LAM PAK CHEUNG v. LIN ZHEN LUE AND OTHERS

HCMP 1364/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1364 OF 2006

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J U D G M E N T

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Introduction

1.  In this action, HCMP No.1364 of 2006, the Plaintiff, Lam Pak Cheung, is suing a number of parties, including the 3^rd Defendant, in relation to the disposition of his interest in a company called Wah Sang Paper Products (Shenzhen) Co. Ltd. (“WSPPS”), a company which he established in 1959 with his wife.

2.  In separate proceedings in HCA No.2499 of 2007, the Plaintiff is suing a number of parties including the 3^rd Defendant in this action and 3 of the other 5 defendants in this action, also in relation to the disposition of his interest in WSPPS.

3.  By competing summonses before me, the 3^rd Defendant in this action (who is the 1^st Defendant in HCA No.2499 of 2007) applies to strike out this action, HCMP No.1364 of 2006, as an abuse of the Court’s process whilst, for his part, the Plaintiff applies to stay this action pending the determination of HCA No.2499 of 2007.

4.  In this Judgment, I shall refer to this separate action in HCA No.2499 of 2007 as “the 2007 writ action” and to the proceedings in HCMP No.1364 of 2006 as “the original action”.

Factual background

5.  The factual background of the dispute leading to the original action and the 2007 writ action are somewhat complicated and it is necessary to set out a very brief overview of the salient background facts in order to better understand the ambit of the two sets of proceedings.

6.  The Plaintiff is the father of the 3^rd Defendant in this action, Lam Kwok Hung Guy (“Guy Lam”), who as mentioned above is the 1^st Defendant in the 2007 writ action.  Guy Lam is the oldest of the Plaintiff’s 5 children.

7.  The original action and the 2007 writ action both reflect a bitter and acrimonious dispute that has developed between the Plaintiff and his oldest son.

8.  In essence, the dispute revolves around the ownership of WSPPS.  It is the Plaintiff’s case that this still belongs to him.  The shares in WSPPS have, however, been transferred into a BVI company called PRC Realty Inc., the 4^th Defendant in the original action (and 6^th Defendant in the 2007 writ action).

9.  It is Guy Lam’s case that the Plaintiff agreed to sell his shares in WSPPS to him and that, pursuant to the arrangements agreed, the 5^th Defendant in the original action, Pacrim International Capital Inc. (a company of which Guy Lam owns the majority of the shares), was to acquire the single share in PRC Realty Inc. (and thereby the shares of WSPPS) from the trustees of a trust called the LPC Trust.  It is also his case that the LPC Trust was established by an irrevocable Deed of Trust dated 30 March 2005 executed by the Plaintiff as settlor and the 1^st and 2^nd Defendants in the original action as trustees.  By this Deed of Trust, the sole share of PRC Realty Inc. was placed into the trust.

10.  For his part, the Plaintiff asserts that the signature purporting to be his on the Deed of Trust is not in fact his signature.  Alternatively, if he did sign the Deed of Trust, he says that his signature was procured by misrepresentations made to him by Guy Lam.  In the further alternative, he says that his signature was procured by Guy Lam’s misuse or abuse of the fiduciary position Guy Lam occupied in relation to him.

11.  There are numerous contested issues of fact within the issues raised by the parties’ respective cases as I have summarised them above.

The ambit and history of this action

12.  The original action was commenced by the Plaintiff by originating summons on 7 July 2006.  In summary, the relief claimed, so far as material for present purposes, is:-

(a)     A declaration that the Deed of Trust is void as against the Plaintiff and should be set aside;

(b)    An order that Guy Lam deliver up the original of the Deed of Trust to the Plaintiff to be cancelled;

(c)     An order that the 1^st and 2^nd Defendants execute in favour of the Plaintiff an instrument of transfer in respect of the single share in PRC Realty Inc.;

(d)    An injunction restraining PRC Realty Inc. from registering the transfer of that share in favour of anyone other than the Plaintiff; and

(e)     An injunction restraining PRC Realty Inc. from disposing or otherwise dealing with its interest in WSPPS.

13.  In essence, the original action seeks to vest the ownership of PRC Realty Inc., and hence that of WSPPS, in the Plaintiff.

