CAPITAL WEALTH FINANCE CO LTD v. LAI YUEH HSING AND OTHERS

HCA 686/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 686 OF 2012

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D E C I S I O N

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1.  There are 2 summonses before the court :

(1) The 1^st (“Lai”) and 2^nd (“T Chan”) defendants’ summons (“Discovery Summons”) for discovery against 3^rd parties, namely, Alliance Financial Intelligence Limited (“AFIL”) and Mr Ku Siu Fun Alex (“Ku”), for production of documents bearing the original signatures of Ku for inspection by handwriting expert in connection with an alleged share custodian agreement dated 19 June 2009 and signed by the 3^rd defendant (“Wang”) and Ku (on behalf of AFIL) (“Wang’s Share Custodian Agreement”); and

(2) The plaintiff’s (“CW”) summons (“SO Summons”) seeking essentially to strike out (a) para 12A of the Amended Defence of Lai and T Chan and (b) paras 5 and 9.1 of the Defence of Wang, on the ground that it is an abuse of the process of the court for these defendants to re-litigate the same issues which had been determined in HCA 238 and HCCL 3 of 2012 (consolidated) (“Former Actions”) and affirmed on appeal in CACV 162 of 2012 and FACV 17 of 2013.

2.  The hearing of these summonses was almost entirely dedicated to the arguments on the SO Summons because the resistance of AFIL and Ku against the Discovery Summons was very much premised upon the same arguments advanced by CW.

3.  Wang, who is a Taiwanese, did not appear at the hearing.  However, it would not be right for this court to strike out part of his defence unless it agrees with CW’s submissions.

Background

4.  This action is 1 of 6 between, broadly speaking, 2 camps.  On one side, there are Mr Charles Chan (“C Chan”), CW, Mr Lam Chin Chun (“Lam”) who is the CEO of CW, AFIL, Aspial Investment Ltd (“Aspial”) and Bumper East Ltd (“Bumper”). The other camp consists of the Mayer Corporation Development International Ltd (“Mayer BVI”), Mayer Holdings Ltd (“Mayer HK”) which is a Hong Kong listed company, Lai, T Chan and Wang. 

5.  The dealings between the 2 camps which led to these actions are very complicated.  I should start with the Former Actions. They were primarily concerned with a dispute over the ownership of 200 million shares in Mayer HK (“200M Shares”).  The main protagonists were Mayer BVI on the one hand (which was the registered owner of those shares) and Aspial and Bumper on the other.  The key issue which the court had to determine in the Former Actions was who owned the 200M Shares.

6.  A very brief summary of the Former Actions can be found in paras 5 to 7 of the judgment of Reyes J (“Judgment”) who tried those actions[1] :

“5. Aspial and Bumper sue Mayer BVI in HCA 238, while Mayer BVI sues Aspial, Bumper, AFIL, Charles Chan, and Lam in HCCL 3. The principle issue which I have to determine in these proceedings is who owns the 200 million shares underlying certificates 70 and 71.

6. Aspial and Bumper contend that they properly purchased the shares through Capital Wealth [of which Lam was the CEO]. They say (and AFIL, Lam and Charles Chan agree) that Capital Wealth had been authorized by Mayer BVI to sell the 200 million Mayer HK shares represented by certificates 70 and 71, in any way and at any price that Capital Wealth saw fit.

7. Mayer BVI, in contrast, denies that it authorized Capital Wealth to sell the shares on its behalf. Mayer BVI instead says that AFIL breached a Custodian Agreement whereby AFIL agreed to hold certificates 70 and 71 to Mayer BVI’s order.  Mayer BVI accuses Charles Chan and Lam of dishonestly assisting AFIL to breach the fiduciary obligations which AFIL as custodian of the certificates owed to Mayer BVI.  Mayer BVI asks that Aspial and Bumper account for the certificates on the basis that the latter must have had notice of suspicious circumstances surrounding the sale of the Mayer HK shares to them.”

7.  The respective cases of the 2 camps were summarised in paras 22 to 24 of the Court of Appeal’s judgment (“CA Judgment”) as follows :

“22. The case of all the respondents[2] was that:-

(1) In about the first half of 2009, Mayer BVI and Lai wished to sell shares in Mayer HK, consisting of 300 million shares held by Mayer BVI and 100 million shares held by Lai (through nominees), as they were in need of funds.

(2) With this in mind, Lai was introduced by Charles Chan (an accountant whose firm was the auditor of Mayer HK) to Lam (who was described as being well connected in the corporate finance field).

(3) Following discussions between Lai and Lam, it was orally agreed between them by the beginning of June 2009 that:-

(a) Lam (or Capital Wealth) was authorised to sell the 400 million shares for at least HK$100 million within 1 year, with any excess over that amount to be retained by Capital Wealth as a reward for its services.

(b) Lam (or Capital Wealth) was to deposit the sum of HK$50 million with AFIL as “promise money” (this being paid on 3 June 2009), while Mayer BVI was to deposit 200 million of its Mayer HK shares with AFIL (this being done on 19 June 2009).

