UPPER LIKE INVESTMENTS LTD v. SINO-RANK INTERNATIONAL LTD

HCA 17637/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17637 OF 1999

____________

____________

______________

D E C I S I O N

______________

1.  This is an application by the Defendant, Sino-Rank International Ltd, to strike out the Statement of Claim and the Action.

2.  As one could gather from the title, this Action was commenced by Upper Like Investments Ltd in 1999.  The Action is presently continued by China Associate Hong Kong Ltd as the Substituted Plaintiff.

3.  In this Action, Upper Like (and now China Associate) claimed against Sino-Rank for repayment of $40,000,000, allegedly due under a loan agreement made between Upper Like and Sino-Rank on or about 13 July 1993.  It was pleaded in the Statement of Claim that the loan agreement was contained in or evidenced by a letter dated 13 July 1993 from Upper Like to Sino-Rank, and that the terms of the agreement was accepted by Sino-Rank on 14 July 1993.

4.  Under the loan agreement, the principal sum was repayable on 14 November 1993.  Interest was payable at the rate of 2% per month, payable monthly on the said loan.

5.  According to the Statement of Claim, the loan was advanced to Sino-Rank on or about 14 July 1993.  Sino-Rank paid the first instalment of interest in the sum of $800,000 but had since defaulted in repayment.  Upper Like commenced this Action for the overdue principal and outstanding interest.

6.  To understand the basis of this strike-out application, it is necessary to recount the history of the proceedings.

Background

7.  In December 1993, Upper Like commenced proceedings by way of an Originating Summons to seek payment of monies and interest due under a Deed of Mortgage dated 14 July 1993.  The Deed of Mortgage was executed in favour of Upper Like under which Sino-Rank had charged certain properties (Nos 13, 15, 17, 19 and 19A Kau Wah New Village) as security for the granting of general credit facilities to be provided by Upper Like.  By way of further security a guarantee was provided by one Mr Lau Hung Tat Timothy, a director of Sino-Rank.

8.  The Originating Summons was issued against Sino-Rank and Mr Lau for reliefs including (i) payment of all monies and interest due under the Deed of Mortgage and the guarantee; and (ii) delivery of possession by Sino-Rank of the mortgaged properties.  I will hereafter refer to the proceedings under the Originating Summons as “the 1993 Proceedings”.

9.  In January 1994, Upper Like applied to enter judgment on the ground that neither Sino-Rank nor Mr Lau had given notice of intention to defend.  In the supporting evidence, Upper Like specifically mentioned that the subject matter of the application was the loan of $40,000,000 and outstanding interest.  The terms of the loan therein referred to are in fact the same as those sought to be enforced under the loan agreement in the present Action.

10.  Upper Like’s application was opposed.  Shortly before the hearing, Sino-Rank and Mr Lau filed an acknowledgment of service to contest the Originating Summons.  The main defence put up by Sino-Rank and Mr Lau was that the effective rate of interest exceeded what was permitted under the Money Lenders’ Ordinance and the loan was accordingly illegal or unenforceable.

11.  After some exchange of correspondence, the parties eventually agreed that the application for judgment be adjourned sine die with liberty to restore.  Approval of the adjournment was granted by the Master by way of a Consent Order dated 28 March 1994.

12.  It seems that no further steps had since been taken in the 1993 Proceedings and the summons for judgment was never restored for hearing.

13.  In the meantime, the evidence suggests that there had been a change in the ownership and management of Sino-Rank.  In July 1994, the controlling shares in Sino-Rank then held by one Mr Gao (apparently on behalf of the Zhongshan Municipal Government) were transferred to Mr Yip and his wife of the present management.  There is also evidence that shortly before the transfer of the shares, Mr Gao had written to Mr Yip to inform him that the debt owed by Sino-Rank to Upper Like had been settled and that the legal proceedings resolved.

14.  Mr Gao died in 1997.

15.  In November 1999, Upper Like issued the Writ in the present Action.  The Writ was apparently served on the registered address of Sino‑Rank.

16.  On 18 December 1999, Upper Like obtained default judgment against Sino-Rank for the sum of $40,000,000 plus interest from November 1993 at the rate as claimed.  Upper Like, however, did not immediately enforce the judgment.

17.  What happened was that on 26 August 2000, Upper Like assigned the outstanding debt as well as the benefit of the default judgment to China Associate.  In addition, Upper Like also transferred to China Associate the benefit of the Mortgage and the moneys repayable pursuant thereto.

18.  Curiously, despite the judgment debt and the assignment, no steps had been taken by China Associate to enforce the judgment or seek recovery of the outstanding sums for nearly 10 years.  It was not until 26 July 2010 that China Associate had served Sino-Rank with a notice of assignment of the original debt and the judgment debt.

19.  China Associate later obtained an Order from the Master on 16 August 2010 to carry on the present Action as the Substituted Plaintiff.

