CITY EXPRESS INVESTMMENT LTD AND OTHERS v. ZHANG DA WAI

CACV 310/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 310 OF 2007

(On Appeal from HCA 1673 of 2003)

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CACV 311/2007   

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 311 OF 2007

(On Appeal from HCA 1203 of 2007)

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BETWEEN:

 (Heard Together)

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JUDGMENT

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Hon. Yuen JA:

1.  This is an appeal from the decision of Deputy Judge Louis Chan in respect of a total of 5 summonses taken out in either HCA1673/2003 (“the 1^st action”) or HCA 1203/2007 (“the 2^nd action”) and which were heard together.  There is also a Respondent’s Notice which I will refer to later.

2.  The procedural background is rather complex and it may be helpful to set it out briefly.

HCA1673/2003

3.  HCA1673/2003 was commenced in 2003.  In this action, the Plaintiffs are City Express Investment Ltd, Filon Investment Ltd and Chan Chun Keung (which for convenience are referred to in this judgment as “the HK parties”, although some matters concerned only the companies and some matters, only the individual).  The sole defendant is Zhang Da Wi (“Zhang”). 

HK parties’ case

4.  The Statement of Claim was first filed in May 2003, and was amended in June 2003 and re-amended in January 2004. 

5.  The HK parties allege that in 2001 they appointed Zhang – who held himself out as a PRC lawyer employed by the Legal Advisory Division, a department of the Peoples Liberation Army (“LAD”) – as their agent for the recovery of some properties in Beijing.

6.  It is alleged in the statement of claim that on Zhang’s advice, the HK parties executed some documents including:

(1)   a Legal Services Agreement dated 19 September 2001, pursuant to which an association called Themis Funds Organization of China (“Themis”) was appointed as the HK parties’ agent to be in charge of legal proceedings to be commenced on the Mainland for the recovery of the properties, with LAD appointed to provide incidental legal services.  It was provided that a sum of $1 million was payable to Themis  as a deposit for lawyers’ fees, but no further lawyers’ fees were payable until after the proceedings were completed; and     

(2)    2 “Letters of Authorization and Agency” dated 28 September 2001 whereby the HK parties appointed Zhang as their “principal agent and authorized person” in the conduct of legal proceedings on the Mainland and for the settlement and payment of litigation fees and lawyers fees.

In fact the Legal Services Agreement was made between the HK companies which were designated Parties A and B of the “authorizing party”, and the Executive Committee of Themis and LAD which were designated as Parties A and B of the “authorized party”.     

7.  The HK parties allege that between 2001 and 2002, on Zhang’s representations they paid him about $10.25 million as respectively:

(1)     the deposit for lawyers’ fees ($1 million), paid in October 2001,

(2)     reimbursement of legal costs and expenses ($3 million), paid in October 2001, and

(3)     reimbursement of court fees and charges imposed by the authorities (about $6.25 million) for enforcing the judgment obtained in their favour, which sum was paid in various amounts between February and June 2002. 

8.  The HK parties claim that they subsequently discovered that some of these sums were received, not as reimbursements, but as “donations”, or “advance settlement of legal consultation fees, subsidies for travelling, communication and living expenses”, or “advance lawyers’ fees or agency fees”.

9.  In the 1^st action, the HK parties are seeking an account of the sums paid, as well as other relief based on allegations of misrepresentation and deceit.

Conduct of 1^st action

10.  The 1^st action did not progress speedily.  Zhang first applied for a stay of the action on the ground of forum non conveniens.  That application was dismissed first by Master Kenneth Wong on 16 December 2003 and then by Chu J on 8 November 2004.  Zhang then sought to appeal Chu J’s order but withdrew his appeal in April 2005. 

11.  After Master Wong dismissed the application for stay, Themis commenced litigation in the PRC against the HK companies for payment of fees.  However on 20 December 2004, the Beijing City No. 2 Intermediate People’s Court dismissed the claim, apparently on the ground that Themis, as a Hong Kong association, was not entitled to provide legal services in the PRC and thus their acts were void.  I shall refer to the litigation in the PRC again later in this judgment. 

Zhang’s Defence

12.  Zhang’s Defence was filed in January 2005, more than 1½ years after the statement of claim was served.  In his Amended Defence, Zhang says that the Legal Services Agreement was subject to certain conditions to which the HK parties had agreed.  One condition was that Themis would assist LAD in non-litigation matters.  Other conditions were that the HK parties would have to pay various other fees such as:

-        a Security Deposit to guarantee the truthfulness of the HK parties’ evidence,                                                                     

-    remuneration of Themis and LAD at 10% of the value of the subject matter of the proceedings at the completion of the proceedings,

-    further remuneration of Themis and LAD if they were engaged in subsequent proceedings for enforcement of the judgment,

-    litigation charges imposed by the PRC court, and

-    guarantee charges imposed by the PRC court for the enforcement of judgments,

and Zhang claims that the sums paid by the HK parties were in payment of some of these fees.