(c) Lam was to locate buyers for Mayer BVI’s remaining 100 million shares in Mayer HK though securities firms in Hong Kong (which it is said Lam did by 23 or 24 June 2009, when a buyer was sourced through GF Securities Ltd for 100 million Mayer HK shares at a total price of HK$55 million).

(d) Lai’s 100 million Mayer HK shares would be placed with Lam for Lam to look for purchasers for them (but in the event, Lai only delivered to Lam, through Tommy Chan, 99 million shares represented by seven share certificates in the names of various nominees on 19 June 2009 – although Tommy Chan told Lam that a share certificate for the remaining 1 million shares would be delivered after sub-division of another certificate held by Lai, this never happened).

(4) This agreement was referred to before us as “the 1st Oral Agreement”.

(5) Because Mayer BVI and Lai were in need of funds, Lai sought the release of the “promise money” to them on or shortly before 24 June 2009. As arrangements had by then been made for the sale of 100 million Mayer HK shares for HK$55 million (a sale which was completed on the market on 25 June 2009), Lam suggested that a further HK$45 million should be released out of the promise money. Following discussions between Lam and Lai (through Charles Chan as an intermediary), it was agreed on 24 June 2009 that:-

(a) HK$45 million out of the “promise money” would be released by AFIL to Lai/Mayer BVI, subject to the deduction therefrom of AFIL’s service charge of HK$2.5 million (in the event, a total of HK$42.5 million was paid to various individuals on 24 and 25 June 2009, in accordance with a list provided by Flora Kao, who worked for Lai (according to Lai, as his personal assistant) and was married to Lai’s nephew).

(b) The share certificates numbered 70 and 71 would be released to Lam for him to dispose of as he thought fit.

(c) The remaining HK$5 million of the “promise money” would be released back to Lam/Capital Wealth.

(6) This later agreement was referred to before us as the “2nd Oral Agreement”.

23. On the other hand, the case of Mayer BVI was that:-

(1) Lam was introduced to Lai by Charles Chan, who suggested that Mayer HK could benefit from Lam’s experience and ability to introduce business opportunities to it so as to improve its financial performance. Following on this introduction, Lam did in fact bring investments in Vietnam (which form the subject matter of HCA 64/2012) and Argentina to the attention of Mayer HK.

(2) Charles Chan also suggested that Mayer BVI should deposit 200 million of its shares in Mayer HK with AFIL, on the basis that this would be convenient if Mayer BVI should subsequently decide to dispose of such shareholding, or part of it. It was for this purpose (and not the purposes of the alleged 1st Oral Agreement) that Mayer BVI deposited the share certificates in respect of such shares with AFIL, under the terms of a written Share Custodian Agreement between Mayer BVI and AFIL pursuant to which the share certificates could only be released or disposed of on the written resolution of Mayer BVI, and the proceeds of sale thereof were to be paid to Mayer BVI.

(3) Mayer BVI did not, as at June 2009, wish to dispose of the whole of its 300 million shares in Mayer HK. Rather, it only had in mind to dispose of 100 million such shares if a buyer could be found at a suitable price – in the event, it was decided (as evidenced by a resolution of Mayer BVI’s parent company in Taiwan) that 100 million shares should be sold at a price of HK$55 million odd.

(4) There was no arrangement to sell 100 million shares in Mayer HK belonging to Lai personally.

(5) Mayer BVI and Lai had not entered into either the 1st Oral Agreement or the 2nd Oral Agreement with Lam/Capital Wealth, and accordingly, AFIL should not have released the share certificates relating to the 200 million shares to Lam, who had no right to dispose of them to Aspial and Bumper.

24. In relation to the 99 million Mayer HK shares delivered on 19 June 2009, Mayer BVI’s case was that these did not belong to Lai. Instead, it was said that these 99 million shares were deposited by Wang with AFIL (having been delivered to the managing director of AFIL, Ku Siu Fun Alex (“Ku”) by Wang), and that they were held by AFIL under the terms of a Share Custodian Agreement between Wang and AFIL (which I shall refer to as “Wang’s Share Custodian Agreement”) the terms of which were broadly identical to those of the Share Custodian Agreement between Mayer BVI and AFIL, for the purpose of being sold by Charles Chan on behalf of investors whom Wang represented, at a price of not less than HK$1 per share. The payment by AFIL of HK$42.5 million in accordance with the instruction sheet provided by Flora Kao was said to be an advance payment by Charles Chan of the anticipated sale proceeds of such shares.”