20.  Sino-Rank then applied to set aside the default judgment, saying that it had not received the Writ or the judgment.

21.  On 14 November 2011, Sakhrani J affirmed the Master’s decision of setting aside the judgment, holding that Sino-Rank’s argument that the loan agreement was unenforceable by reason of the illegal interest was a defence with a real prospect of success.

22.  On 5 January 2012, Sino-Rank applied to strike out the present Action, contending that the present Action is duplicitous because it relates to the same subject matter as in the 1993 Proceedings.  In the alternative, Sino-Rank also relied on the delay and the substantial risk that a fair trial would no longer be possible.

Discussion

23.  It is clear from the evidence that the loan in the present Action was also the subject matter in dispute in the 1993 Proceedings.  The evidence shows that in the 1993 Proceedings, the underlying loan sought to be recovered was the very same $40,000,000 loan (plus outstanding interest).

24.  I have been referred to Letang v Cooper [1965] 1 QB 232, where Diplock LJ (as he then was) explained what constitutes a cause of action, at p 242:

“A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person.”

In Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400, Millet LJ (as he then was) said, at p 405:

“The classic definition of a cause of action was given by Brett J in Cooke v Gill (1873) LR 8 CP 107 at 116: “‘Cause of action’ has been held from the earliest time to mean every fact which is material to be proved to entitle the plaintiff to succeed, – every fact which the defendant would have a right to traverse.” (My emphasis.) …….. I do not think that Diplock LJ [in Letang v Cooper] was intending a different definition from that of Brett J.”

25.  I am in no doubt that the factual basis of the present Action, and hence the cause of action, is exactly the same as that relied upon for recovery of the monetary part of the claim in the 1993 Proceedings.

26.  Mr Maurice Chan (appearing for China Associate) argued, however, that in the 1993 Proceedings the cause of action was based on the Mortgage which was an all monies mortgage.  It would cover any prospective drawdowns.  It also contained contractual rights beyond the scope of the loan agreement.

27.  While it is true that the rights conferred under the Mortgage were more extensive than a mere right to repayment of the $40,000,000 loan plus interest, in my view that does not in any way detract from the fact that the present Action relates to the very same subject matter as the monetary part of the claim in the 1993 Proceedings.

28.  The objection against having duplicate proceedings arising out of the same subject matter is explained in Buckland v Palmer [1984] 1 WLR 1109, where Sir Donaldson MR said at pp 1114-1115:

“Whilst I dislike procedural technicality ….. in reality there are wider issues involved. The public interest in avoiding any possibility of two courts reaching inconsistent decisions on the same issue is undoubted and this alone would suggest that two actions based upon the same cause of action should never be allowed. Equally clear is the public interest in there being finality in litigation and in protecting citizens from being ‘vexed’ more than once by what is really the same claim. Against this must be set the public interest in seeing that justice is done. …… These competing public interests will be differently reconciled on the differing facts of particular cases and this is best achieved if we hold, on principle and on the authorities to which I have referred, that (1) it is an abuse of the process of the court to bring two actions in respect of the same cause of action but (2) where there has been no judgment in the first action, that action can, in appropriate circumstances, be revived and amended so as to enable there to be an adjudication upon the whole of the plaintiff’s claim. ……”

Griffiths LJ in the same case, at p 1116, said:

“It may …. seem to be over technical to refuse to permit [the insurers] to claim that damage in a separate action. But the rule against multiplicity of proceedings in respect of a single cause of action is soundly based on considerations of public policy designed to prevent the harassment of litigants by exposing them to the anxiety and expense of unnecessary legal proceedings; …… I would not therefore think it right to make this case an exception to that general rule, particularly where there exists a procedure, namely the application for the removal of the stay, which will prevent any injustice resulting to the insurance company. …..”

29.  In this case, there is no explanation why, in 1999, Upper Like had considered it necessary or proper to commence the present Action over the same subject matter – the loan.  The Consent Order for adjournment in the 1993 Proceedings expressly provided that there was to be liberty to restore.  There is no suggestion that Upper Like could not have revived the 1993 Proceedings, which would have been the proper course to take.

30.  In this connection, I am told (and it is common ground) that when default judgment was applied for in the present Action (on an ex parte application), Upper Like did not allude to the 1993 Proceedings at all.  I do not have any explanation and I do not wish to speculate as to why the previous proceedings were not disclosed.  It suffices to say that I regard the omission as a material non‑disclosure in obtaining the default judgment.

31.  Mr Chan next argued that it would have been legitimate for Upper Like to seek a consolidation of the present Action with the 1993 Proceedings.  Insofar as Mr Chan’s argument had proceeded on the premise that the causes of action in the two sets of proceedings were different, for the reasons already given, I think he was in error.  In any event, in view of the objection against allowing duplicate proceedings to be maintained over the same subject matter, I fail to see how it would be proper to compound the error by consolidating the two sets of proceedings.

