NU LIFE INTERNATIONAL LTD v. HEALTHY LIVING PRODUCTS INTERNATIONAL LTD AND ANOTHER

HCA 1157/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1157 OF 2006

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DETERMINATION

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1.  Around the middle of 2003 Alastair Murray decided the time was right to purchase a home for himself and his family.  He cast around for a suitable place and settled on a house in Hing Keng Shek, Sai Kung.  The house he chose happened to be next door to where they were living.  For convenience I shall refer to this by its postal address House 56.  The price was negotiated and settled, with the parties utilizing a local real estate agent.  The vendor was the registered proprietor called Healthy Living Products International Limited (Healthy Living).  One of the signatories for Healthy Living was Jawid Khan, a director of Healthy Living.  He lived in House 56; as neighbours he and Mr Murray were on nodding terms.

2.  The agreement for sale and purchase was signed and then registered on 20 June.  Completion was timed for 25 August 2003.  But come that date, Healthy Living declined to complete.  The explanation given was that whilst it was registered proprietor, it held the property as bare trustee of an associate company called Nu Life International (Hong Kong) Limited, (Nu Life HK) which was the beneficial owner; that Healthy Living in purporting to sell had done so without the authority of the real owner.  Nu Life HK declined to confirm the sale to Mr Murray and ordered a cessation.

3.  Mr Murray did not accept this turn of events, and sued Healthy Living for specific performance.  Subsequently Nu Life HK and Mr Khan were joined as defendants.  The matter went to trial; as it happened, I was the trial judge.

4.  Mr Murray won.  Completion took place, and the Murray family moved in to their home.

5.  The defendants appealed, but that was not pursued and by consent was dismissed.

6.  But by then another challenger had emerged to threaten Mr Murray’s title and his family’s quiet enjoyment.

7.  A company called Nu Life International Limited (Nu Life International) claimed to be the beneficial owner of the house.  As can be surmised from the name, there were connections linking this Nu Life to Nu Life HK.  In fact at the time in question the beneficial shareholders were the same (with a minor variation concerning minority interests) the Boards of Directors comprised the same people, the companies used the same address for their registered offices, and at least for a period of time during the litigation process they instructed and were represented by the same solicitors. Mr Lee of counsel representing Mr Murray in this matter now before me rather graphically described the two companies as sharing the same mind, the same soul and the same body.

8.  Nu Life International has now issued a writ against Healthy Living as 1^st defendant and Mr Murray as 2^nd defendant, seeking relief which if it succeeds will have the effect of vesting the house into its name; thus depriving Mr Murray of his title and possession. 

9.  Mr Murray has launched an application to strike out this action on the grounds that it is frivolous or vexatious, and/or an abuse of the process of the court.  This is the first of two matters before me.

10.  The second will arise if I find against Mr Murray’s first application.  It is for security for costs in the sum of $1,848,679 being his anticipated costs in the action to the end of trial.

11.  The primary feature of Mr Murray’s claim for a strike out is founded on the doctrine known as an extension of the doctrine of res judicata.  The matters sought to be determined by this action could and should have been raised in the earlier action given that the two Nu Life companies are to all intents and purposes one and the same, with each in turn claiming the same beneficial interest in the same property with the same witnesses and so on.  To allow this action to proceed to trial would amount to a fearful waste of resources and to relitigation of matters already dealt with.  Further, Mr Murray should not be subjected to successive suits when one would have done.

12.  On the issue of costs, the amount for which security is sought represents the costs incurred in the first action, and the second if it is to proceed is likely to cost about the same.  Such limited evidence that is available on the question of whether Nu Life International would be able to meet an adverse costs order in this sum indicates that it would not.

13.  The counter to these propositions are that Nu Life International is separate and distinct from Nu Life HK.  It has a bona fide claim and should not be barred from pursuing it.  Mr Murray joined Nu Life HK in the first action.  If he had wanted to litigate against Nu Life International he should have joined Nu Life International as well.

14.  As for the security for costs application, it is said of that that the burden is upon the defendant to show that the company will not be able to pay the costs of the defendant if its suit against him is unsuccessful.  In this case, there is not or not sufficient credible testimony to satisfy that.  In any event the amount for which security is sought is vastly excessive.

