CITY EXPRESS INVESTMENT LTD AND OTHERS v. ZHANG DA WI

HCA 1673/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1673 OF 2003

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HCA 1203/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1203 OF 2007

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(Heard Together)

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D E C I S I O N

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1.  There are five summonses for determination. 

The Summonses

2.  The first summons is taken out under HCA1673/2003 (“the first action”) on 4 December 2006 by the defendantZhang Da Wi (“Zhang”).  It is to seek leave to re-amend the amended defence and to add a counterclaim by Zhang. 

3.  The second summons is also taken out in the first action by Zhang on 11 June 2007.  It seeks the consolidation of the first action and HCA1023 of 2003 (“the second action”).  The third summons is taken out under the second action by the seven plaintiffs therein also on 11 June 2007.  It also seeks the consolidation of the first and second actions.  The seven plaintiffs in the second action are the members of the Executive Committee of Themis Funds Organization of China (“Themis Exco”).  Zhang is one of them. 

4.  The fourth summons is taken out under the first action also by Zhang on 6 July 2007.  Part of this summons seeks the joinder of the other six members of Themis Exco as additional defendants in the first action.  If this part of the fourth summons should be allowed, the defendants in the first action will be the same as the plaintiffs in the second action.  Since the plaintiffs in the first action (“City, Filon and Chan”) are already the defendants in the second action, this part of the fourth summons is to make the parties in both actions the same although in opposite roles.

5.  The remaining part of the fourth summons seeks the filing of a new draft amended defence and counterclaim for both actions in the event of consolidation.  This draft pleading is a combination of the amended defence in the first action and the statement of claim in the second action.  If consolidation is not allowed, the fourth summons cannot be acceded to.  Hence, the second, third and fourth summonses should be considered together.

6.  The fifth summons is issued under the second action on 6 July 2007 by City, Filon and Chan, the defendants therein, for striking out the second action on the ground of abuse of process. 

7.  If Zhang and Themis Exco should succeed in the second, third and fourth summonses, there will be no need to consider the first summons as the re-amendments proposed therein will become inappropriate.  In that event, the fifth summons will also not succeed.  I will therefore deal with the second, third and fourth summonses first.  But in this exercise, I will also have to touch upon the first and fifth summonses.

The first action

8.  In the first action, City, Filon and Chan sued Zhang for an account of $10,249,366 previously paid to Zhang as legal fees.  They pleaded that Zhang was appointed as their agent by two letters of authorisation dated 28 September 2002.  They further pleaded that the money was paid to Zhang as their principal agent and authorised person in the conduct of certain Mainland legal proceedings on their behalf and to pay and settle the litigation fees and lawyers’ fees for them.

9.  The Mainland proceedings were conducted by an association called Themis together with the legal advisory division of the head of the political department of the People’s Liberation Army (“the Legal Advisory Division”).  They were appointed to conduct the litigation for City, Filon and Chan under a legal service agreement dated 19 September 2001 (“the LSA”). 

10.  There were also allegations of misrepresentations and misapplications of funds by Zhang.  There is therefore an alternative claim of damages for deceit.

11.  Zhang denied that he was an agent of City, Filon and Chan.  He pleaded in his amended defence that Themis and the Legal Advisory Division were their agents under the LSA.  He further pleaded that the two authorisation letters of 28 September 2001 were just part and parcel of or incidental to the LSA and the sum of $10,249,366 was paid by City, Filon and Chan for the benefit of Themis and the Legal Advisory Division.  He also denied the claim of misrepresentation or misapplication of funds.

12.  The first action is ready for trial.  In fact, City, Filon and Chan have applied on 13 June 2006 to set it down for trial.  However, on 14 June 2006, Zhang applied for leave to adduce expert evidence.  He also applied for further and better particulars of the reply on 21 June 2006.  Leave was given on 20 August 2006 for expert evidence to be filed within 35 days.  Zhang’s expert evidence was only filed on 16 October 2006 after an extension of 28 days granted on 18 September 2006.  City, Filon and Chan chose not to file any expert evidence.  The further and better particulars were given by City, Filon and Chan on 2 December 2006.  However, before the third checklist hearing scheduled on 19 December 2006, Zhang issued the first summons for leave to re-amend the amended defence and to add the counterclaim.  Hence, leave has still not been given for the first action to be set down for trial.

13.  The second action was issued on 7 June 2007 after City, Filon and Chan had raised certain objections to Zhang’s proposed counterclaim in the first action.  The second action and the second, third and fourth summonses were issued to deal with those objections.  In other words, if there were no such objections to the first summons, there would not have been the second action and the second, third and fourth summonses.  I will refer to these objections below when I deal with the first summons.  I now deal with the development of the first action and the cause for the issue of the second action.

The development of the first action

14.  It has all along been Zhang’s case that he was not the agent of City, Filon and Chan nor the beneficiary of the money paid by them.  He further pleaded in his amended defence that he had applied the money he received for various purposes.  He also pleaded that the Mainland proceedings had been concluded and City, Filon and Chan allegedly owe Themis and the Legal Advisory Division some 70-odd million dollars of lawyers’ fees.

