CHAN CHUNG SING v. QUPITAL LTD

HCA 40/2023

[2023] HKCFI 3042

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 40 OF 2023

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DECISION

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INTRODUCTION

1.  Pursuant to the application made by the defendant, Master Dick Ho ordered on 21 June 2023 that the Statement of Claim be struck out and this action be dismissed (“the Master’s Decision”).

2.  This is the appeal of the plaintiff against the learned Master’s Decision.

3.  It is well established that an appeal against Master’s decision is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time. The judge will give the weight it deserves to the previous decision of the Master, but he is in no way bound by it. The judge in chambers is in no way fettered by the previous exercise of the Master’s decision. (Hong Kong Civil Procedure 2023, Volume 1, paragraph 58/1/2).

BACKGROUND

The plaintiff’s case

4.  Mr Fong for the plaintiff has summarised the plaintiff’s case as follows:

“3.1. In or around November 2015, the plaintiff and Andy [Chan] had an oral agreement that both carried on the Business together with a view to profit and would be partners on equal basis holding a total of 70% shareholding, with 30% shareholder allocated to third party investor(s). The plaintiff started contributing their knowledge and skills to found and develop the Business, and looking for investors.

3.2 In February 2016, Andy found the investor David [Chang], and the plaintiff, David and Andy each on his own behalf and each as agent for the Intended Company made the Agreement which was partly oral and partly inferred from conduct that both the plaintiff and Andy were to be majority shareholders on equal basis, while David was to be a minority shareholder. David would provide the Business with operating capital, while Andy and the plaintiff would undertake work to found and develop the Business.

3.3 On 1 March 2016, [Qupital Limited] was incorporated, and David was the sole shareholder and the first director of [Qupital Limited]. Further, on 11 March 2016, Andy and David each on behalf of himself and as agent for [Qupital Limited] represented to the plaintiff that, in the event of injection of further fund(s) by investor(s), the plaintiff would be, inter alia, allotted, to shareholding in [Qupital Limited] equivalent to 35% shareholding before dilution of shareholding after injection of funds.

3.4 The plaintiff continued his contributions to the Business until 28 April 2016 when the plaintiff was barred from participating in development of the Business. Despite request, Andy, David and [Qupital Limited] failed to transfer any shares in [Qupital Limited], provide any profits, and offer him a job in accordance with the Agreement.

3.5 Up to November 2021, [Qupital Limited] had raised US$150 million through a combination of series B equity funding with participation from several well-known funds including Alibaba Entrepreneurs Fund.”

5.  In the present case, the plaintiff’s claims are made against Qupital Limited, and he relies on various causes of action[1] including breach of contract, unjust enrichment, proprietary estoppel, Pallant v Morgan trust and constructive trust, quantum meruit, conspiracy to injure and infringement of copyright.

Procedural background

6.  This in fact is not the first action that the plaintiff commenced for the resolution of his disputes with Andy, David and Qupital Limited, as the plaintiff had started HCA 1582/2017 (“the 2017 Action”) on the basis of the same dispute in 2017. As Mr Fong himself described, in the 2017 Action, the plaintiff “claimed against Andy and David essentially on the same factual matrix”.

7.  It should be pointed out that, when the 2017 Action was commenced, the plaintiff only sued Andy and David as defendants.

8.  Unfortunately, there had been various defaults/breaches of court orders on the part of the plaintiff in the 2017 Action, and as a result, the learned Registrar made an unless order against the plaintiff therein as follows on 11 December 2020 (“the Unless Order”):

“Unless the Plaintiff do take out applications for amendment, joinder of parties and discovery […] on or before 4:30pm 8 January 2021, the Plaintiff’s action against the Defendants be dismissed without further order with costs of the action to the Defendants, to be taxed if not agreed.”

9.  On 8 January 2021, the plaintiff took out a summons (“the 2021 Summons”) for leave to amend his Amended Statement of Claim in the 2017 Action and joinder of Qupital Limited as an additional defendant therein. The 2021 Summons was fixed to be heard by Master Tse on 24 February 2021. A draft Re-Amended Statement of Claim (“the 2017 Action latest draft S/C”) was attached to the 2021 Summons.

10.  However, since the plaintiff did not make any application for discovery (whether by virtue of the 2021 Summons or otherwise), the 2017 Action was dismissed automatically on 8 January 2021 pursuant to the Unless Order.

11.  Despite the aforesaid automatic dismissal, the hearing before Master Tse was not vacated. In that hearing, the 2021 Summons was dismissed as the 2017 Action was no longer alive.

12.  On 11 January 2023 (that is, two years after the dismissal of the 2017 Action), the plaintiff commenced the present action against Qupital Limited.

13.  On 8 March 2023, Qupital Limited applied herein to strike out the plaintiff’s claim, which led to the Master’s Decision on 21 June 2023.