Background

15.  In the run up to the scheduled date for completion, with the usual correspondence between the parties’ solicitors on the matter of good title, there was a query about an illegal structure or alteration.

16.  Then in a letter of 6 August 2003 Healthy Living’s solicitors wrote to Mr Murray’s thus:

“	Further to the telephone conversation between your Miss Chan and our Mr Jesse Kwok, we write to inform that apart from the illegal structure issue, our client now has another difficulty in this matter.
	Our client has been warned by Nu Life International Limited (‘Nu Life’) (in which our client’s Director is now working) to impose a third Party’s Interest Notice and will claim against the right title benefit and interest of and in the property.
	The reason is that simply that Nu Life paid for the down payment and also the monthly mortgage installment of the property and therefore entitled to the right title benefit and interest of and in the property.
	Nu Life will actually charge its third party’s interest on the land to stop our client selling the property without its consent.
	Having said that and in order to solve this matter and to save all parties costs and to protect all parties interest including your client’s interest, our client is now prepared to return all the deposits to your client and to sign a cancellation agreement with your client to avoid all the possible litigation in this matter.
	Please therefore take your client’s instructions and let us know whether your client agrees to sign a cancellation agreement on the return of your client’s deposits aforesaid as soon as possible.”

17.  Needless to say the proposition of cancellation was rejected by Mr Murray.

18.  What is to be marked is that the company said to be the beneficial owner is Nu Life International.

19.  Then by letter of 12 August, Mr Murray’s solicitors received another letter, from solicitors not before involved in the transaction, which stated as follows:

“	We act for Nu Life International (Hong Kong) Limited, concerning the intended sale of the Property by Healthy Living Products International Limited (‘Healthy Living’).
	It recently comes to our client’s notice that Healthy Living intends to sell the Property, and your firm act for the intended purchaser, Murray Alastair Elliot.
	We are instructed by our client that since the purchase of the Property on or about 1 April 1997, our client has been from time to time transferring money to and/or depositing money into the account of Healthy Living for meeting the monthly payments of the mortgage repayments.  It was also an agreement and/or arrangement between Healthy Living and our client that by making such transfers and/or deposits to meet the mortgage repayments, our client should enjoy and have interest in the Property; and that Healthy Living should not sell or dispose of the Property in whatever manner without the consent or agreement of our client.
	We are also instructed by our client that Healthy Living is well aware of such agreement and/or arrangement, and has in fact accepted the same.
	Further, by way of making the monthly payments of the mortgage repayments, our client has acquired an equitable interest in the Property under a resulting trust.
	According to our client’s instructions, we have written to Messrs Jesse Kwok & Co., informing them of our client’s objection to and disagreement on the sale and/or proposed sale of the Property.  We enclose a copy of our letter to Messrs Jesse Kwok & Co. of today’s date for your ease of reference.
	We are also instructed by our client to put your client, through your firm, on notice of our client’s interest in the Property, and our client’s objection to and disagreement on the sale and/or proposed sale of the same.
	All our client’s rights are reserved.”

20.  It is further to be noted that this time the so-called beneficial owner is stated to be Nu Life HK, laying claim to that status in terms markedly similar to those in the so-called warning made by Nu Life International and referred to in the letter of 6 August.

21.  Thereafter and through the litigation until abandonment of the appeal the pleaded case run by the defendants, including Healthy Living and Mr Khan as well as Nu Life HK, and the evidence adduced by or on behalf of the defendants (and that included the account of one Kwong Lam Sang) all pursued the course that House 56 was owned by Healthy Living as a bare trustee for Nu Life HK. 

22.  Kwong Lam Sang was at the time the financial director of Nu Life HK and also a director of Nu Life International.  It was not pleaded or propositioned that Nu Life International had any beneficial interest.  The contents of the letter of 6 August were not referred to again.

23.  Given that the two Nu Life companies were so closely aligned as I shall come to that must have been a considered strategy embarked on.  In other words, those in control of both Nu Life companies were nailing their colours to the mast of Nu Life HK.

24.  And Healthy Living and Mr Khan supported that proposition as well.

Nu Life International, Healthy Living

25.  I refer to my judgment in the first action and from it summarize how these companies came into being and their function.