8.  Before I try to explain the intricacies over the inter-connection between the Former Actions and the present one, I should identify the other 4 actions between the 2 camps.  Again, I gratefully adopt the summary of the same which can be found in paras 16 and 17 of the CA Judgment :

“16. It is also relevant to note that the consolidated proceedings were not the only proceedings between the parties. There are four other actions involving various combinations of parties, each of which includes one or more of the parties to these proceedings or parties related to them, and some of which involve other parties as well. These are:-

(1) HCA 64/2012, in which Mayer HK sues various parties including Lam as the 5^th defendant in relation to an agreement by Mayer HK to invest in a port project in Vietnam introduced by Lam;

(2) HCA 522/2012, in which Capital Wealth sues Mayer HK for repayment of an alleged loan of HK$10 million;

(3) HCA 524/2012, in which Capital Wealth sues Mayer HK for repayment of an alleged loan of HK$5.5 million; and

(4) HCA 686/2012, in which Capital Wealth sues Lai, Tommy Chan (Mayer HK’s company secretary), Wang Ing Jye (“Wang”) (who featured as a witness for Mayer BVI in these proceedings) and other defendants for repayment of various loans allegedly advanced to the defendants, these being:-

(a) a loan of HK$4 million to Lai and/or Wang;

(b) a loan of HK$49.295 million odd to Lai and/or Tommy Chan and/or Wang and/or the 4^th defendant in the proceedings, which was advanced by a combination of money and shares in Mayer HK; and

(c) a loan of HK$7.75 million to Lai and/or Wang and/or the 5^th defendant in the proceedings.

17. The second loan mentioned in relation to HCA 686/2012 was alleged to have been advanced by a combination of cash and Mayer HK shares.  Included amongst the Mayer HK shares were some 47 million shares which featured in these proceedings, as I shall explain below.  The ownership of these 47 million shares was therefore an issue in both these proceedings and in HCA 686/2012.”

9.  In respect of the 47 million shares mentioned in para 17 of the CA Judgment, I should explain that, according to the case of Mayer BVI[3], it was part of the 99 million shares to be sold by C Chan (“99M Shares”).  In the event, only 52 million shares were sold and the balance of 47 million shares was returned to Wang.

10.  Although the court was only required to determine the ownership of the 200M Shares in the Former Actions, in order to come to a finding on that ultimate issue the court had to resolve the opposing cases of the parties.  On behalf of CW, Mr Chan SC (appearing with Mr Lee) has laid considerable emphasis on Reyes J’s acceptance of the evidence of Aspial and Bumper concerning how CW became entitled to dispose of the 200M Shares to them in the absence of written resolution from Mayer BVI as required in the Custodian Agreement[4].

11.  Having accepted the factual evidence of Aspial and Bumper, Reyes J found that the Custodian Agreement was superseded by the 2^nd Oral Agreement[5].  Importantly, the learned Judge found that the payment of HK$42.5 million to Lai or Mayer BVI was to make up the balance for the HK$100 million to which Mayer BVI was entitled to under the 1^st Oral Agreement.  Without this payment, CW would not be entitled to dispose of the 200M Shares.

12.  The above findings were made having rejected Mayer BVI’s case as summarised by the CA.  In particular, Reyes J rejected the allegation that the payment of HK$42.5 million was an advance payment of the anticipated proceeds from the sale of the 99M Shares. The learned Judge found that on a balance of probabilities Wang’s Share Custodian Agreement was a fake[6].

13.  On behalf of CW, Mr Chan said that by para 12A of the Amended Defence of Lai and T Chan, which is mirrored in paras 5 and 9.1 of the Defence of Wang, these defendants seek to re-litigate (a) the existence of an alleged oral agreement between Wang and C Chan in respect of the 99M Shares which were deposited with AFIL (“99M Share Agreement”) and (b) the existence of Wang’s Share Custodian Agreement allegedly signed by Wang and Ku.  Such re-litigation constitutes an abuse of process of the court, said Mr Chan.

14.  The 2 issues raised in para 12A of the Amended Defence of Lai and T Chan were embodied in the 3^rd Issue which was determined by Reyes J (“Issue 3”).  The learned Judge approached the matters before him by considering 7 issues[7].  Issue 3 was formulated as follows : “Did Wang enter into (a) a Share Custodian Agreement with AFIL on 19 June 2009 for 99 million Mayer HK shares and (b) an agreement with Charles Chan to sell those shares on behalf of 7 individual investors?”.   

15.  In dealing with the criticisms advanced by Mayer BVI over the appropriateness of the 7 issues, the CA said the following in respect of Issue 3 :

“32. The third question was directed towards assisting the judge to come to a conclusion as to both the 1st and 2nd Oral Agreements – if Wang’s Share Custodian Agreement were genuine, and Wang had indeed deposited the 99 million shares for the purpose of having them sold on behalf of his clients by Charles Chan, this would go a long way in negativing the existence of the 1st Oral Agreement (since there would not be any shares belonging to Lai supplied for sale, contrary to the case being advanced that Lam had agreed to procure the sale of a total of 400 million Mayer HK shares for not less than HK$100 million). It would also militate against the existence of the 2nd Oral Agreement, for the payment of the HK$42.5 million would then be referable to the shares to be sold for Wang’s clients, and not to the balance payable to Mayer BVI/Lai in respect of the 400 million shares owned by them (300 million and 100 million respectively) which they were to receive earlier than intended under the 1st Oral Agreement.