14.  The plaintiff then filed a Notice of Appeal to Judge in Chambers on 5 July 2023.

15.  On 23 September 2023, the plaintiff filed a summons in the 2017 Action and asked for relief from sanctions out of time (“the Relief from Sanctions Summons”). The said summons has now been fixed to be heard on 28 November 2023.

16.  On 17 October 2023 (9 days before this appeal), the plaintiff served a draft Amended Statement of Claim (“the Present Action latest draft S/C”) on Qupital Limited. For the purpose of this appeal, insofar as it is necessary to compare the claims made by the plaintiff in the 2017 Action and in the present action, Mr Ho accepted that the relevant pleadings which this Court has to take into account are the 2017 Action latest draft S/C and the Present Action latest draft S/C respectively, even though no leave had been granted by the Court for amendment in respect of either document. In this regard, Mr Fong has helpfully prepared a table for such comparison purpose, and it can be seen therefrom that there is basically a complete overlap in the plaintiff’s claims against Qupital Limited in both actions.

DISCUSSION

The plaintiff’s argument

17.  In a gist, it is the plaintiff’s argument that his failure to comply with various orders in the 2017 Action which led to the Unless Order and the breach thereof were due to the fault/negligence on the part of his then solicitor, and that such conduct should not be attributed to the plaintiff himself. The plaintiff said he had no deliberate intention to ignore/disobey the Unless Order and other orders made in the 2017 Action. Hence, there was no abuse of process on his part in the 2017 Action, nor could his conduct be categorized as “inexcusable”.

18.  Furthermore, it was said that even if the plaintiff’s conduct in the 2017 Action constituted abuse of process or was “inexcusable”, there are special reasons why the present action should be allowed to proceed, because it was due to his solicitor’s fault that the 2017 Action was dismissed.

The legal principles

19.  In DC (A child suing by her father and litigation friend) v CPS Fuels Ltd [2001] EWCA Civ 1597, the claimant’s claim in a previous action against the defendant therein had been struck out as a result of delays and failures on the part of the claimant in complying with time limits and court directions. The claimant then commenced a new action against the defendant. This subsequent action was dismissed by Judge Barnett, who referred to an English Court of Appeal decision in Arbuthnot Latham Bank Ltd v Trafalgar Holding Ltd [1998] 1 WLR 1426 in which Lord Woolf MR (as he then was) stated:

“In exercising its discretion as to whether to strike out the second action, [the] court should start with the assumption that if a party has had one action struck out for abuse of process, some special reason has to be identified to justify a second action being allowed to proceed.”[2]

20.  Judge Barnett then concluded:

“It is an abuse of the process for the Claimant to seek to litigate in the present action the same issues as were raised, but not adjudicated upon, in the First Action which was struck out as a result of inexcusable failures to comply with the rules and court orders.

In order to exercise my discretion so as not to strike out the present action, some special reason needs to be identified which, having regard to the overriding objective, would mean that it was just to allow the present action to proceed.”[3]

21.  The above approach as explained by the learned Judge was approved by the English Court of Appeal as the right approach[4]. I would also follow the said approach in the present case.

Should the present action be dismissed

22.  In the present scenario, the 2017 Action was dismissed by reason of the plaintiff’s failure to comply with the Unless Order.

23.  Properly analysed, the plaintiff’s argument that the present action should be allowed to continue is made on his assertion that he should not be blamed for his solicitor’s failure to comply with various court orders.

24.  The question is therefore whether the Court, in this appeal, should distinguish his solicitor’s conduct from the plaintiff’s own conduct.

25.  In my view, the answer is clearly “No”.

26.  This is supported by the Court of Final Appeal’s decision in Wing Fai Construction Co Ltd (in liquidation) v Yip Kwong Robert [2012] 1 HKLRD 589, in which Chief Justice Ma held that:

“I would also reiterate that under the new CJR regime, it remains the position that the fact any delay was caused by the plaintiff’s legal representatives, will not be relevant to the exercise of the court’s discretion. This was the position before: see Birkett v James, 1978] AC 297, 324A – E. For better or worse, acts done or omitted to be done by a party’s legal representatives will be attributable to that party.”[5] (emphasis added)

27.  It should be noted that the above was said by Ma CJ when his Lordship explained under what circumstances an action should be struck out by reason of abuse of process of the court which in turn was caused by delay. Hence, the issue therein was “abuse of process of the court”. Yet, it was held authoritatively that whether the delay was caused by the party’s legal representative is irrelevant.

28.  A similar approach has been adopted by the Singapore Court of Appeal in Changhe International Investments Pte Ltd (formerly known as Druidstone Pte Ltd) v Dexia BIL Asia Singapore Ltd (formerly known as Banque Internationale A Luxembourg BIL (Asia) Ltd) [2005] 3 SLR 344, in which it was held that:

“11. Thus, it is established law that where a litigant, whose first action has been struck out for failure to comply with a peremptory order, brings a second suit based on the same cause of action, that second suit may be struck out as being an abuse of the process of the court unless the litigant can give a proper explanation to establish that his failure to comply with the peremptory order was not contumelious. It should be noted that Tolley v Morris also stands for the principle that disobedience to a peremptory order would generally amount to contumelious conduct.