26.  Nu Life International was incorporated in 1991.  There were six founders who became its shareholders and directors.  Mr Khan was one.  Kwong Lam Sang (Mr Kwong) was another.  Nu Life International was engaged in direct marketing of health foods and supplements.  Mr Khan was in charge of sales and marketing.  Mr Kwong was responsible for finances and accounts.

27.  Both Messrs Khan and Kwong said that the decision to purchase House 56 was made in late 1996 to give the company a stake in Hong Kong’s real estate market.  In addition, it would enable the company to house and host business associates based overseas when they came to Hong Kong.  It was also agreed that as part of his salary package Mr Khan as marketing director should be permitted to live there.

28.  House 56 was purchased by way of a deposit and a bank mortgage.  It was bought in the name of the service company owned by Mr Khan’s family; that is Healthy Living.  Healthy Living came to be registered on the title as registered proprietor, and executed the mortgage.  But Nu Life International funded the down payment, the stamp duty and redecoration costs.  And Nu Life International paid the mortgage instalments and outgoings.

29.  There were some records and documents contemporaneously made verifying this transaction and where the moneys derived from.  These included a copy of minutes of a directors meeting in which it was resolved that House 56 should be bought, authorizing Healthy Living to sign the agreement and otherwise take such steps necessary to complete the purchase.

30.  Suffice to say that I was satisfied that Nu Life International was the notional buyer and beneficially interested in House 56; that it put up the purchase price and costs and that the house was utilized for the stated designated purpose; namely, to house a working director and put up overseas guests of Nu Life International.

Nu Life HK

31.  The raison d’etre for this company came from Mr Kwong’s evidence. It was purchased as a shell company in 1999 for the purpose of taking over the business of Nu Life International.  And the reason for that was that Nu Life International was, by 2000, in significant financial difficulties.  In particular, as he deposed, there was a lot of money owing to TVB and to the landlord of premises it was or had been leasing.

32.  A transfer of Nu Life International as a going concern to Nu Life HK but without this indebtedness was cooked up as a means of preserving the business formerly operated by Nu Life International.

33.  It is not clear how these debts were resolved, or how the creditors reacted to the disposal of their debtor’s business.  Suffice to say Nu Life International remained, and remains, in existence, but does not trade.

34.  Nu Life HK’s shareholders were BVI companies.  But as Mr Kwong attested, the shares were beneficially held by the same shareholders in Nu Life International and the directors were the same as well.  And as I have said they shared the same registered office; hence Mr Lee’s reference to their having the same mind, soul and body.

35.  It was the pleaded case of both Healthy Living and Nu Life HK that when it took over the assets and going concern of Nu Life International it acquired its beneficial interest in House 56.  But in this respect I found no or insufficient evidence to support the proposition.  Hence I found in favour of Mr Murray.

The 2nd Action

36.  By its pleaded case Nu Life International claims it has a right to title and ownership of House 56 as beneficial owner by virtue of its purchase and involvement.  My findings of fact in that regard are pleaded.

37.  Mr Murray had notice of that upon receipt by his solicitors of the letter of 6 August 2003; this before he took legal title, so that that was acquired subject to Nu Life International’s equitable interest in the property.

The Strike Out Application

38.  First, a reminder of how the court should approach a strike out application.  The White Book at 18/19/4 states:

“

It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule.  Disputed facts were to be taken in favour of the party sought to be struck out.  Nor should the court decide difficult points of law in striking out proceedings.  The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible not just improbable for the claim to succeed before the court will strike it out …  The mere fact that the case is weak and not likely to succeed is no ground for striking it out …”

39.  Mr Murray applied to strike out on three grounds.  I shall deal with these in turn.

The Action is an Abuse of Process

40.  This is founded on the doctrine known as the extension of the doctrine of res judicata.

41.  A leading judgment is a Privy Council decision being an appeal from the Court of Appeal in Hong Kong called Yat Tung Investment Co. Ltd v Dao Heng Bank Limited [1975] AC 581.  The facts are not significant.