14.  Shortly after the originating summons was issued, the Plaintiff issued an inter partes summons on 18 July 2006 seeking an interlocutory injunction to restrain Guy Lam from causing or permitting PRC Realty Inc. to register its single share in favour of any person other than the Plaintiff, to allot further shares or to dispose of its interest in WSPPS.

15.  There was a call-over hearing of the summons on 21 July 2006.  The Plaintiff’s request for an interim interlocutory injunction pending the hearing of the summons was refused by Poon J, who instead gave directions for the filing of further evidence by the parties and adjourned the summons for argument.  Although Guy Lam filed an affirmation on 9 September 2006 in opposition to the application for the injunction, the Plaintiff did not file any further evidence, nor did he seek to fix a date for the substantive hearing of the summons.

16.  No further steps were taken by the Plaintiff in the original action for over a year until, pursuant to RHC Order 3 rule 6, his solicitors filed a Notice of Intention to Proceed dated 12 October 2007.  However, notwithstanding that notice, no further steps have been taken in the original action by the Plaintiff.

17.  On 20 March 2008, Guy Lam issued his summons seeking to strike out the original action as an abuse of the process of the Court, pursuant to RHC Order 18 rule 19 and under the Court’s inherent jurisdiction.

18.  On 11 April 2008, the Plaintiff issued his summons seeking, amongst other things, orders that:-

(a)     The original action be stayed until after the determination of the 2007 writ action;

(b)    Further directions and orders in the original action be dealt with immediately after the determination of the 2007 writ action by the same Judge; and

(c)     All affidavits and affirmations filed in the original action form part of the witness statements of the respective parties in the 2007 writ action.

19.  The summonses referred to in the preceding two paragraphs are the competing summonses now before me.

The ambit and history of the 2007 writ action

20.  The 2007 writ action was commenced by the Plaintiff on 28 November 2007.

21.  As in the original action, the dispute in the 2007 writ action is essentially a dispute between the Plaintiff and Guy Lam as to the ownership of WSPPS.

22.  The extent to which the 2007 writ action duplicates the original action is an issue between the parties in the applications before me.  However, it is clear from a review of the Plaintiff’s pleadings in the 2007 writ action that, amongst the relief sought by him in that action, he is claiming a declaration that the Deed of Trust is void and that it be set aside.  He is also claiming an order that the transfer of the single share in PRC Realty Inc. be set aside and that share returned to him.  In essence, the Plaintiff is claiming the ownership of the single share in PRC Realty Inc. and thereby the WSPPS shares it holds.

23.  Guy Lam has, by a Defence and Counterclaim dated 30 January 2008, pleaded a defence (on behalf of himself, Pacrim International Captial Holdings Inc. and PRC Realty Inc.) and counterclaim (on behalf of himself and Pacrim International Captial Holdings Inc.) to the 2007 writ action.

24.  To this, the Plaintiff has pleaded a Reply and Defence to Counterclaim dated 9 April 2008.

25.  Apart from the filing of pleadings, no other steps appear to have been taken in the 2007 writ action to date.

The relevant principles applicable to the application to strike out

26.  The Court has power to strike out or dismiss proceedings which are an abuse of its process under RHC Order 18 rule 19(1)(d) and also under its inherent jurisdiction.  The process of the Court must be used bona fide and properly and must not be abused.  To this end, the Court will prevent the improper use of its machinery and will, in a proper case, summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation.

27.  As is pointed out in Note 18/19/10 of Hong Kong CivilProcedure 2008 (Vol.1), the categories of conduct rendering a claim frivolous, vexatious or an abuse of the process are not closed but depend on all the relevant circumstances and for this purpose considerations of public policy and the interests of justice may be very material.

28.  The Court’s jurisdiction to strike out or dismiss proceedings is, of course, discretionary and is only to be exercised in plain and obvious cases.

The basis for the 3^rd Defendant’s application to strike out the 2007 writ action

29.  Ms Sara Tong, counsel for Guy Lam, submitted that the original action should be struck out as an abuse of process since the issues in the original action are all encompassed within the 2007 writ action so that the original action is entirely unnecessary and duplicitous.

30.  She also submitted that the history of the original action shows that the Plaintiff had effectively abandoned it since July 2006 after Poon J refused to grant the interim injunction he had sought.  Despite serving the Notice of Intention to Proceed, the Plaintiff has taken no other steps in the original action apart from issuing the summons seeking a stay pending the determination of the 2007 writ action.