…

34. Thus, between them, the first four questions provided the basis on which the judge could (as he did) resolve the question of which side was to be believed.  The remaining questions provided the framework against which he could decide whether or not particular respondents were liable to Mayer BVI on the bases pleaded by it.”

16.  Reyes J’s findings on Issue 3 constituted one of the focuses of Mayer BVI appeal before the CA.  The appeal failed and the findings by Reyes J were upheld by the CA. 

17.  Before the CFA, challenges were also made by Mayer BVI on Reyes J’s findings on Issue 3.  That appeal was dismissed with indemnity costs.

18.  Before I analyse the arguments on the SO Summons, I should mention an important feature of the trial before Reyes J – the learned Judge adopted a “minimalist approach” in that trial.  Again, I can do no better but to gratefully quote the relevant parts of the CA Judgment (footnotes omitted) :

“18. When the trial of these proceedings commenced in July 2012, HCA 686/2012 was still in its very early stages, no defence having yet been filed. Being aware of HCA 686/2012, and the other proceedings mentioned in paragraph 12 above, the judge was understandably anxious to avoid unnecessarily making findings in these proceedings which might impinge upon findings which another judge might be called upon to make in those other proceedings. He therefore indicated, in the course of the trial below, that he proposed to adopt a ‘minimalist approach’ to these proceedings, by determining and dealing with only those issues that were necessary for him to deal with in order to resolve the proceedings which were before him. This course, too, was one that all the parties assented to.”

Abuse of process

19.  There are 2 limbs to Mr Chan’s submissions.  He relies on the extended doctrine of res judicata as well as the principles of issue estoppel.  I propose to deal with the latter first.

Issue estoppel / res judacata

20.  There is no dispute between the parties on the law.  With gratitude, I adopt the summary of the applicable principles set out in the skeleton arguments Mr Joffe and Ms Lau, who appeared for Lai and T Chan as follows.

21.  To give rise to an estoppel, the earlier decision relied upon must satisfy the following requirements :

(1) it must be judicial in the relevant sense;

(2) it was in fact pronounced;

(3) the tribunal had jurisdiction over the parties and the subject matter;

(4) the decision was (a) final and (b) on the merits;

(5) it determined a question raised in the later litigation; and

(6) the parties are the same or their privies or the earlier decision is in rem.

22.  A res judicata estoppel may be a cause of action estoppel and prevent a party from asserting or denying, as against the other party, the existence of a particular cause of action, the non-existence or existence of which has been determined in a previous judgment.  Alternatively, there may be issue estoppel, which prevents a party from asserting or denying, as against the other party, an issue which has been determined in a previous judgment (See Spencer Bower, supra, §1.05). 

23.  A decision will create an issue estoppel if it determined an issue in a cause of action as an essential step in its reasoning.  Issue estoppel applies to fundamental issues determined in an earlier proceeding which formed the basis of the judgment (See Spencer Bower, supra, §8.01). 

24.  An express decision will not necessarily create an issue estoppel.  Only determinations which are necessary for the decision, and fundamental to it, will do so.  The question is whether the determination was so fundamental that the decision cannot stand without it.  Alternatively, it can be asked whether the determination is the “immediate foundation” of the decision or “no more than part of the reasoning supporting the conclusion” (See Spencer Bower, supra, §§8.23-8.24). 

25.  There may be special circumstances which if established constitute an exception to an issue estoppel which might otherwise arise.  An example is where there has become available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, being material which could not by reasonable diligence have been adduced in those earlier proceedings (See Spencer Bower, supra, §8.31). 

26.  A judgment in rem may be defined as the judgment of a court of competent jurisdiction determining the status of a person or thing, or the disposition of a thing, as distinct from the particular interest in it of a party to the litigation.  On the other hand, a judgment in personam determines the rights of parties as between one another to or in the subject matter in dispute, but which do not affect the status of either persons or things, or make any disposition of property or declare or determine any interest in it except as between the parties (See Halsbury’s Laws of Hong Kong, 2^nd edn, §§170.19, 170.22). 

27.  Judgments in personam are binding only as between the parties to them and those who are privies, whereas judgments in rem are conclusive against all the world in whatever it settles as to the status of the persons or property, or as to the right or title to the property, and as to whatever disposition it makes of the property itself, or of the proceed of its sale (See Halsbury’s Laws of Hong Kong, supra, §170.034). 

28.  As to what amounts to privity, or what has been described as “sufficient community of interest”, an example would be the trustee of property in dispute and beneficiary.  The required commonality is a direct interest in the subject matter of the litigation, a parallel or corresponding interest in that subject matter and not simply a financial interest in the result of the action.  It is essential that the party to be estopped by privity must have some kind of interest, legal or beneficial, in the previous litigation or its subject matter (See China North Industries Investment Ltd v Chum [2010] 5 HKLRD 1, §§80-81 per Stock JA (as he then was)). 