42.  Lord Kilbrandon gave the judgment.  At p.589 he made reference to the doctrine of estoppel; namely, res judicata, and then went on to say that in that narrower sense it was not applicable in the present case.  Then he said at p.590:

“	… But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings.  The locus classicus of that aspect of res judicata is the judgment of Wigram VC in Henderson v Henderson (1843) 3 Hare 100, 115, where the judge says:
	‘	… 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 part of their case.  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.’
	The shutting out of a ‘subject of litigation’ — a power which no court should exercise but after a scrupulous examination of all the circumstances — is limited to cases where reasonable diligence would have caused a matter to be earlier raised; moreover, although negligence, inadvertence or even accident will not suffice to excuse, nevertheless ‘special circumstances’ are reserved in case justice should be found to require the non-application of the rule.  …
	The Vice-Chancellor’s phrase ‘every point which properly belonged to the subject of litigation’ was expanded in Greenhalgh v Mallard [1947] 2 All E.R. 255, 257, by Somervell L.J.:
	‘	… res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but … it covers issues or facts which are so clearly part of the subject matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them.’”

43.  The doctrine was further considered by the House of Lords in Johnson v Gore Wood & Co. [2002] 2 AC 1.  It was confirmed therein by Lord Bingham at p.31 that the abuse of process propounded in Henderson:

“	as now understood although separate and distinct from cause of action estoppel and issue estoppel has much in common with them. The underlying public interest is the same; that there should be finality in litigation and that a party should not be twice vexed in the same matter.  This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation in the interests of the parties and the public as a whole. …
	The bringing of a claim or the raising of a defence in later proceedings may without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.  I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty; but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party.
	It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive.  That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.  As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not.  Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim.  While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party’s conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances.  Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice.”

In this case the relitigation concerned a party who was not involved in the earlier action.  In the courts below argument was advanced that for this reason the rule in Henderson did not apply.  Of this Lord Bingham said at p.32:

“	… In my judgment this argument was rightly rejected.  A formulaic approach to application of the rule would be mistaken.  WWH was the corporate embodiment of Mr Johnson.  He made decisions and gave instructions on its behalf.  If he had wished to include his personal claim in the company’s action, or to issue proceedings in tandem with those of the company, he had power to do so.  The correct approach is that formulated by Sir Robert Megarry V-C in Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510 where he said, at p.515:
	‘	Second, it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation.  This is in the interest both of the successful party and of the public.  But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party.  I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party.  It is in that sense that I would regard the phrase ‘privity of interest.’
	On the present facts that test was clearly satisfied.”

44.  In a recent local case at first instance called Harvest Good Development Ltd v Secretary for Justice & Ors (unreported) HCAL 32 of 2006, Hartmann J considered, inter alia, the judgments from which I have quoted.  He said from paragraph 99:

“	99.	The applicable rule, I think, is now well settled.  When material issues of a substantive nature could, and should, have been raised in earlier proceedings, the creation of fresh proceedings for the purpose of having those issues resolved may constitute an abuse of the process of the court.  The rule is an extension of the doctrine of res judicata.  There need not be a specific finding as to cause of action estoppel or issue estoppel.  It will suffice if there is a finding that, in all the circumstances, the attempt to raise issues which could, and should, have been raised earlier goes against the public interest; that is, the general interest in ensuring finality in litigation as well as the interests of the parties themselves.  In Barrow v Bankside Agency Ltd [1996] 1 WLR 257, at 260, the Court of Appeal described the rule in the following terms:
		‘	The rule is not based on the doctrine of res judicata in the narrow sense, nor even on any strict doctrine of issue or cause of action estoppel.  It is a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by successive suits when one would do.  That is the abuse at which the rule is directed.’”

Then he quoted from Lord Bingham’s speech in Johnson v Gore Wood before a precautionary note at paragraph 101:

“	101.	The rule, of course, is to be applied with caution.  In Bradford and Bingley Building Society v Seddon [1999] 1 WLR 1482, Auld LJ, in the Court of Appeal, put it in the following terms:
		‘	In my judgment mere ‘re’-litigation, in circumstances not giving rise to cause of action or issue estoppel, does not necessarily give rise to abuse of process.  Equally, the maintenance of a second claim which could have been part of an earlier one, or which conflicts with an earlier one, should not, per se, be regarded as an abuse of process.  Rules of such rigidity would be to deny its very concept and purpose.’”