32.  Mr Chan further argued that more costs and time would be wasted by striking out the present Action because China Associate could always make an ex parte application for an order to carry on the 1993 Proceedings as the substituted plaintiff there.  I do not wish to pre-judge whether China Associate ought to be allowed to carry on the 1993 Proceedings.  For the present purpose, even assuming that to be the case, that is still not justification to allow the present Action to be maintained when the 1993 Proceedings were still extant (albeit adjourned).  It is not a question of allowing Upper Like or China Associate to choose to proceed under one or the other of the proceedings.

33.  In short, I have come to the conclusion that the commencement and continuance of the present Action is an abuse of the court’s process.  On this ground alone, I would be prepared to order that the present Action be struck out.

34.  China Associate submitted that it ought not to be penalizsed when it was not aware of the 1993 Proceedings.  Mr Kwok (appearing for Sino-Rank) on the other hand questioned China Associate’s assertion of lack of knowledge, pointing to the fact that the solicitors now representing China Associate were the same firm acting for Upper Like when the present Action was commenced and default judgment obtained.  It was also the same firm who acted for both parties in the assignment of the debt and the default judgment.

35.  I am not disposed to make a specific finding, on affidavit evidence, that China Associate had knowledge of the 1993 Proceedings.  However, I do not think that China Associate could isolate itself from the fact that the present Action, improperly commenced (by Upper Like), was an abuse of the court’s process.

36.  In this regard, I have been referred to the case of the English Court of Appeal in Sinclair v British Telecommunications plc [2000] 2 All ER 461.  In that case the plaintiff, a shareholder and director, was the assignee from the company of certain contracts on which he was now suing.  In a previous action against the same defendant (which was dismissed for want of prosecution), the company had been ordered to pay the defendant’s costs but the company defaulted in complying with the order.  The court granted the defendant’s application to stay the second action (which was based partly on the same cause of action as in the first) until the company had paid the costs of the previous action.  At p 469 b-d, Ferris J said:

“It is an inherent jurisdiction which, in essence, enables the court to prevent a plaintiff subjecting a defendant to a second, substantially similar, action without satisfying his obligations in respect of the first action. In my judgment it is a jurisdiction which is fully wide enough to enable the court to make an order against the plaintiff in the second action who is the successor in title of the plaintiff in the first action. To my mind it is as if the cause of action had become impaired by the plaintiff in the first action in so conducting that action as to give rise to the probability that a stay will be granted if a new action is commenced without the costs of the first action being paid. The assignee ought not to be in any better position than the assignor in respect of this impairment.” (emphasis added)

37.  I would draw support from the above observation in Sinclair.  China Associate, being the successor to Upper Like in the current Action would be in the same position as if Upper Like had continued these proceedings.  With regard to the present Action, being in my view an abuse of the court’s process, China Associate cannot claim to be in any better position than Upper Like.

38.  I have expressed no views on whether China Associate could have revived the 1993 Proceedings.  My view is that the present Action ought not to continue.  In the light of my conclusion, I can turn to deal with the complaint of delay more briefly.

39.  On the question of delay, I do not think one should disregard the fact that the jurisdiction of the Court was first invoked in 1993 by way of the Originating Summons.  After the adjournment was granted in 1994, there was no action from Upper Like until 1999 when the present Action was commenced.

40.  As already noted, default judgment in this Action was later obtained in December 1999, quite improperly by not disclosing the 1993 Proceedings.  China Associate then became the assignee of the benefit of the debt and the default judgment in 2000.  It is hard to understand why neither Upper Like nor China Associate had seen fit to serve or pursue the default judgment.  It was not until July 2010, almost 10 years later, that China Associate had applied to continue this Action and later in September 2010 to seek enforcement of the judgment by way of a charging order.

41.  On any view there has been very substantial delay.  There is simply no acceptable explanation for it.

42.  If, contrary to my earlier conclusion, the mere commencement and maintenance of these duplicitous proceedings had not been a sufficient ground to strike out the present Action, I would hold in any event that by reason of the substantial delay (by Upper Like, and then China Associate), these are well and truly “stale proceedings which bring the litigation process into disrespect”: Arbuthnot Latham Bank Ltd v Trafalgar Holdings Ltd [1998] 1 WLR 1426 at 1437 C-D, cited in Wing Fai Construction Co Ltd (in liq) v Yip Kwong Robert [2012] 1 HKLRD 589 at §75(4).  I do not simply view the substantial delay in isolation.  The history of these proceedings had shown that the plaintiff (Upper Like, and now China Associate) had paid no regard to the process of the administration of justice.  Having regard to the object of O.1A, r.1(f) in particular, I am quite satisfied that these stale claims ought not to be allowed to continue at the expense of other more deserving litigants:  see the Chief Justice’s observations (by analogy) at §75(9) in Wing Fai Construction Co Ltd (supra).

Conclusion

43.  I would grant the Defendant’s application that the Statement of Claim be struck out and that this Action be also struck out and dismissed.

44.  The parties have agreed that costs should follow the event.  I would accordingly order that the costs of the Action, including the costs of this application be paid by China Associate (the Substituted Plaintiff) to the Defendant, to be taxed if not agreed.