31.  She submitted that this course of action by the Plaintiff was simply an attempt to avoid or delay his responsibility to pay the costs of the original action to Guy Lam, since the dispute should not have been commenced by originating summons in the first place, and/or the costs of the injunction application, which has effectively been abandoned.  As such, the Plaintiff’s attempt to maintain the original action is an abuse of process.

The Plaintiff’s competing application to stay the original action instead

32.  Mr S.H. Kwok, counsel for the Plaintiff, took issue with the submission for Guy Lam that there is duplicity between the original action and the 2007 writ action.  He submitted that the causes of action, the relief sought and the parties are all different in the two set of proceedings.

33.  He accepted that there are factual issues which are common to the two sets of proceedings.  He submitted that the 2007 writ action, being a more suitable vehicle for the resolution of these factual disputes, should proceed first.  Hence, he submitted that the original action should be stayed, pursuant to RHC Order 4 rule 9(4), until the determination of the 2007 writ action, with consequential directions as sought in the Plaintiff’s summons (see paragraph 18 above).

Discussion

34.  Notwithstanding Mr Kwok’s submissions to the contrary, I am firmly of the view that the underlying subject matter of the original action and the 2007 writ action is quite clearly the same, namely the Plaintiff’s claim to ownership of WSPPS, and that the two sets of proceedings are materially duplicitous.

35.  All of the defendants in the original action are defendants in the 2007 writ action and all of the relief claimed by the Plaintiff in the original action is included in the relief claimed by him in the 2007 writ action.  This is, in substance, the position notwithstanding the fact that the 5^th Defendant in the original action, Pacrim International Capital Inc., is not a defendant in the 2007 writ action.  The reason for the omission of Pacrim International Capital Inc. as a party to the 2007 writ action is explained in the Plaintiff’s skeleton argument in support of the injunction application before Poon J, where it is noted that the relief claimed in the originating summons against Pacrim International Capital Inc. “is no longer necessary since the proposed sale to the 5^th Defendant has fallen through”.  Instead, its holding company, Pacrim International Capital Holdings Inc., is now 2^nd Defendant in the 2007 writ action, since it is that company which holds the single share in PRC Realty Inc.

36.  In my opinion, although the rules do permit the resolution of disputed facts on the hearing of an originating summons (see Ye Hong Ying v. Chan Lup Ying [1996] 1 HKLR 255 per Keith JA at 258F-I), the complexity and nature of the underlying disputes between the Plaintiff and Guy Lam are such that I do not think that it would be suitable or appropriate for the disputes to be determined in the context of an originating summons.  Instead, I think that these disputes are clearly of such a nature that it is more appropriate for the issues to be framed properly by way of pleadings and tried accordingly.  Whether this was obvious at the time of the issue of the originating summons is a matter of debate to which I shall return below but, in my opinion, this ought in any event to have been clear to the Plaintiff or his legal advisers at the time Guy Lam served his affirmation in response to the Plaintiff’s application for an interlocutory injunction, namely 9 September 2006.

37.  Plainly, the original action should not proceed in parallel to the 2007 writ action and both parties recognise this.  To the extent that the Plaintiff would have to elect between which set of proceedings to maintain, it is clear that he accepts it is the 2007 writ action, rather than the original action, which should continue as the active vehicle through which the parties’ disputes should be determined.  The question before me now is whether the original action should be struck out (as Ms Tong submits) or should merely be stayed (as Mr Kwok submits).

38.  It has been held that, where proceedings are in existence based on a particular cause of action, it is prima facie an abuse of process to bring a second action based on the same cause of action and the latter action is liable to be struck out: see Buckland v. Palmer [1984] 1 WLR 1109, applied in Hong Kong in The Pertamina [1986] HKC 78.  Ms Tong relied on this principle in support of the application by Guy Lam.

39.  In the present case, however, it is the first set of proceedings, the original action, which Guy Lam applies to strike out rather than the latter set of proceedings, the 2007 writ action.

40.  Mr Kwok submits that Guy Lam did not apply to strike out the 2007 writ action when the writ was first issued.  Instead, he pleaded a lengthy Defence and Counterclaim to the Statement of Claim.  Mr Kwok pointed out that the authorities cited by Ms Tong in support of the striking out of duplicitous proceedings (namely Buckland v. Palmer (supra.), The Silver Athens [1986] 2 Ll.L.R. 580, Ridgeway Motors (Isleworth) Limited v. Michael (unrep., 13.6.96), The Pertamina (supra.) and Choi Gain Chee v. Kowloon Development Co. Ltd. (unrep., HCA 761/2005, 19.10.05)) were all cases in which the second or subsequent court proceedings were struck out rather than the first.

