaking. The matter was a live issue throughout the preliminaries to the return to teaching and it is clear that by returning the teachers have not waived their position.

47. The expression "schedule", in the context in which it is used in this case, has not received judicial consideration. The definition of the term in the Oxford English Dictionary is, in the context of this case unhelpful, for as the word is used as a noun (as in this case) it is simply defined as a programme or plan of events. No light is cast upon the extent of such a programme.

48. In Reddy v Lachlan [2000] Lloyd's LR PN 858 the Court of Appeal held that if there was an ambiguity in an undertaking given by a solicitor the ambiguity should be interpreted in favour of the recipient of the undertaking. I consider that the same principle ought to be applied in the case of an undertaking given to support the issue of an interlocutory injunction. In the same case the court said that the critical question of construction was how would the communication in question reasonably have been understood by the recipient in the circumstances in which he received it. Again this approach to construction is, in my view, the appropriate approach to take in this case.

49. I take the view that it is implicit in the use of the word in the context of this case, that it refers to days of the week, times and the places that the classes are to be held. In this respect a "schedule" of classes is the same as a schedule of train or aircraft times. Without the places at which each will depart or arrive they are meaningless. A change of the places is crucial. Equally, both for the reason of income and of logic, in my view the schedule of classes which the College undertook to offer to the teachers was intended to be classes on certain days, at certain times and at certain places, those criteria being defined by reference to the previous years classes taught by the relevant teachers.

50. Mr. Yiu had been supplied with a timetable by the College during the academic year 2000-01. It is at P. 592. It shows the dates, times and locations of the classes as well as the subjects to be taught. When the teacher's solicitors wrote on 16 August 2001 setting out the classes the teacher's expected to teach, the content of this document was followed. However instead of using the same precise pattern, in which the location was marked beside the class designation by an abbreviation, five columns were set out headed "Day"' "Location"' "Room"' "Class"' and "Schedule". On the basis of this it was submitted that the teachers themselves did not consider "location" to be part of "classes" and "schedules" as it was contained in a separate column. I reject this argument. The expressions "level" and "times" could have been used in the last two columns and the document would have meant exactly the same. In the context of the document, the words "class" and "schedule" are used to mean "level" and "time". I am satisfied that they were not used in that restrictive way when being used in the undertaking. In my view, had anyone asked, on 20 or 23 July 2001, when the parties were before Chu J whether the expression "classes and schedules" meant a "timetable" the answer would have been "off course, a timetable such as is at P. 592." Such a timetable will inevitably contain not only the level of class to be taught, and the time at which it is to be taught, but also the location where it is to be taught.

51. I accordingly find that in failing to offer the opportunity to teach the same level of classes at the same days and times, in the same schools as the previous year, the College is in breach of the undertaking given to the Court.

A change in circumstances:

52. Mr. Yiu contends that because he has been unable to find a day school position the balance of convenience now favours him and the injunction ought to be discharged. Notwithstanding Mr. Liao's submission I am satisfied that the evidence establishes that Mr. Yiu has made a considerable effort to find a day school teaching job but has been unable to do so. He has lodged a large number of applications, and none have been successful. By the very nature of the teaching profession job applications must be made prior to the commencement of the academic year. It will only be occasionally that jobs will arise during the school year.

53. It is clear from the judgment of Chu J that the exercise of the discretion in favour of the grant of an interlocutory injunction which would have the effect of preventing the teachers from teaching at evening school was entirely predicated upon the offer of the undertaking which had the effect, with the ability of the teachers to teach day school, of ensuring that evening school classes would be available to them on the same basis as in the previous year, thereby ensuring that they were still able to earn a living. Two events have now occurred. First Mr. Yiu has established that he has been unable to find day school work. Second, with the events of September and October 2001 and the unsuccessful resumption of evening school teaching by Mr. Yiu at the College, the relationship between the parties has broken down to an extent where I find it would be unreasonable to expect Mr. Yiu to resume evening school teaching. Even before he resumed teaching the College demonstrated, by demanding an undertaking that had not been required at the time of the grant of the interlocutory injunction, that they simply did not trust Mr. Yiu, or indeed any of the teachers. Mr. Yiu, on returning to find himself restricted to Yuen Long Main School, has no confidence that the College will be able or willing to provide him with teaching in terms of the undertaking.

54. Accordingly, in the present case, I find that the inability of Mr. Yiu to find a day school job, thereby placing him in a position where he is unable to earn an income from his profession by turning to evening school teaching is a material change of circumstances. I do not find the stated willingness of the College to take him back teaching to be, in the whole of the circumstances, a sufficient answer to the change in circumstances.

Should the injunction be discharged:

55. The grant of an injunction, an equitable remedy, is at the discretion of the court. The fact that grounds exist for the grant of an injunction does not mean that it will automatically follow. All matters relevant to the exercise of discretion must be considered. The same rule must apply to a breach of an injunction, or an undertaking given to support the grant of an injunction.

56. Further, in appropriate circumstances application for discharge of an interlocutory injunction may be made to a judge at first instance and need not be achieved by appeal to the Court of Appeal. Those circumstances were set out by Brown J in London Underground Ltd. v National Union of Railwaymen (No. 2) [1989] IRLR 343. There, without deciding that the circumstances were limited, the obvious examples where discharge at first instance, rather than appeal was appropriate were described as:

(i) the injunction was obtained strictly ex parte;

(ii) the injunction was obtained ex parte on notice, the defendant not having filed any evidence;

(iii) the sole or main basis for seeking the discharge is that there has been a material change in circumstances since the injunction was granted;

(iv) after the injunction is granted, it becomes apparent that it was founded on an erroneous view of the law.

