XCHRX YEUNG LAM WILSON v. TONWELL INVESTMENT CO. (HONG KONG) LTD.

HCA 16914/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 16914 OF 1999

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REASONS FOR DECISION

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1. This was an appeal by the Plaintiff from an order of a master striking out his Statement of Claim and dismissing the action. At the end of the hearing, I dismissed the appeal and said I would hand down written reasons for my decision.

Facts

2. The relevant facts are as follows. The plaintiff ("Mr Yeung") and Kitty Tze Yuen Wa ("Tze") are registered owners of a property in Happy Valley.

Legal Charge in favour of Bank

3. On 23 January 1998, they executed a Legal Charge in favour of the Bank of East Asia ("the Bank"). This Legal Charge was registered in the Land Register on 24 February 1998.

4. As this Legal Charge was registered after 1 month after the time of execution, pursuant to s.3 of the Land Registration Ordinance cap. 128, it took effect (so far as priority is concerned) from 24 February 1998.

Legal Charge in favour of Tonwell

5. On 27 January 1998, Mr Yeung and Tze executed a Second Legal Charge in favour of the defendant in the present action ("Tonwell"). This Second Legal Charge was registered in the Land Register on 25 February 1998.

6. As this Legal Charge was registered within 1 month of the date of execution, pursuant to s.5 of the Land Registration Ordinance, it was entitled to priority by relation to the date of the document, i.e. from 27 January 1998.

Miscellaneous Proceedings 4077/98

7. Mr Yeung and Tze defaulted in making payments to both the Bank and Tonwell. In August 1998, Tonwell instituted proceedings against Mr Yeung and Tze. The Bank also instituted proceedings against them in proceedings MP4077/98.

8. In due course, the Bank, Mr Yeung, Tze and Tonwell were all joined as parties to MP4077/98. Affidavit evidence was filed in preparation for the hearing, but no evidence was filed by Mr Yeung or Tze or on their behalf. Mr Yeung did however attend the hearing before Master Sweeney at which Tonwell contended that it was entitled to priority over the Bank by virtue of s.5 of the Land Registration Ordinance. Mr Yeung (who was a solicitor) submitted to the master that the Bank should be entitled to priority.

9. After hearing argument, the master ordered, amongst other things, that "possession of the property be given by [Mr Yeung and Tze] to [the Bank], subject to the rights of [Tonwell] as first chargee under and by virtue of Section 5 of the Land Registration Ordinance cap. 128". That order was made on 8 September 1999.

10. Mr Yeung appealed, but only against the order of costs made by the master, which was that Mr Yeung and the Bank pay Tonwell's costs of the hearing. Mr Yeung's appeal was dismissed by Chung J on 27 October 1999.

Present Action

11. On 17 November 1999, within a month of the dismissal of his appeal against the costs order, Mr Yeung instituted the present action. The relief sought is for "an injunction restraining [Tonwell] from maintaining the claim that the First Legal Charge [in favour of the Bank] is subject to the Second Legal Charge [in favour of Tonwell]" and for damages.

12. Mr Yeung submitted to this court that as a matter of contract between himself and Tonwell, Tonwell had agreed that its security would only be by way of a Second Legal Charge. Clause 3.01(b) of the Second Legal Charge had provided that the property was assigned to Tonwell "subject to the First Mortgage".

13. Therefore, Mr Yeung submitted, Tonwell was in breach of the contract with him and it should be restrained from maintaining its claim to priority. He further claimed damages because, according to paragraph 7 of the Statement of Claim, "the [Bank] was deprived of the full interest of the property under the First Legal Charge that it should have been [sic]" and Mr Yeung claims that he was thereby liable for the Bank's loss under the First Legal Charge.

14. Mr Yeung said that he did not raise this argument before the master in MP4077/98 because he thought it would not be necessary to do so, as he thought the Bank would be successful in claiming priority. He further said that in the heat of the moment, he was unable to organize his arguments and this argument had not occurred to him then. As to his appearance before Chung J on his appeal from the master, he said he did not know that he should have raised the argument then.

15. It is clear, in my judgment, that this Statement of Claim should be struck out and the action dismissed because it is frivolous, vexatious and an abuse of the process of the Court for Mr Yeung to re-visit this matter in the light of MP4077/98.

16. The doctrine of res judicata in the wider sense is a well-established principle.

"where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have from negligence, inadvertence, or even accident, omitted [it] ... The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time".

(Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581, 590 quoting the Vice Chancellor in Henderson v Henderson (1843) 3 Hare 100)

The doctrine of res judicata thus operates in a wider sense to cover not only issues which were actually decided by the court, but also issues that could and should have been, but were not, raised.

17. This doctrine clearly applies to the facts of the present case. Miscellaneous Proceedings 4077/98 was a tripartite proceeding. All the relevant parties were before the Court - the Bank, Tonwell and Mr Yeung (and Tze). The question for the master was priority as between the Bank and Tonwell. As was noted in Chung J's Judgment, Mr Yeung had submitted to the master that the Bank should be entitled to priority.

18. Mr Yeung therefore could and should have raised before Master Sweeney the argument that he was entitled (as he now claims) to restrain Tonwell from asserting any claim to the property prior to the Bank's security. Even if he had not raised it before Master Sweeney, he could and should have raised it before Chung J. He did neither. He has shown no special circumstances for this court to consider whether to permit him to re-open the matter.

19. In so far as there was any separate claim to damages, that is also frivolous, vexatious and an abuse of process. The Statement of Claim alleged that as a result of Tonwell's act (in obtaining priority), the Bank was deprived of the full interest in the property under the First Legal Charge, and Mr Yeung was thereby liable for the Bank's loss under the First Legal Charge.

20. That claim is misconceived because Mr Yeung is liable to repay in any event for the advances that have been made to him. Both the Bank and Tonwell had made advances to Mr Yeung. He is liable to repay both. Both had obtained security. If the security is inadequate to cover the amount of the advances, Mr Yeung would be liable to repay the shortfall, whether to the Bank or to Tonwell.

21. In his Affirmation, Mr Yeung alleged that the property market had fallen during the past 2 years when the dispute over priority took place. That fall cannot be laid at Tonwell's door, especially when the court has adjudicated that Tonwell was correct.

22. Further, he alleged that because the Bank had lost priority, it had refused to discuss any extensions for repayment of its loan. However, as pointed out above, Mr Yeung was liable to repay both the Bank and Tonwell for their respective advances to him. Even if the Bank had succeeded in the priority dispute, Mr Yeung would have remained liable for the shortfall to Tonwell, and there is no pleading or evidence that he would not be so liable. In the course of his submissions, Mr Yeung had made some suggestion of a moneylenders point, but again, if there was any argument that he was not liable to Tonwell, that should have been raised before Master Sweeney or Chung J.

Order

23. In the circumstances, I dismissed the appeal and ordered that costs be paid by the Plaintiff to the Defendant.