41.  For his part, Mr Kwok submitted that the relevant principles relating to an application to strike out the original or first court proceedings are to be found in the judgment of Fung J in Super Strategy Investments Limited v. Kao, Lee & Yip (a firm), unrep., HCMP 1752/2007, 19.2.08.  There, it was the earlier of two sets of proceedings that was sought to be struck out or stayed.

42.  He referred to paragraph 22 of that judgment, in which Fung J referred to the principles relating to striking out as an abuse of the Court’s process summarised by Simon Brown LJ (as he then was) in Broxton v. McClelland [1995] EMLR 485 at 497-498, namely:-

“(1)   Motive and intention as such (save only where ‘malice’ is a relevant plea) are irrelevant.

   (2)     The institution of proceedings with an ulterior motive is not of itself enough to constitute an abuse: an action is only abusive if the Court’s processes are being misused to achieve something not properly available to the plaintiff in the course of properly conducted proceedings:

(a)     the achievement of a collateral advantage beyond the proper scope of the action to secure to the plaintiff something he has no legitimate claim whatever;

(b)     the conduct of proceedings not so as to vindicate a right but rather in a manner designed to cause the defendant the problems of expense, harassment, commercial prejudice or the like beyond those ordinarily encountered in the course of properly conducted litigation.

(3)     Only in the most clear and obvious case will it be appropriate upon preliminary application to strike out proceedings as an abuse of process so as to prevent a plaintiff from bringing an apparently proper cause of action to trial.”

43.  I do not think there is any doubt as to the correctness of these principles, nor did Ms Tong dispute them.

44.  Beyond that, I do not think the case in question assists Mr Kwok since the facts were completely different.  In that case, a first set of proceedings had been brought by way of originating summons to order the defendant firm of solicitors to deliver a bill of costs under s.65 of the Legal Practitioners Ordinance (Cap.159) in relation to the sale of two properties.  Subsequently, the defendant firm commenced proceedings by writ against another party in respect of a consultancy fee arising from its work in relation to the sale of various properties including the two owned by the plaintiffs in the first set of proceedings.  The defendant firm applied by summons to strike out or alternatively stay the first set of proceedings.

45.  In any event, Fung J declined to strike out or stay the originating summons.  One of the main reasons for his decision, as I read the judgment, was that the two sets of proceedings did not overlap.

46.  Returning to the question before me, the problem presently facing the parties by the existence of parallel proceedings is the consequence of the Plaintiff having started the 2007 writ action whilst the original action was still on foot.  Plainly, the two proceedings should not be allowed to continue in tandem since there is no reason to maintain the prosecution of the original action now that the 2007 writ action has been commenced.

47.  It seems to me that the proper course for the Plaintiff to have adopted would have been to make an application in the original action under RHC Order 28 rule 8 for an order that the original action continue as if it had been begun by writ and to seek directions for the service of pleadings.  Indeed, this is tacitly acknowledged by the fact the Plaintiff commenced the 2007 writ action in which substantially the same causes of action are advanced against Guy Lam and others.  The Plaintiff also tacitly recognises that the original action is redundant since he has applied for that action to be stayed pending the determination of the 2007 writ action.

48.  In my opinion, whether I should strike out or stay the original action depends on the view I take as to whether the Plaintiff ought to have anticipated that there would be substantial disputes as to the facts which would render the originating summons procedure, whereby he commenced the original action, inappropriate.

49.  If the Plaintiff ought to have anticipated that there would be substantial disputes as to the facts so that the originating summons procedure would not be appropriate, it would have been likely that the Court would have penalised him as to costs upon making an order under  RHC Order 28 rule 8 for the proceedings to continue as if commenced by writ: see Hong Kong Civil Procedure 2008 (Vol.1) Note 28/8/2 at p.532 and Lai Kwong Ma v. Tang Hop Wan [1976] HKLR 51.  If not, it would appear that the usual costs order on an order to continue as if by writ is that the costs be in the cause: see Hong Kong Civil Procedure 2008 (Vol.1) Note 28/8/2 at p.532.

