POON CHO FAI v. EAST PACIFIC (HOLDINGS) LTD

CAMP 2/2020

[2020] HKCA 559

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 2 OF 2020

(ON AN INTENDED APPEAL FROM HCA NO 1194 OF 2014)

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BETWEEN

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  This is the defendant’s renewed application for leave to appeal to the Court of Appeal against the judgment of Lok J on 12 November 2019 (“the Judgment”).

2.  The subject application of the defendant in the High Court (“the Subject Application”) was to strike out or stay this action on the basis of the judgments given by the Shenzhen Futian People’s Court (“Futian Court”) and the Shenzhen Intermediate People’s Court (“Shenzhen Court”) (collectively “the Mainland Judgments” and “the Mainland Courts”).  It was alleged there is an abuse of the process of the court in that the claims in this action had been determined by the Mainland Courts and that the continuation of this action would amount to a collateral attack on the Mainland Judgments.

3.  On 15 November 2017, Master Lai refused to strike out this action but he made an order that all further proceedings herein be stayed generally on the ground that it is an abuse of the process of the court and/or on the ground of res judicata, in that the Futian action and the Shenzhen appeal, “involving the same parties and involving the same subject matter and/or relief or remedy claimed by the Plaintiff in this action”, have been finally determined and adjudicated upon and hence the further proceedings in this action is frivolous and vexatious and an abuse of the process of the court.

4.  On the plaintiff’s appeal against Master Lai’s order, Lok J allowed the appeal and set aside the master’s order.  The judge disagreed with the master that the Mainland proceedings involved relief or remedy claimed by the plaintiff on the same grounds in this action.  He did not think the plaintiff should have been compelled to litigate the claims in this action in the Mainland Courts, even if the plaintiff was allowed to do so in the Mainland proceedings.  He dismissed the Subject Application and, as the plaintiff’s claims fall within the jurisdiction of the District Court, he ordered that this action be transferred to the District Court.

5.  The defendant sought leave from the judge to appeal to the Court of Appeal. Leave was refused by the judge on 19 December 2019 (“the Leave Decision”).

6.  The defendant issued the present summons on 2 January 2020 to renew its leave application to the Court of Appeal and to seek stay of execution of the Judgment and of all further proceedings pending the determination of the intended appeal.  The five grounds of appeal in the draft notice of appeal annexed to this summons are identical to the ones considered and rejected by the judge in the Leave Decision.

7.  Having considered the papers and the submissions of the parties, we exercise our power under Order 59 rule 2A(5) of the Rules of the High Court to determine this summons on paper.

Background

8.  This action was brought by the plaintiff to recover a deposit he paid for the purchase of a residential development in Shenzhen in the amount of $1,250,000, pursuant to an agreement dated 5 June 2013 signed between the plaintiff and the defendant (“the 5 June Agreement”) in Hong Kong.  The plaintiff is a Hong Kong resident and the defendant a company incorporated in Hong Kong.  No mention was made in the 5 June Agreement that the defendant was acting on behalf of a related Mainland company called Tian Qi Real Estate Development Ltd (“Tian Qi”) as the vendor in the intended sale and purchase.  On 15 June 2013, the plaintiff signed documents in Shenzhen with Tian Qi as the vendor for the transaction (“the 15 June Agreements”).  When the sale and purchase of the property fell through, the plaintiff sought the return of the deposit.

9.  For this purpose, the plaintiff brought this action against the defendant on 26 June 2014, claiming that the defendant was in breach of the 5 June Agreement which provided for the return of the deposit in the event of any disagreement and alleging that he had signed the 15 June Agreements in reliance of false representations made by the defendant on 5 June (in Hong Kong) and 15 June (in Shenzhen).  It is the plaintiff’s case that as the defendant did not disclose it was acting on behalf of any principal at the time of the 5 June Agreement, the defendant is liable to the plaintiff under that agreement as it was deemed to have contracted personally with the plaintiff as a matter of law.  The plaintiff claims the return of the deposit and for damages and rescission of the 15 June Agreements based on the misrepresentations.  The claim for rescission was abandoned at the hearing before the judge^[1].