15.  However, Themis (and also the Legal Advisory Division) did not apply to join as a co-defendant in the first action and to make a counterclaim for those alleged lawyers’ fees.  It had been the stance of Zhang (and obviously that of Themis) that the proper forum for adjudicating the first action and the LSA were the courts in Beijing as the LSA is governed by the laws of the Mainland.  Zhang thus applied for a stay of the first action on 16 July 2003 on the ground of forum non-convenience.

16.  The application for stay was dismissed by Master Kenneth Wong on 3 November 2003.  Zhang appealed and his appeal was dismissed by Chu J on 8 November 2004.  He applied on 1 November 2004 for extension of time to appeal but that application was dismissed by Chu J on 20 December 2004.  He then issued HCMP3332/2004 and a summons therein on 30 December 2004 seeking leave from the Court of Appeal to file a notice of appeal out of time.  HCMP3332/2004 was finally laid to rest by consent on 6 April 2005.  The parties then continued with the preparation of the first action.

17.  After some attempts by City, Filon and Chan to obtain unless orders, Zhang eventually made discovery, filed his witness statement and amended his defence.  As I have referred to above, City, Filon and Chan applied on 13 June 2006 for leave to set down the first action for trial.  Zhang then sought leave for expert evidence and further and better particulars of the reply.  These matters were all dealt with by 2 December 2006.  The first action really appeared to be ready for trial then.

Parallel proceedings in the Mainland

18.  However, despite the loss of the application to stay for forum non-convenience and the matters pleaded in Zhang’s amended defence, Themis still did not apply to join as a co-defendant in the first action and to counterclaim the alleged lawyers’ fees.  It instead started another set of litigation in Beijing against City and Filon for payment of those fees.  Zhang was named as the representative of Themis in the Beijing litigation.

19.  Themis’ claim was dismissed by the Beijing City No. 2 Intermediate People’s Court on 20 December 2004.  Themis appealed to the Higher People’s Court.  However, the Higher People’s Court stated that the appeal could not be decided yet asits decision depended on the decisions to be made in two other sets of proceedings also pending in that court.  The Higher People’s Court therefore stayed the appeal on 20 December 2005.  It seems that the stay is still on until now.

20.  It is against this background that Zhang, at the time when the first action was ready for trial, suddenly applied on 4 December 2006 to re-amend his amended defence and to add a counterclaim.  The proposed re-amendment does not alter the amended defence significantly.  In the proposed counterclaim, Zhang pleaded that he is a member of Themis and is entitled to take the benefit of the LSA by virtue of section 43 of the Conveyancing and Property Ordinance, Cap. 219.

The second action

21.  However, City, Filon and Chan pointed out that Themis was an unincorporated association and Zhang himself could not take the benefit of the LSA or the alleged outstanding lawyers’ fees.  As a result of this objection, the second action was issued to make the same claim but by Themis Exco.  Themis Exco pleaded in the second action that the LSA was not entered into by Themis but by Themis Exco to the exclusion of the other members of Themis.  There were then the second, third and fourth summonses.

Grounds for opposing joinder, consolidation and re-amendment

22.  City, Filon and Chan opposed the joinder of the other six members of Themis Exco as additional defendants in the first action, the re-amendment to bring in the counterclaim of Themis Exco or the consolidation of the two actions.  They say that to allow these three summonses will stall the first action which is ready for trial.

23.  Mr Ho for Themis Exco and Zhang accept that if I should allow these summonses, there will be the need for further discovery and witness statement on some parts of the counterclaim.  He estimated that these could be dealt with in 42 days.  Hence, the delay as may be produced by the joinder, consolidation and re-amendment would not be too long. 

24.  Mr Pow SC for City, Filon and Chan submitted that the delay will be much longer and its length uncertain.  He said that in addition to the need to file further pleadings, make further discovery and further witness statements, he will have to apply for security of costs against the six new defendants in the first action.  The reason being that the counterclaim is not a mere defence but is a striking back.  If these new defendants do not agree to give security, there will be a satellite battle for it. 

25.  There will also be another battle for discovery as Zhang had previously said that many documents of the Legal Advisory Division were confidential or secret and could not be disclosed.  Now that with the counterclaim by Themis Exco for payment and reimbursement by City, Filon and Chan of what Themis Exco had allegedly paid the Legal Advisory Division, the documents exchanged and the accounts between Themis Exco and the Legal Advisory Division will have to be disclosed.  Since the documents of the Legal Advisory Division are treated as secret by Zhang, there would be the need to apply for their discovery.  This again will take time.

26.  There will also be the need for further expert evidence to deal with the new matters raised in the counterclaim. 

27.  Mr Ho has not really denied the need to grapple with these matters.  Furthermore, Mr Pow argued that the subject matter of the proposed counterclaim, which is in substance the claim in the second action, is subject to the fifth summons to strike out for abuse of process.  If the fifth summons is not resolved, the second action cannot proceed to trial.  Likewise, even if the counterclaim should be allowed to be made in the first action, it could not proceed to trial before the disposal of the fifth summons.