50.  Thus, were I to take the view that the Plaintiff should have realised the originating summons procedure was inappropriate, it would follow that the only purpose of the Plaintiff in seeking to keep the original action alive would be to avoid the consequence of having an adverse costs order made against him now.  If so, I consider this would be conduct amounting to an abuse of the Court’s process such that I should strike out the original action rather than simply stay it until the conclusion of the 2007 writ action.

51.  Mr Kwok submitted that there was no reason for the Plaintiff to anticipate that the originating summons procedure adopted in the original action would ultimately prove to be inappropriate.  He submitted that the pre-action correspondence indicated that none of the adverse parties concerned with the Deed of Trust had raised any indication they would contest the proceedings and hence the originating summons procedure was appropriate at the time when the proceedings were commenced.

52.  I do not agree.  It is apparent from the contents of the Plaintiff’s first affirmation in support of the original action that the Plaintiff was actively contending that his signatures on the Instruments of Transfer relating to the single share in PRC Realty Inc. and the Deed of Trust were either forgeries or had been procured by some wrongful act on the part of Guy Lam, all with the purpose of defrauding him and others of the family business.

53.  As the Plaintiff put it in paragraph 20 of that affirmation:-

“Upon learning in March 2006 of the existence of the purported LPC Trust for the very first time and of the announced sale by the LPC Trust of my 87.81% ownership of [WSPPS], I could only conclude that instead of employing his education and skills in serving the Lam family in recent years, Lam Kwok Hung has worked secretly and deliberately to defraud myself and the remaining members of my family of the business that we have run so successfully for nearly 50 years.”

54.  The four principle documents which the Plaintiff challenges, namely the two Instruments of Transfer, the Deed of Trust and the Stock Purchase Agreement were all in his possession at the time when the original action was commenced and his first affirmation contested the validity of those documents.

55.  Whilst some of the pre-action correspondence indicates the other parties to the original action took a neutral stance, Guy Lam’s letter dated 6 July 2006 in response to the Plaintiff’s solicitor’s letter before action made it abundantly clear that he was asserting that his “holding company Pacrim International Capital Holdings Inc. has already bought PRC Realty Inc., and will continue to exercise all the rights incidental to an owner.”  In a further letter to the Plaintiff’s solicitor dated 7 July 2006, Guy Lam also asserted unequivocally in response to the letter before action, “You know very well that I am the true owner and in control of the company”, referring to WSPPS.

56.  In the circumstances, I am in no doubt that the substance and nature of the complaints made by the Plaintiff in his first affirmation in support of the original action are such that should have led him or his legal advisors to realise that the originating summons procedure was inappropriate and that the proper course would have been to issue proceedings by way of a writ.

57.  In my opinion, had the Court been asked to make directions for the original action to be continued as if by writ, it should then have penalised the Plaintiff in costs.  I agree with Ms Tong’s submission that the only rational reason there can be for the Plaintiff wishing to keep the original action alive is in order to avoid the incidence of an adverse costs order on its dismissal or discontinuance or to avoid the risk at some future date of its being struck out for want of prosecution.

58.  As such, in my judgment, the Plaintiff’s stance in having commenced two overlapping sets of proceedings against substantially the same parties and for substantially the same relief but in seeking to keep the original action alive when the more appropriate 2007 writ action is now being prosecuted is an abuse of the Court’s process.

59.  In the circumstances, I conclude that the appropriate disposition of the competing summonses before me is that I should accede to the application to strike out the original action and dismiss the application for a stay.

Conclusion

60.  For the reasons set out above, I strike out the original action as an abuse of the Court’s process and I dismiss the Plaintiff’s cross-application for a stay.

61.  As to costs, Ms Tong submitted in her skeleton argument that the abusive nature of the original action justifies an award of indemnity costs against the Plaintiff. 

62.  I do not agree.  As I have explained, I have approached the question of whether I should strike out or stay the original action on the basis of the Court’s likely approach to costs upon the giving of directions for the continuation of the original action as if by writ.  In my view, the Plaintiff was mistaken in proceeding by way of originating summons.  I do not perceive him to have been motivated by a desire to obtain any other inappropriate benefit by the manner in which he commenced the original action.  In the circumstances, I make an order nisi that the Plaintiff pay the costs of the original action to Guy Lam to be taxed on the normal party and party basis, unless agreed.