13.  In particular Zhang specifically denies that he was the HK parties’ agent “in his personal capacity” and says that

-    only Themis and LAD were the agents of the HK parties under the Legal Services Agreement, and that

-    when the 2 “Letters of Authorization and Agency” are construed with the Legal Services Agreement, they provided that LAD was the HK parties’ agent.

Pausing there, it is noted that Zhang is a member of the Executive Committee of Themis, but at that time, no attempt was made to join Themis or LAD as parties, and no counterclaim was made.

Procedural developments in 1^st action

14.  Directions for the conduct of the 1^st action were given by the court in February 2005. 

15.  Zhang’s list of documents was filed in April 2005 after an Unless Order was given against him. 

16.  Witness statements were exchanged in July 2005, again after an Unless Order was given against Zhang.

17.  The 1^st checklist hearing was held on 27 July 2005 but it was adjourned, as Zhang said he wished to file an amended Defence.  He was also ordered to file a supplemental list of documents within 42 days.  Zhang filed his Amended Defence on 2 August 2005 and thereafter both parties filed supplemental lists of documents and the HK parties filed a supplemental witness statement.

18.  On 13 June 2006, the HK parties applied to set down the 1^st action for trial on the fixture list.  The next day, the 2^nd checklist hearing was held.

19.  At the 2^nd checklist hearing, Zhang’s solicitors then indicated that he wished to ask for Further and Better Particulars of the Reply (which had been filed on 10 February 2006).  He filed a summons for Further and Better Particulars on 21 June 2006 which was disposed of on 2 December 2006. 

20.  At the 2^nd checklist hearing Zhang also indicated that he wished to call expert evidence.  A summons for leave to adduce expert evidence was filed on 13 July 2006.  This was dealt with on 18 September 2006.

1^st summons - to re-amend Defence and add Counterclaim

21.  A 3^rd checklist hearing was scheduled for 6 December 2006.  However it had to be adjourned as on 4 December 2006, Zhang issued a summons for leave to re-amend the Defence and for the first time, to add a Counterclaim. 

22.  It was pleaded for the first time that Themis was an association registered under the Societies Ordinance Cap. 151 and that Zhang was one of its members. 

23.  In the draft counterclaim, the conditions Zhang had referred to in his Amended Defence (see paragraph 12 above) was now alleged to be a “Collateral Agreement” between the HK parties of the one part, and Themis and LAD of the other. 

24.  Zhang further alleged that Themis and LAD also had a “Co-operation Agreement” whereby Themis guaranteed the HK parties’ obligation toward LAD, and agreed to share the remuneration payable by the HK parties with LAD in the ratio of 60:40. 

25.  Zhang alleged in the draft Counterclaim that the HK parties owed Themis a substantial sum in remuneration.  He also alleged that the HK parties fraudulently provided misleading information to Themis and LAD, causing loss and damage to “[Zhang], Themis and LAD”. 

26.  On those bases “and/or” section 43 of the Conveyancing and Property Ordinance Cap.219 (which provides for the effect of agreements made with 2 or more persons jointly), Zhang made various counterclaims for himself and sought declarations that the HK parties were liable to pay Themis “and/or” LAD. 

HCA1203/2007

27.  Before the 1^st summons was heard however, the 2^nd action was commenced on 7 June 2007.  In this action, 7 persons (including Zhang) were the plaintiffs and the HK parties were the defendants. 

28.  The 7 plaintiffs were the members of the Executive Committee of Themis (“Themis Exco”), although the title of the 2^nd action referred only to their capacity as “members of Themis” and not specifically as members of Themis Exco.

2^nd and 3^rd summonses - for consolidation of actions

29.  A few days later, on 11 June 2007 summonses were issued in both the 1^st and 2^nd actions for consolidation of the actions.

4^th summons - to join 2^nd action plaintiffs as defendants in 1^st action

30.  Not long after, on 6 July 2007 a summons was issued by Zhang in the 1^st action, essentially for the other 6 Themis Exco members to be joined as co-defendants in the 1^st action so that they could lodge a counterclaim.  Put simply, the 1^st summons was for an order that Zhang himself could lodge a counterclaim in the 1^st action, and the 4^th summons was for an order that all 7 members of Themis Exco could lodge the counterclaim in the 1^st action.

5^th summons - to strike out the 2^nd action

31.  On the same day the HK parties issued a summons to strike out the 2^nd action as an abuse of the process. 

The judge’s orders

32.  All 5 summonses were heard by the judge in July 2007.  His reasons are set out in detail in his decision but essentially he decided that in view of the delay that would be caused to the 1^st action if the counterclaim were to be allowed to proceed, he should not grant the 1^st and 4^th summonses.  He refused the consolidation summonses (2^nd and 3^rd summonses) for the same reason, i.e. that the 1^st action would be delayed if it had to wait for the 2^nd action to catch up.  As for the 5^th summons, he adjourned it and gave directions for further evidence to be filed.  He ordered that Zhang and Themis pay the costs of the 1^st summons and 75% of the 2^nd, 3^rd and 4^th summonses.  He reserved the costs of the 5^th summons.             