10.  In its defence in this action, the defendant denies any personal liability as agent of an undisclosed principal.  It asserts that the plaintiff had known the defendant was acting for Tian Qi since 3 June 2013.  The alleged representations are denied.

11.  Almost a year after this action was commenced, on 3 June 2015 Tian Qi brought an action in the Futian Court against the plaintiff and the Mainland entity nominated by the plaintiff as the purchaser under the 15 June Agreements.  Tian Qi sought a declaration that it was entitled to forfeit the deposit.  The defendant was joined as the “third person”.  It took part in the trial in presenting its stance and arguments in the dispute, in submitting evidence to the court and the questioning of witness.  In the Mainland action, the plaintiff did not make any counterclaim against the defendant along the same lines as it did in this action which it had commenced earlier in Hong Kong.

12.  The Futian Court gave judgment on 24 October 2016 in favour of Tian Qi.  Prior to that, the defendant had in August 2016 taken out the Subject Application, seeking a stay of this action. The plaintiff’s appeal was dismissed by the Shenzhen Court on 23 February 2017.  The Mainland Courts held that the 15 June Agreements were legal, valid and binding, reflecting the true intention of the parties and that the deposit, which was received by the defendant on behalf of Tian Qi, was forfeited due to the plaintiff’s breach of the 15 June Agreements. Following the dismissal of the plaintiff’s appeal, the defendant amended the Subject Application to seek in addition the striking out and dismissal of this action.

The grounds of appeal

13.  As mentioned, the same five grounds of appeal are relied on by the defendant in this renewed application for leave to appeal.  The first four grounds are focused on the contentions that (1) the judge had erred in law in regarding that the Subject Application, which is based on an abuse of process, is confined to where the doctrine of res judicata is applicable or where the same claims or issues had been decided in the Mainland Judgments; and (2) the plaintiff’s claims in this action are plainly collateral attacks on the Mainland Judgments. 

14.  The contention in the fifth and remaining ground of appeal is that the judge erred in holding that it was not an abuse of process for the plaintiff not to raise against the defendant in the Mainland proceedings its claims in this action.

15.  It is well established that for leave to appeal to be granted under section 14AA(4) of the High Court Ordinance, Cap 4, the court must be satisfied that the intended appeal has a reasonable prospect of success or that there is some other reason in the interests of justice that the appeal should be heard.  Reasonable prospect involves the notion that the prospect must be more than fanciful without having to be probable.  And insofar as the Judgment involves an exercise of discretion, the appeal court would not interfere unless it can be shown that the discretion was made under an error of law or fact to the extent that the conclusion reached was outside the generous ambit within which a reasonable disagreement is possible.

16.  The Judgment set out in §23 the legal principles applicable to the Subject Application relating to the striking out of a claim based on collateral attack on a previous decision and abuse of process of the court, of which there was and is no serious dispute.  We are satisfied that they are correct.  We set out the pertinent ones leaving out the authorities cited in support:

“(ii) Where an action was commenced as of right, the court should only grant a stay where there are “very good reasons” and in “rare and compelling circumstances”. A stay shall not be granted if it will cause injustice to the plaintiff.

(iii) The jurisdiction of the court to prevent the continuation of civil proceedings on the ground of abuse of process must be exercised with extreme caution. It is a very serious matter to prevent a party from commencing litigation or pursuing it and this should only be done where the court considers that it is the court’s duty rather than a discretion exercised by the court.

(iv) The doctrine against an abuse of process by way of collateral attack is founded on the extension to the res judicata doctrine. It recognises that where res judicata does not strictly apply, there might be circumstances in which a collateral challenge to a previous decision offends the principles underlying the doctrine. The objective is to prevent an abuse of the court’s process by seeking to re-litigate a decided issue, even though not between the same parties.

(v) The burden of establishing abuse rests on the party who has chosen to raise the allegation. The court will scrutinise the relevant facts and all the circumstances carefully. The resolution of the question whether or not a collateral attack constitutes an abuse will be “highly fact sensitive” and “peculiarly a matter or judicial application to the facts of each case”.