29.  The English Court of Appeal has also summarised the position thus in Resolution Chemicals Ltd v H Lundbeck A/S [2014] RPC 5, §32:

“Drawing this together, in my judgment a court which has the task of assessing whether there is privity of interest between a new party and a party to previous proceedings needs to examine (a) the extent to which the new party had an interest in the subject matter of the previous action; (b) the extent to which the new party can be said to be, in reality, the party to the original proceedings by reason of his relationship with that party, and (c) against this background to ask whether it is just that the new party should be bound by the outcome of the previous litigation.”

Analysis

30.  There is no dispute that the Judgment is one in personam which only affects the parties thereto[8]. I agree with Mr Joffe that, in any event, the Judgment only determined the ownership of the 200M Shares and not the 47 million (part of the 99M Shares) which is one of the subject matters of this action. 

Privies

31.  It is undisputed that Lai, T Chan (and Wang) were not parties to the Former Actions.  There is, however, an argument whether they are privies of Mayer BVI. 

32.  First and foremost, I am unable to see any parallel or corresponding interest which any these defendants has/had with Mayer BVI.  I agree with the analysis of Mr Joffe that Mayer BVI’s interest in the Former Actions concerned the ownership of the 200M Shares represented by certificates numbers 70 and 71.  Mayer BVI’s interest in the ownership of the 200M Shares cannot be said to correspond with any of these defendants’ interest.  There has never been any suggestion that the 200M Shares belonged beneficially to any one of them. 

33.  Secondly, I am unable to see how CW can improve its argument against Lai simply because he was the sole director of Mayer BVI and that the sole purpose of that company was to hold the 300 million shares in Mayer HK[9]. Being the directing mind and will of Mayer BVI cannot per se be equated with having a parallel or corresponding interest in its assets.  I do not accept that Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 at p 713 supports a general proposition that directors are the alter ego of the companies they manage.  It was a case concerned with the liability of a ship owner for loss of cargo under a piece of legislation. 

34.  Thirdly, CW seeks to rely on the proposition that Lai had the conduct of the Former Actions.  This is highly controversial.  There is substance in Mr Joffe’s complaint that no evidence to that effect has been filed by CW.  He said that such evidence would have been vigorously denied by Lai. 

35.  There is, however, some indirect evidence which is relied upon by CW, namely, (a) Lai tried to obtain from Wang the original of Wang’s Share Custodial Agreement; and (b) Lai was involved in Mayer BVI’s application to adduce two handwriting reports (“Further Evidence Application”) in the appeal in the Former Actions.  Whilst I accept that Lai clearly played an important part in the conduct of the Former Actions, I am reluctant to infer from these evidence that he had the conduct of that litigation.  It should be borne in mind that the owner of the Mayer HK shares held by Mayer BVI was Mayer Steel Pipe Corporation, a company listed on the Taiwan Stock Exchange and the guiding force behind which was Huang Chun Fa[10].  Given the value of the assets in question, it would be surprising if Lai was simply acting on his own in the conduct of the Former Actions. 

36.  In any case, I do not see that having conduct of the Former Actions per se would give rise to parallel or corresponding interest in the subject matter of litigation.  If that were so, all directors or the ones in charge of litigation would necessarily have such interest.  This argument simply ignores the fact that the directors are merely carrying out their duties to the company.

37.  Fourthly, Mr Chan relies on the fact that at the time of the trial of the Former Actions Lai, T Chan and Wang were aware of CW’s claim in this action and that their defence would be based on the 99M Share Agreement and Wang’s Share Custodian Agreement.  When they gave evidence in the Former Actions, they had an interest in the court’s decision on Issue 3.  With respect, I am not attracted by the argument.  It would be a dangerous expansion of the law of res judicata if this kind of interest would constitute privity between a witness and the litigant in an action to which the former was not a party. 

38.  My view on this issue is consonant with the dicta of Megarry V-C made in Gleeson v J Wippell & Co Ltd [1977] 3 All ER 54, at 60b-p which was cited with approval by Woo J (as he then was) in Wai Sau Ming v Wong Chow Tsai Tse, HCA 9650/1995, unrep, 18 April 1996, §12 :

“12. I do not see in the present case that there is any privity in blood, in law or in estate. The only question is whether there is a privity in interest, which is a ‘difficulty territory’ as described by Megarry V-C in Gleeson v J Wippell & Co Ltd [1977] 3 All ER 54, 59h. At p 60b-h, the learned Vice-Chancellor stated:

‘… 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 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 this sense that I would regard the phrase ‘privity of interest’. …

… Any contention which leads to the conclusion that a person is liable to be condemned unheard is plainly open to the gravest of suspicions.  A defendant ought to be able to put his own defence in his own way and to call his own evidence.  He ought not to be concluded by the failure of the defence and evidence adduced by another defendant in other proceedings unless his standing in those other proceedings justifies the conclusion that a decision against the defendant in them ought fairly and truly to be said to be in substance a decision against him.’”

39.  In light of my rejection of CW’s arguments on privity, its case on issue estoppel must fail. I shall deal with the remainder of the arguments on issue estoppel succinctly.