Appeal

33.  Zhang and Themis Exco have appealed the judge’s orders and the HK parties have also filed a Respondent’s Notice (amended without objection) appealing against the order that they should receive only 75% of the costs. 

Discussion

34.  Leading counsel for both parties have been most diligent in advancing their respective clients’ case.  They have dissected the judge’s decision in great detail.  However in my view it is not necessary for us to consider every factor the judge took into account, including his interpretation and application of s.43 CPO, because at the end of the day, the decision was a case-management decision, no more and no less.

35.  There were certainly adequate grounds for the judge to conclude that too much time had been taken already for the 1^st action.  I have earlier in this judgment referred to Zhang’s unsuccessful stay application, the Unless Orders made against him to complete discovery and to provide witness statements, and his late applications for Further and Better Particulars and for expert evidence to be adduced.  His proposal to lodge a counterclaim (whether by himself, as per the 1^st summons, or by joining the other Themis Exco members, as per the 4^th summons) could not have been made much later.  After the 1^st action was commenced against him in Hong Kong in 2003, he (and the others) chose to litigate in the PRC instead, and it was only after they failed that this attempt has been made now in Hong Kong, very late in the day, to lodge a counterclaim for the first time.  Indeed, even after the Beijing Court’s dismissal of the action in the PRC in December 2004, Zhang still did not lodge a counterclaim in his Amended Defence filed 8 months later in August 2005. 

36.  In refusing  to grant the 1^st and 4^th summonses however, the judge was not just penalizing Zhang and Themis Exco.  The judge was entitled to find that substantial delay would be caused if the counterclaim were permitted to be advanced in the 1^st action and it would be “unfair” for the HK parties for their action to be “stalled for an indefinite period” (paragraph 34).  This is entirely in accord with principles expressed in cases such as Ketteman v Hansel Properties Ltd [1987] 2 WLR 312, 339-340.  The situation is ripe for substantial delays if the counterclaim is allowed to be pursued - it pleads for the first time a “Co-operation Agreement” between Themis and LAD.  This will bring into play further issues such as discovery of documents as issues of confidentiality surround LAD, as well as issues on PRC law on the legality of sharing lawyers fees.  I would pause to add that it is clear from the judge’s decision that his expectation of delay as a result of the 5^th summons was additional to the delays Mr Pow SC for the HK parties had identified (which the judge set out in paragraphs 25-26) and which Mr Ho, then counsel for Zhang and Themis Exco, had not grappled with (paragraph 27).

37.  Any fears that the judge might have had of inconsistent findings if the 2 actions were tried separately were allayed by the concession on the part of the HK parties that they would accept any findings of fact and decisions of law in the 1^st action as findings and decisions in the 2^nd action (if it proceeds).

38.  Accordingly I take the view that the judge was entitled in the exercise of his discretion to refuse to let Zhang make the counterclaim (as per the 1^st summons) or to join the other Themis Exco members in the 1^st action so that they could all make the counterclaim (as per the 4^th summons), particularly as Mr Shieh SC for Zhang and Themis Exco fairly accepts that the joinder application is made under Order 15 rule 6(2)(b)(ii) RHC only. 

39.  Once the judge had decided that the counterclaim should not be allowed to delay the 1^st action, it was clear that there could not be consolidation of the 2 actions as the counterclaim constituted the 2^nd action.  Accordingly the 2^nd and 3^rd summonses were rightly dismissed.

40.  As for the 5^th summons, as I have said the judge merely adjourned it and gave directions for further evidence to be filed.  There can be no real appeal from such an order.

41.  As a matter of completeness, I would add that nothing in this judgment should be taken as my acceptance that s.43 CPO applies, given the fact that it is Zhang’s own case that the Legal Services Agreement is governed by PRC law and it is at least arguable that the presumption of similarity does not apply to statute law (see Dicey & Morris, The Conflict of Laws paragraph 9-025 where it is said that it has been doubted whether the court was entitled to presume that the foreign law was the same as the statute law of the forum).

42.  For these reasons, I see no reason to disturb the judge’s substantive orders.  As for the costs order, that was (even more) an exercise of his discretion and I see no reason to disturb it either.         

Order

43.  I would therefore dismiss the Appeals and the Respondent’s Notice with an order nisi that the Appellants pay the Respondents’ costs of the Appeals and that the Respondents pay the Appellants’ costs of the Respondent’s Notice.  For the assistance of the taxing master I would indicate that 15 minutes were spent on the argument over the Respondent’s Notice. 

Hon. Lam J:

44.  I agree.