(vi) It is not every collateral attack that will be held to be an abuse of process by the court. It will only be an abuse where the court finds that there will be “manifest unfairness” or “the bringing of justice into disrepute” if a plaintiff is allowed to continue with subsequent proceedings.”

17.  The intended appeal is a challenge of the judge’s application of the legal principles as stated above to the facts of this case.  We are satisfied he did not confine the exercise of his discretion to the situation where res judicata in the strict sense is applicable, as contended by Mr Lee Tung Ming for the defendant, and he did not make any error of law.  This is clear from various paragraphs in the Judgment, see §§23(iv), 42 and 52.  The judge rejected this contention for the same reason in the Leave Decision at §6.  Ground 1 should not have been pursued in the renewed application.

18.  Grounds 2 to 4 concern the contentions that the claims in this action are plainly a collateral attack on the Mainland Judgments.  Mr Lee repeated his arguments that as the Mainland courts had made the findings mentioned earlier and rejected the plaintiff’s case that the 5 June Agreement was a separate agreement between the plaintiff and the defendant, it is plainly a collateral attack on the Mainland Judgments to pursue the claims in this action based on the agent’s personal liability and misrepresentations.

19.  The judge rejected these contentions for the reasons given in the Leave Decision at §§7 and 8.  As mentioned by the judge, whether there is a collateral attack of an earlier decision is highly fact sensitive and peculiarly a matter of judicial appreciation to the facts of the case.  The judge had made a careful scrutiny of the pleadings in this action and the Mainland Judgments.  We agree with his conclusion at §§43, 45 and 47 of the Judgment that the Mainland Judgments did not deal with the plaintiff’s case that the defendant undertook a separate and distinct obligation towards the plaintiff such that it shall be personally liable for the return of the deposit, and there may be further liability in tort for negligent misrepresentation, which are all founded on common law principles.

20.  The crucial consideration in the remaining ground at ground 5 is not so much whether the plaintiff could have made the claims in this action when it made a counterclaim in the Mainland proceedings brought by Tian Qi.  Mr Lee’s reliance on the defendant’s Mainland legal expert that the plaintiff could have counterclaimed against the defendant is missing the point.  The proper question is whether the plaintiff could and should have done so in the Mainland proceedings, in all the circumstances of this case (Johnson v Gore Wood & Co [2002] 2 AC 1 at 31D to E; China North Industries Investment Ltd v Chum [2010] 5 HKLRD 1 at §60). The court has cautioned against adopting a mechanistic approach in this regard (Ngai Few Fung v Cheung Kwai Heung [2008] 2 HKC 111 at §22).

21.  The judge had properly directed himself to the issue whether the plaintiff should have counterclaimed against the defendant in the Mainland proceedings.  He is not satisfied that the defendant had discharged its burden of establishing abuse, for the reasons given in the Judgment at §§54 to 58.  He had weighed and balanced the competing interests on both sides and come down in favour of the plaintiff.  An appeal court is obliged to pay sufficient regard to the decision of the court below and should be reluctant to interfere where the decision is based on the assessment or balancing of a number of factors (Ko Hon Yue v Chiu Pik Yuk & Ors (2012) 15 HKCFAR 72 at §83(5)(b)).

22.  We do not think there will be manifest unfairness or that justice will be brought into disrepute if the plaintiff is allowed to continue with this action which it had commenced earlier as of right to pursue claims based on common law principles.  Ground 5 is of no merit.

Conclusion and costs

23.  As none of the proposed grounds of appeal are of merit, we refuse to give leave to appeal.  The application for stay of execution of the Judgment and of all further proceedings pending the determination of the intended appeal does not arise for consideration.

24.  Further, as this application is entirely without merit, we make an order under Order 59 rule 2A(8) that no party may request the determination to be considered at an oral hearing inter partes.

25.  We order the defendant to pay the plaintiff’s costs of this application and assess the plaintiff’s costs summarily.  As mentioned above, the grounds of appeal relied on by the defendant are the same as those placed before the judge. In the circumstances, we assess the amount of reasonable costs recoverable by the plaintiff at $87,900.

26.  The costs order and gross sum assessment are orders nisi.  If there is no application to vary within 14 days of the handing down of this judgment, they will be made absolute.