12. Further, the courts have consistently taken the position that even where the contumelious conduct is that of the litigant’s solicitor rather than that of the litigant himself, the litigant has to bear the consequences of such contumely. In Hytec Information Systems Ltd v Coventry City Council [1997] 1 WLR 1666 at 1675 – 1676, Ward LJ explained the rationale for visiting the sins of the solicitor on his client as follows:

Ordinarily, this court should not distinguish between the litigant himself and his advisers. There are good reasons why this court should not: first if anyone is to suffer for the failure of the solicitor it is better that it be the client than another party to the litigation; secondly, the disgruntled client may in appropriate cases have his remedies in damages or in respect of the wasted costs; thirdly, it seems to me that it would become a charter for the incompetent … were this court to allow almost impossible investigations in apportioning blame between solicitor and counsel on the one hand, or between themselves and their client on the other. The basis of the rule is that orders of the court must be observed and the court is entitled to expect that its officers and counsel who appear before it are more observant of that duty even than the litigant himself.” (emphasis added)

29.  It is therefore a non-starter for the plaintiff to allege that there was no abuse of process of the court in the 2017 Action even though that action was dismissed by reason of the non-compliance with the Unless Order on the basis that the breach thereof was attributable to the negligence of his solicitor and that he himself should not be blamed. Neither does the plaintiff’s argument that there are special reasons hold water.

30.  Once the plaintiff’s attempt to blame his solicitor herein is rejected, his argument should collapse.

Is the present appeal an abuse of process in itself

31.  As aforesaid, after the learned Master had acceded to the defendant’s application to strike out the plaintiff’s claim herein on 21 June 2023, the plaintiff had taken out the Relief from Sanctions Summons on 23 September 2023, which has now been fixed to be heard on 28 November 2023.

32.  It has been expressly stipulated in Order 2 rule 5(1)(f) of the Rules of the High Court (Cap.4A, Laws of Hong Kong) that, when deciding the question of relief from sanctions, the court is obliged to consider all the circumstances including whether the failure to comply with the Unless Order was caused by the party in default or his legal representative. In other words, the difficulty encountered by the plaintiff in relying on the fault of his solicitor as discussed above would not exist in the application for relief from sanctions in the 2017 Action.

33.  As admitted by the plaintiff’s counsel, all the arguments which the plaintiff have relied on herein can be relied on in support of his Relief from Sanctions Summons.

34.  In such circumstances, I do not understand why the plaintiff should be allowed to proceed with the appeal herein. In my view, in the circumstances where the plaintiff has made an application in the 2017 Action for relief from sanctions, it is an abuse of process of the court for the plaintiff to proceed with this appeal. There is no reason why the plaintiff should be entitled to have 2 chances to make the same arguments.

35.  I therefore take the view that the plaintiff’s appeal should be dismissed also on this ground.

36.  The plaintiff’s application for relief from sanctions in fact also highlighted the undesirability of allowing him to proceed with the present action.

37.  It may be recalled that the deadline imposed by virtue of the Unless Order was 8 January 2021. Pursuant to Order 2 rule 4 of the RHC, the plaintiff should have applied for relief from sanctions within 14 days of his failure to comply with the Unless Order (i.e. by 22 January 2021). However, the plaintiff did not take out the Relief from Sanctions Summons until 23 September 2023. There was thus a delay of around 2 years and 8 months. The plaintiff will therefore face an uphill task in obtaining such relief in the 2017 Action because of such a long delay. However, I do not think it is right for the plaintiff to be able to avoid this difficulty by commencing a new action.

38.  At the risk of stating the obvious, I should also emphasize that if at the end of the day the plaintiff is not granted relief from sanctions in the 2017 Action, such that he cannot pursue his intended claim against Qupital Limited therein, it would be extremely unfair if he should then be allowed to “escape” from the Court’s sanction by commencing another set of legal proceedings against Qupital Limited. This would become a loophole in our legal system which must not be allowed to exist.

DISPOSITION

39.  For reasons of the aforesaid, the plaintiff’s appeal is dismissed.

COSTS

40.  I make a costs order nisi that the plaintiff shall bear the costs of the appeal.

41.  The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on paper) within 14 days hereof.

42.  The defendant’s costs of the appeal shall be summarily assessed in lieu of taxation. Unless any application for variation of the aforesaid costs order nisi is made within time, the plaintiff shall lodge and serve his statement of objection within 7 days after the expiry of the said 14-day period[6]. Summary assessment of the defendant’s costs of the appeal will be conducted on paper (no matter whether any statement of objection is lodged by the plaintiff within time) thereafter. The costs assessed shall be paid by the plaintiff within 14 days after assessment.