45.  On the issue of there being different litigants in the two actions he quoted again from the judgment of Auld LJ in Seddon, at para.115:

“	… But for abuse of process to be demonstrated in the manner advocated by Mr Yu it is not necessary that the parties remain the same.  That was confirmed by Auld LJ in Bradford and Bingley Building Society v Seddon, page 226F, who commenced his examination of relevant authorities by saying:
	‘	In my view, it is now well established that the rule in Henderson v Henderson, as a species of the modern doctrine of abuse of process, is capable of application where the parties to the proceedings in which the issue is raised are different from those in earlier proceedings.’”

46.  What emerges from these judgments, and the judgments quoted therein, are the following principles:

(a)	There should be finality in litigation.  A party should not be twice vexed in the same matter;
(b)	it is not necessary for there to be any additional element such as collateral attack on a previous decision; but if there is one it is an obvious factor for finding abuse;
(c)	unjust harassment will justify a finding of abuse;
(d)	when a matter is so relevant to the subject matter of the previous action that it would have been unreasonable not to raise it earlier, in that it would have determined the substantive issues in the earlier action, it cannot be raised in a subsequent action as it would increase costs and give rise to conflicting judgments;
(e)	The parties in the subsequent action do not have to be the same for the rule to apply.  The question arises: is there a sufficient degree of identification between the earlier litigant such that it is just to find that the decision binding on one party must be binding on the other.

Application to the Facts of this Case

47.  In the first action Mr Murray was litigating to achieve the title that he had committed to and had paid for.  The defence pursued by the registered proprietor was that it was the bare trustee and holding for the beneficial owner.  That was named: Nu Life HK.  It was pleaded and pursued at trial that Nu Life HK became such by virtue of a transfer from Nu Life International.  The defendants and those giving evidence on their behalves were fully aware that for the defence to succeed, first it had to be established that Nu Life International was the beneficial owner, with Healthy Living the bare trustee at the time House 56 was bought, and second that there was a bona fide assignment of that beneficial interest to Nu Life HK.  Then would come the determination of which of two competing equities, Mr Murray’s or Nu Life HK’s, had priority.  If Nu Life HK knew of that so did Nu Life International.  If as happened the defence was to founder at the second of the two hurdles, the action could still have been resolved on determining the priorities as between two competing equities; namely those of Mr Murray and Nu Life International.  But that could not be achieved without Nu Life International being a party.

48.  The obvious course was that Nu Life International should have been joined to provide an alternative defence.  Indeed as I understand it that was proposed by Mr Murray’s solicitors as late in the piece as after notice of appeal had been filed.  That was ignored, or at least not pursued.

49.  If this action is permitted to proceed Mr Murray will assuredly be twice vexed.  The costs, the stresses and the delays of resolution of this litigation cannot be lightly touched on.  Disputes of fact will have to be determined all over again resulting in a risk of conflicting judgments.

50.  There is quite assuredly a sufficient degree of identity arising between the two Nu Life companies.  Ms Tsui for Nu Life International sought to argue separate identities.  But Mr Kwong has already attested, effectively, otherwise.  The same identities owned and controlled both companies.

Is Mr Murray at Risk for not Joining Nu Life International?

51.  I raise this as a topic because Ms Tsui argued forcefully that just as he joined Nu Life HK, the burden was on him to join Nu Life International.  And why?  Because as early as the letter of 6 August he had notice of its interest in House 56.  If he wanted to protect his purchase against all challenges, in particular that now mounted by Nu Life International, that was the appropriate course. 

52.  There are two matters that arise from this submission.  The first is that there must be some doubt that the letter was notice of an existing interest.  First is that it came not from Nu Life International or solicitors purporting to represent it; secondly, there was the later letter from the solicitors representing Nu Life HK claiming the same beneficial interest on the same grounds.  No one was alleging competing interests; there could not be more than one beneficial owner.

53.  And although it was recorded in the letter that Nu Life International had warned of an intention “to impose a Third Party’s Interest Notice and will claim against the right title benefit of interest of and in the property”; there was no Third Party’s Interest Notice delivered, and thereafter there was no step taken, no protest made, no claim put forward for and on behalf of Nu Life International until the filing of this action post judgment in the earlier action.