I am satisfied that I have jurisdiction to either discharge or vary the interlocutory injunction, first because, a breach of the undertaking having been established it is a matter of discretion as to what consequence should follow from that breach, and second because there has been a relevant change of circumstances.

Matters relevant to the exercise of discretion:

57. On 23 July 2001 when the injunction was granted on the basis of the undertaking the College knew that there was a likelihood that the teachers would return to teach according to the same schedule as the previous year. They ought then to have planned for that eventuality. On 16 August 2001 the teachers made it clear that they intended to take advantage of the undertaking. At that time the College ought to have put into action the necessary steps to schedule classes for the teachers as they had been scheduled in the previous year. That was their obligation in terms of the undertaking. It is irrelevant that there may have been difficulty in re-organising the timetable, for that was necessarily anticipated at the time of the undertaking. Instead the College prevaricated and sought from the teachers additional terms which were not part of the injunction.

58. Even if the College was entitled to require the confirmation of a commitment by the teachers to teach until the end of the academic year, it was, in my view, completely clear to the College that the promise sought from the teachers had been given by 30 August 2001. The repeated requests for the promise were repeatedly met with the response that the promise had been given on 30 August 2001. The refusal of the College's solicitors to accept that which had been plainly given cannot be explained by saying that the date to which the teachers were committed was not clear. The confirmation had been given in the precise terms sought.

59. Had the College accepted, as I find that it should, the promise to teach as requested there was sufficient time to schedule classes as they had been scheduled for the previous year. In any event, having given the undertaking to the Court, the College was simply obliged to honour it, and should have dealt with what amounted to a timetable problem, thereby permitting Mr. Yiu to teach in the same place he had the previous year.

60. On the other hand, the teachers did not cover themselves with glory. I put aside from the consideration of the exercise of discretion their conduct prior to the grant of the interlocutory injunction. That is past, and not now relevant to the exercise of discretion. But their conduct after the grant of the injunction is relevant to the issue of discharge. The primary matter to be weighed in the balance is their statements on the web-site to the effect that they would not teach. In the light of those the College may well have been justified in seeking a release from the undertaking on the basis that it was plain that the teachers would not cooperate in all that was required to effectively teach. But instead the College elected to accept the teachers statement on 16 August 2001 that they would come back. In my view that relieved the teachers from their earlier position.

61. Next, there is no evidence at all from the College that, without Mr. Yiu and the other teachers in the College, either the number of students or the turnover of the school has in any way reduced. To that extent therefore, the failure of the teachers to observe the provisions of the evening school contract and teach evening school has not caused any loss to the College. Losses of that nature may well be a basis upon which Mr. Yiu might be held to the contract for the full five years. If no loss was suffered by the College by his departure, there is no need to hold him to that part of the contract which requires his personal services to the school if he is to earn income as an evening school teacher. The other aspects of the restrictive covenant may comfortably remain in place until trial even if Mr. Yiu is permitted to teach at an evening school thereby protecting the school from having students enticed away or Mr. Yiu being involved in the management of another school. His role must necessarily be confined to merely that of a teacher in a school. He could not promote the fact that he was the teacher in order to encourage students to attend his classes. But he could teach and potentially earn a living.

62. Finally, as recognised by Chu J, the court ought not to enforce the performance of negative obligations if their enforcement will effectively compel an employee to perform positive obligations under a contract: Warren v Mendy [1989] 1 WLR 853 per Nourse LJ at 867. Having regard to the inability of Mr. Yiu to obtain a day school teaching position the effect of the injunction is to compel him to teach evening school at the College in order to earn a livelihood. In the same case the learned judge noted that an injunction will be less readily granted where there are obligations of mutual trust and confidence, more especially where the employee's trust in the employer may have been betrayed or his confidence in him genuinely gone. Having regard to the conduct of the College in relation to the location aspect of the undertaking I am satisfied that Mr. Yiu is justified in having no confidence in the College to treat him properly should he attempt to return to evening school teaching at the College.

Conclusion:

63. For these reasons, the interim injunction granted on 27 July 2001 is discharged insofar as it restrains the 1st Defendant from teaching as an employed teacher in evening tutorial classes. The 1st Defendant remains in all other respects bound by the provisions of the interim injunction.

Costs:

64. Mr. Yiu has succeeded in his application. During the course of the hearing it was made clear that he would be satisfied if the interlocutory injunction were varied to permit him to teach at evening school. He was content to abide the remainder of the injunction pending trial. I suggested to Mr. Liao that that matter should be discussed by the parties. The College elected not to take advantage of that suggestion but to press their position which has failed. Instead they chose to make an open offer of a position which I have found to be unrealistic having regard to the relationship between the parties. There will be an order nisi that the College must pay Mr. Yiu's costs of this application. Mr. Yiu's costs will be taxed on Legal Aid regulations.

Representation:

Mr. Andrew Liao SC and Ms. Priscilla Wong, instructed by Anthony Chiang & Partners, for the Plaintiff

Mr. C. Y. Li, instructed by Wan & Leung, for the 1st Defendant