Essential foundation of the Judgment

40.  Mr Joffe argued that the determination of Issue 3 did not constituted the essential foundation or groundwork of the Judgment.  The key issue resolved in the Former Actions was the ownership of the 200M Shares.  The 2 points embodied under Issue 3 were not relevant to the resolution of that key issue.  They were purely evidential, and were considered together with a number of other factors by Reyes J in reaching the decision on the key issue.  Mr Joffe went as far as contending that even if Wang’s Share Custodian Agreement was found to be genuine, it would not undermine the determination on the ownership of the 200M Shares.   

41.  I must say that this is an area where the application of the law is not at all straightforward.  It is not always easy to draw the line on what is merely evidential and what is essential to a judgment.  The guidance from the law is necessarily limited due to the fact sensitive nature of the question. 

42.  On balance, I am inclined to agree with Mr Chan that the determination of Issue 3 was fundamental to the Judgment.  Put another way, a successful challenge to the findings in respect of 2 points embodied in that issue would, in my view, undermine the soundness of the Judgment.

43.  I do not believe that it is critical for the present purpose whether the 2 points in question had been pleaded, clearly or not, in the Former Actions because plainly they were identified and decided by Reyes J.  I accept Mr Chan’s analysis set out in paras 10 to 12 above and agree that the decision on Issue 3 was an essential foundation of the Judgment. 

Special circumstances

44.  Relying upon the principle set out in para 25 above, Mr Joffe argued that Lai and T Chan should not be barred from running the case contained in para 12A of their Amended Defence because there is now available handwriting evidence which is relevant to the determination of the genuineness of Wang’s Share Custodian Agreement. There are 4 features to this submission : (a) they were not parties to the Former Actions and could not have produced handwriting evidence at that trial; (b) the dispute over the authenticity of Wang’s Share Custodian Agreement only came to light 2 weeks before trial when Ku’s witness statement was served; (c) Lai only received a certified copy of that document from Wang in mid-May 2012 and the original was only available at the trial which took place over 4 days from 3 to 6 July 2012; and (d) Lai and T Chan could not with reasonable diligence have obtained handwriting evidence for the trial. 

45.  It must be clearly borne in mind that this argument presupposes that the conditions for applying the principle of issue estoppel have been met and hence the court is asked not to apply that principle by reason of special circumstances.  Given my finding that neither Lai nor T Chan can be regarded as privy of Mayer BVI, there is no basis for this argument.  If I am wrong on such finding, I would reject this argument for the following reasons. 

46.  Firstly, as pointed out by Mr Chan, the evidence suggests that the authenticity of Wang’s Share Custodian Agreement was in issue at an earlier stage, namely, 10 May 2012[11]. 

47.  Secondly, as to whether handwriting evidence could have been adduced at the trial with reasonable diligence, that was one the issues decided by the CA in the Further Evidence Application.  It was held that none of the Ladd v Marshall[12]conditions was satisfied.  The evidence which was put before the CA in that application came from Lai and Wang.  If I have found that Lai and T Chan are privies of Mayer BVI, there would be no reason to take a different view to that of the CA.

48.  In the premises, the only remaining point in the submissions here is the fact that Lai and T Chan were not parties in the Former Actions and, it is contended, could not have adduced handwriting evidence at the trial.  There is a distinction between being a privy of Mayer BVI (having sufficient community of interest) and having a right to adduce evidence in the Former Actions.  This argument concerns the latter. 

49.  I have to say that this matter is far from clear cut.  The situation is much complicated by the fact that Lai and T Chan were in the same camp as Mayer BVI and that Lai was its sole director at the material times.  Whilst I accept that, strictly speaking, neither Lai nor T Chan had the right to adduce evidence in the Former Actions, taking such a view would be inconsistent with the reality of the situation.  In particular, Lai played an important part in the conduct of Former Actions (see para 35 above). 

50.  On balance, I am not convinced that there is real substance in this point.  It should be said that the burden of establishing special circumstances must rests on those seeking to rely upon the same.   

51.  Although T Chan was only a witness in the Former Actions, he was in the same camp as Lai.  There is no good reason demonstrated for treating his case differently.

Extended doctrine of res judicata

52.  Both sides have referred me to Secretary for Justice v FTCW [2014] 2 HKC 132 at para 97, where Lam VP referred to the review of authorities by Fok JA (as he then was) in King’s City Holdings Ltd v De Monsa Investments Ltd [2013] 4 HKC 450 and set out the principles as follows :

“(a) Under the extended doctrine of res judicata, the court has the power to strike out attempts to re-litigate a decided issue as an abuse of process of the court, even where the parties to the subsequent proceedings are not the same and cannot be described as privies of the original parties (para 39);

(b) The exercise of this power is based on the jurisdiction of the court to prevent abuse of process and it is a separate principle from the admissibility of judicial findings in earlier proceedings as evidence in subsequent proceedings (para 78);

(c) The burden of establishing abuse rests upon the party who relies on the earlier decision and it is highly fact sensitive (para 40);

(d) The jurisdiction would not be engaged simply because there is a re-litigation of an issue previously decided between different parties (para 43);