54.  Mr Murray would be justified in assuming the warning referred to in the letter of 6 August was not acted upon, and whatever had been intended was abandoned by Nu Life International.

55.  Secondly, the defence put forward by Healthy Living as registered proprietor that it was a bare trustee of a named beneficiary was as firm an indication as could be that there was no other challenge for that position.

56.  Had Mr Murray chosen to join Nu Life International on the strength of the letter of 6 August, the content of which seemed to have been overtaken by events, he would have been in grave risk on the issue of costs.

57.  The appropriate course simply and speedily undertaken would have been for Nu Life International to apply to join as intervener, thence to put forward an alternative defence.  That it chose not to could not be a factor to undermine the strength of Mr Murray’s case.

58.  I conclude that this action is an abuse of process by virtue of the extension of the doctrine of res judicata.

59.  This as I shall formally order in due course is sufficient for the application to succeed.  But for completeness I now turn to consider the remaining two grounds.

Does the Judgment against Healthy Living Preclude Nu Life International from Pursuing this Action?

60.  This is the second of the three grounds.

61.  Mr Lee for Mr Murray contends that the answer must be ‘yes’ applying the rule that prevents a beneficiary in a trust relitigating a matter where in the first action the trustee was representing the beneficiary’s interests.

62.  This proposition is spelt out thus in Halsbury’s Laws of Hong Kong, vol.II(2) (2005 reissue) at para.170-045:

“

Even though trustees and their beneficiaries are different parties, and neither derive their title from the other, equity will not allow the same question to be litigated between a person and the beneficiaries and afterwards between the same person and the trustees; and in ordinary cases a judgment in an action against trustees or executors who are sued in a representative capacity is binding upon the beneficiaries where the trustees or executors in fact represented their beneficiaries.  It is otherwise, however, where the beneficiaries have solid ground for impeaching a transaction between fraudulent trustees or executors and the plaintiff.  In such a case, where the beneficiaries have not had an opportunity of intervening, they are not precluded from establishing their rights by a judgment against the trustees or executors in an action in which the trustees or executors have not served a defence, or have served a defence which admitted the plaintiff’s claim.”

63.  Ms Tusi does not seek to dispute the existence of the rule that a beneficiary is bound by the result of litigation where the trustee as a party sues or is sued in its capacity as representing the beneficiary.  However, she submits, that applies only to express trusts as opposed to trusts arising out of the operation of law, such as resulting or constructive trusts.  In such cases it cannot be said that a trustee is representing beneficiaries.

64.  In this case she argues Healthy Living was sued in its own capacity as vendor under the sale and purchase agreement.  It was not sued as representative of Nu Life HK (or Nu Life International).

65.  I do not accept that.  The White Book on the point states at 15/12/2:

“

Where an action is brought by a stranger in respect of property vested in trustees, the trustees sufficiently represent all persons interested, and the beneficiaries should not be joined; but may be allowed to come in to protect their interests and to make a defence separately from the trustees; e.g. action by trustee in bankruptcy of settler claiming to set aside certain limitations in the settlement:  Merry v Pownall [1898] 1 Ch 306.”

66.  It may well be taken that Mr Murray was suing to enforce completion of the agreement for sale and purchase as purchaser against vendor.  But the defence pleaded and advanced by Healthy Living and Nu Life HK was that Healthy Living was owner as a bare trustee and Nu Life HK was the beneficiary.

67.  Of course Nu Life International took no steps.  But if as it now pleads it is claiming as beneficiary it is precluded from pursuing its cause because Healthy Living lost in its capacity of trustee.  If there was the prospect of Healthy Living having behaved improperly to its detriment it could have elected to join but chose not to.

68.  It is now too late.

69.  On this ground as well Mr Murray has established a right to have the action struck out.

Competing Equities

70.  This is the third ground raised for striking out.  It arises from the pleaded case of Nu Life International that the first time Mr Murray is said to have notice of Nu Life International’s beneficial interest was the letter of 6 August.  By this time he had signed up to purchase House 56 and the agreement was registered.  Thus he had committed to and acquired a beneficial interest in House 56 prior to and ahead of Nu Life International’s, whose claim would be limited to one against the unpaid purchase price.