(e) The jurisdiction would be engaged if it is shown to the satisfaction of the court that permitting a party to re-litigate would either be manifestly unfair to the other party or would bring the administration of justice into disrepute. If either of these conditions is satisfied (and the onus is on the party contending that there is an abuse), there is no need to show any further special circumstances (paras 41 to 47);

(f) There is no requirement to show that the subsequent re-litigation would have the effect of reversing the outcome of the earlier litigation (para 55);

(g) Re-litigation based on substantially the same evidence would bring the administration of justice into disrepute and the jurisdiction can be invoked on that ground (paras 64 to 69);

(h) A litigant’s disadvantage in previous proceedings may weigh against a conclusion that re-litigation of an issue is an abuse of process (para 73); and

(i)     A court should not deprive a litigant his day in court lightly and should only exercise such jurisdiction by way of striking out in a plain and obvious case (para 74).”

53.  There are 3 arguments here.  Firstly, it was said by Mr Chan that the offending pleadings amount to a collateral attack on the Judgment.  However, re-litigation by different parties of the same issue would not per se engage this strike out jurisdiction of the court.  Further, I agree with Mr Joffe that a collateral attack of the Judgment would be one aimed at challenging the finding of ownership of the 200M Shares.  This action is about CW’s recovery of various loans.  I do not see that a defence in this action can constitute a collateral attack on the Judgment. 

54.  Secondly, it is argued that there is an abuse of process because of the manifest unfairness to CW in the sense that it will be vexed twice by the same allegations, and that it will have to run the same evidence all over again. 

55.  This is a contention not advanced in the detailed skeleton arguments filed by CW in advance of the hearing.  Such conduct is in breach of para 7 of Practice Directions 5.4 and is the subject matter of Mr Joffe’s complaint.  However, I allowed the contention to be ventilated because it is reasonably straightforward and involves no evidence.  With respect, I share the sentiment expressed by Mr Joffe that the court ought to act firmly in upholding the Practice Directions in the interest of fair play. 

56.  I am unable to agree with CW’s contention.  CW was not even a party to the Former Actions (see the dicta of Megarry V-P cited in para 38 above).  At the highest, it is a matter of Lam, CW’s CEO, having to give evidence again on matters which may be relevant to the veracity of the 99M Share Agreement (which was made between Wang and C Chan) and Wang’s Share Custodian Agreement (signed between Wang and Ku).  I do not see that as manifest unfairness or how such inconvenience (including any inconvenience in having to call C Chan and Ku to give evidence) can justify the exercise of this exceptional power by the court.

57.  Thirdly, CW contends that re-litigation of the disputes embodied in Issue 3 (for simplicity, I shall refer to them as Issue 3) based on substantially the same evidence would bring the administration of justice into disrepute and thus constitutes an abuse of process.  In support of this contention, Mr Chan relies upon the judgments in the Former Actions, including the one on the Further Evidence Application (“Further Evidence Judgment”), from 3 tiers of court to make a powerful submission that the oral evidence in respect of Issue 3 had been ventilated and rejected in the Former Actions. 

58.  Further, it was said that the handwriting evidence which Lai and T Chan seek to adduced in this action would not materially improve their case because the more important oral evidence (in particular the evidence of Wang and Ku) had been rejected.  I was referred to Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at paras 12-20 & 393 and the Further Evidence Judgment where the CA held that none of the 3 conditions in Ladd v Marshallwas made out.  Condition 2 was a requirement that the further evidence would or might, if believed, have a very important effect on the mind of the tribunal (see HK Civil Procedure 2015, vol 1, rubric 59/10/8). 

59.  Furthermore, Mr Chan submitted, relying on the Further Evidence Judgment, that the handwriting evidence could have been introduced at the trial of the Former Actions.  

60.  On the other hand, Mr Joffe argued that there is no attempt to bring the administration of justice into dispute because the findings on Issue 3 were based on oral evidence alone.  He laid emphasis on the following dicta from Chan NPJ in Nina Kung, supra, at para 19 :

“19. However, at the end of the day, it is for the judge or jury to form their own independent judgment with the assistance of the expert. After all, they are the tribunals of fact. The duty of expert witnesses is, as Lord President Cooper said in Davie v Magistrates of Edinburgh [1953] SC 34 at p 40: ‘to furnish the Judge with the necessary scientific criteria for testing the accuracy of their conclusions, so as to enable the Judge or jury to form their own independent judgment by the application of these criteria to the facts proved in evidence.’”

61.  It was also emphasised that the parties here are different to those in the Former Actions.  Here, Lai and T Chan are bringing the handwriting evidence on their own behalf. 

62.  Further, Mr Joffe submitted that the Former Actions were conducted under a “minimalist approach” and the matters were not explored in full.  It would be fair to allow Lai and T Chan the opportunity to do so in this action. 

63.  I believe there are 2 points in dispute.  Firstly, whether the handwriting evidence will be material to the determination of the disputes embodied in Issue 3 in this action, thereby negating the proposition that the re-litigation will be based on substantially the same evidence.  Secondly, whether Lai, T Chan and Wang were disadvantaged in the previous proceedings.

64.  In respect of the first point, with great respect, I am inclined to the view that the handwriting evidence will be a piece of material evidence.  I bear in mind in particular that there appears to be little documentary evidence to assist the court to determine the factual disputes.  Para 186 of the Judgment stated as follows :

“186. But it is apparent that, as I have already observed, at the outset Lai, Charles Chan, Lam and Ku all appear, rightly or wrongly, to have trusted each other. Much of their dealings with one another are undocumented. There can be little doubt, however, that they met and came to certain understandings among themselves, even if the latter were unrecorded. I therefore cannot treat the absence of writing or the failure to obtain a written instruction as indicative of much.”

65.  Further, on an objective appraisal, CW’s pleaded case here that it had advanced various loans of substantial amount to various parties without any security is something which should be scrutinised with care. 

66.  I believe that in a case where the court is asked to resolve disputed signature without the assistance of other documentary evidence or independent evidence from disinterested third party, it cannot be said that handwriting evidence will not play a significant role in that adjudication process. 

67.  For the present purpose, I do not believe that this court should simply adopt or apply the Further Evidence Judgment in respect of the weight of the handwriting evidence.  The CA was applying the stringent test of Ladd v Marshall. Here, the court is concerned with whether there is sufficient ground to drive Lai, T Chan and Wang from the judgment seat.  I agree with Mr Joffe that a less stringent test should be applied here.

68.  As regards the second point, there is good reason to believe that the matters concerning the 47 million shares (which is an important link in Issue 3) were not fully explored in the Former Actions.  I need only to cite para 42 of the CA Judgment :

“42. At the trial, the question of whether the 47 million shares represented by the certificates in Wang’s possession had been returned to him (thus suggesting that they had been supplied by him in the first place) was not really explored with any of the witnesses – it was not a subject on which either Wang or the witnesses for the respondents were examined (there being virtually no examination in chief) or cross-examined. Although counsel for Mayer BVI appeared, during cross-examination of Lam, to be moving towards a line of questioning relating to these 47 million shares (asking questions in relation to the 99 million shares deposited on 19 June 2009), when the judge observed that it would be undesirable to trespass on the subject matter of HCA 686/2012 (so far as it could be avoided), counsel agreed, and thereafter did not return to this subject.”

69.  I feel compelled to say that if the defendants in question are not allowed to contest Issue 3 in this action, they would have a justified grievance that they have been deprived of their day in court.

70.  Finally, as to the point that the handwriting evidence could have been adduced at the trial of the Former Actions with reasonable diligence, this does not entirely mitigate the disadvantage which these defendants had suffered as a consequence of the minimalist approach.  

71.  Moreover, the question must be put into proper perspective.  The consideration here is whether Lai, T Chan and Wang should be barred from arguing Issue 3, when it had been decided between different parties in the Former Actions, by adducing substantially the same evidence.  I have decided that the evidence will not be substantially the same by reason of the handwriting evidence.  Does it make any difference if the handwriting evidence could have been adduced by Mayer BVI in the Former Actions with reasonable diligence?  Is it relevant that Lai may be said to have contributed to the lack of reasonable diligence?  

72.  It must be remembered that the arguments here proceed on the basis that Lai and T Chan are not privies of Mayer BVI.  Mr Joffe submitted forcefully that Mayer BVI’s lack of reasonable diligence and the Further Evidence Judgment should not impact upon the position of Lai and T Chan as litigants in this action.  To do so would be a roundabout way to make them privies of Mayer BVI.    

73.  Again, the mental gymnastics required to resolve the arguments are quite challenging.  However, I agree with Mr Joffe’s analysis after careful consideration.  It cannot be right to, in effect, bind Lai and T Chan to the Further Evidence Judgment regardless of whether they are privies of Mayer BVI. 

74.  Further, to hold otherwise would be an extension of this exceptional power of the court.  I see no good reason to do so. 

75.  For these reasons, I decline to strike out the pleadings in question.  For completeness, I note that the alternative relief sought in the SO Summons were not pursued. 

Discovery Summons

76.  The discovery in question is sought to give effect to the order of Deputy High Court Judge Seagroatt dated 23 October 2014 granting leave to the parties to adduce expert handwriting evidence at the trial of this action.

77.  Once the strike out is declined, there is little left in the resistance to this summons.  I need only to mention that I am not attracted by the submission of Mr Wong, who appeared for AFIL and Ku, that the handwriting evidence would be of little probative value.  I refer to para 66 above.  Further, the question of weight of the evidence is a matter for the trial judge (see the dicta of Chan NPJ cited in para 60 above). 

Conclusions

78.  I dismiss the SO Summons with a costs order nisi in favour of Lai, T Chan and Wang.  Such costs are to be taxed if not agreed.  I grant Lai and T Chan a certificate for 2 counsel.

79.  I grant an order in terms of the Discovery Summons with a costs order nisi in favour of AFIL and Ku.  Such costs are to be taxed if not agreed.

80.  Last but not least, I am grateful to counsel for their assistance.