71.  Mr Lee submitted the issue is determined by notice, and cited in support the Court of Appeal decision in Lam Sau Wah v Tam Chi Hung [2001] 1 HKC 679, which referred to an extract from Sihombing and Wilkinson’s Hong Kong Conveyancing, vol. 1B XIV [136].

72.  Ms Tsui for her part submitted that the question of priority between the two equitable interests should be resolved applying the long-established principle that where the equities are equal the first in time prevails.

73.  She cited in support an extract from Grey, Elements of Land Law, 4^th edition at 12-342:

“

In order to defeat pre-existing equitable rights, the purchaser must take a legal estate in the land concerned. … By contrast, a purchaser who takes only an equitable interest in the land is, in principle, subject to all prior equitable interests irrespective of notice.  The latter case is governed by the general rule that where the equities are equal, the first in time prevail.”

She further quoted from a footnote beneath the extract:

“

Even a purchaser who has paid the purchase money in full is not safe if notice of the adverse equitable interest reaches him before he takes a formal conveyance of the legal estate (Wigg v Wigg (1739) 1 Atk 382 at 384, 26 ER 244 at 245).  However, this is true only in respect of those equitable rights which existed prior to the contract to purchase.”

She pointed out that this equitable rule was endorsed and applied by the Court of Appeal in a judgment which preceded Lam Sau Wah, called Chu Kit Yuk v Country Wide International Ltd [1995] 2 HKLR 162.  Chu Kit Wah was not referred to the court in Lam Sau Wah; further, the particular facts of Lam Sau Wah render that case distinguishable from Chu Kit Wah, which is on point with this case; thus that Nu Life International’s interest having come into being ahead of Mr Murray’s would win the contest of whose should have priority.

74.  But in this respect an authority lately produced raises the prospect that on the facts the equities might not be regarded as equal.  The case in question is Freeguard v The Royal Bank of Scotland [2000] 79 P & CR 8. 

75.  In that case the Court of Appeal upheld the decision at trial to postpone the first in time of two equities because that amounted to giving priority to a “thoroughly artificial transaction” designed to give the impression to the world that the registered proprietor was the owner of the land in question.  The second in time equity was an unregistered legal charge, a common and familiar entity, which in the end prevailed.

76.  Robert Walker LJ quoted a passage from the judgment of Lord Selborne in the ancient case of Dixon v Muckleston (1872) LR 8 Ch. App.155.  He said that of two competing equities, the earlier might be bound by some representation or by positive acts or by neglect.  He went on to say at page 160:

“

By one or other of those means he may have armed another person with the power of going into the world under false colours; and if it be really and truly the case that by his act, or his improper omissions, such an apparent authority and power has been vested in that other person he is bound upon equitable principles by the use made of that apparent authority and power.”

77.  Given the conduct of those in control of Nu Life International found established in that they bought into being Nu Life HK for the express purpose of avoiding debts incurred by Nu Life International, so it may well be established that they armed Healthy Living with the power of going into the world under false colours; this particularly so where Mr Khan wearing hats from both trustee and beneficiary, was a signatory in the sale to Mr Murray.

78.  Mr Murray has, as I find, a strong case to advance under this third ground, were this to be the sole ground to advance at trial in defence of Nu Life International’s claim for his title. 

79.  There is also the feature that he would probably question whether there was notice by the letter of 6 August for reasons set out in paragraphs 52 to 54 above.

80.  But a strong case is not enough to succeed in a strike out application; disputed facts have to be taken in favour of the respondent to the application.  Under this ground, were it to have been determinative of the outcome of the application, it would have to have been dismissed.

Conclusion

81.  For the above reasons in respect of the first two grounds, Mr Murray’s application for a striking out of this action succeeds.  I order accordingly.

82.  Costs, nisi, are to Mr Murray.  These include costs of the action.

The Security for Costs Application

83.  This becomes academic.

84.  Were it to have remained at large, I am satisfied on the available evidence that Mr Murray has done enough to warrant security in the sum of $1 million.  I would have ordered accordingly.

85.  Mr Murray shall also have his costs in respect of this application; nisi as well.