28.  Mr Pow’s ground for striking out the second action is simple.  Zhang had applied for stay of the first action and failed.  Themis or Themis Exco then made a deliberate decision of not joining in the first action to make the counterclaim, but to go to Beijing to litigate on this subject matter.  The claim in Beijing was contested and Themis had lost it.  It would thus be an abuse of process for Themis or Themis Exco to come back here and have a second bite now as the parties had already incurred substantial costs and resources to fight the matter out in Beijing.  These grounds for striking out do not appear to be frivolous or vexatious.  They are bona fide grounds and the fifth summons must be resolved before the second action is tried.

29.  However, the fifth summons cannot be resolved now as its resolution depended on the fate of the Beijing appeal.  If Themis should lose the Beijing appeal, the fifth summons can then be considered and it may or may not succeed.  If Themis should succeed in the Beijing appeal, then City, Filon and Chan will have to consider whether to pay Themis or Themis Exco as per the Beijing appeal judgment.  If they should choose not to pay, Themis Exco will have to carry the second action to judgment so as to recover the 70-odd million dollars of lawyers’ fees.  The reason being the lack of finality of the judgment of the Beijing appeal rendering it unenforceable in Hong Kong (see 李祐榮與李瑞群 (unreported CACV159 of 2004 dated 9 December 2005)).  In that event, the fifth summons will have to be dismissed as the second action will not be an abuse of process.

30.  However, the Beijing appeal has been stayed pending the outcome of two other sets of proceedings in the Beijing Higher People’s Court.  Thus, one cannot tell when the fifth summons can be heard. 

31.  For these reasons, Mr Pow urged me not to accede to the second, third and fourth summonses so that the first action can proceed to trial.

Concession by City, Filon and Chan

32.  In order to reduce the chance of the same issues to be tried in both the first and second actions, Mr Pow on behalf of City, Filon and Chan made the concession that regardless of the legal position of res judicata, City, Filon and Chan will accept any final decision on any issue in the first action as a decision on the same issue in the second action despite the difference of parties in the two actions.

33.  Mr Ho, however, argued that the concession does not bind Zhang or Themis Exco.  He further said that Zhang has to refer to the terms and conditions of the LSA and how it was performed in order to defend himself on the agency, misrepresentation and misapplication of funds issues in the first action.  These issues will also have to be dealt with in the second action.  Without consolidation, there will be a lot of wastage of manpower and resources as all these issues will have to be ventilated in both actions.

Decision on the 2^nd, 3^rd and 4^th summonses

34.  I think Mr Ho certainly has a point on wastage of manpower and resources.  However, after considering all the arguments by Mr Pow as I have rehearsed above and in balancing the pros and cons of consolidation, I have come to the view that the first action must be allowed to go to trial now as it would be unfair to City, Filon and Chan for it to be stalled for an indefinite period.

35.  Regarding the second action, it will take its own course subject to the resolution of the fifth summons. 

Course for the 5^th summons

36.  Regarding the fifth summons, I will adjourn it to a date to be fixed for argument with half day reserved.  I also order City, Filon and Chan to file and serve an affidavit in the second action within 14 days to inform this court on the progress of the two sets of pending proceedings in the Beijing Higher People’s Court and when can they be expected to conclude.  Themis Exco can file and serve an affidavit within 14 days thereafter to respond to the first affidavit.  City, Filon and Chan can file and serve a reply affidavit, if any, within 7 days thereafter.  The parties can now proceed to secure a date for the hearing of this summons. 

Decision on the first summons

37.  Since I have refused the second, third and fourth summonses and adjourned the fifth summons, I have to consider the first summons.  I have already mentioned Mr Pow’s point that Themis is an unincorporated association and Zhang cannot take the benefit of a contract made by it.  Mr Ho, however, referred to section 43(1) of the Conveyancing and Property Ordinance, Cap. 219, which reads:

“

43.

(1)

Any agreement or covenant relating to land or other property, express or implied, with two or more persons jointly to do any act for their benefit shall be deemed, unless the contrary intention is expressed, to include an obligation to do that act for the benefit of the survivor or survivors of them and for the benefit of any other person to whom the right to sue on the agreement devolves and shall be construed as being made with each of them.”

38.  However, Mr Pow rightly pointed out that the LSA was made by Themis Exco.  It contemplated that the service was to be provided by the members of the Exco jointly and the payments were to be made to them jointly.  Therefore, Zhang alone could not claim the 70-odd million dollars of lawyers’ fees.  Hence, there is the contrary intention in the LSA which ousted section 43.

39.  I understand that the LSA is governed by the law of the Mainland.  There is no evidence of whether there is any legal provision in the Mainland which is similar to our section 43.  I can only assume that the legal position of the Mainland is the same as ours.  On this basis, I accept Mr Pow’s argument.  I hold that Zhang has no locus to pursue a counterclaim which belongs to Themis or Themis Exco.  I therefore dismiss the first summons as well.

40.  In fact, even if Zhang can overcome this argument of locus standi, there is the same argument of abuse of process made in the fifth summons which is applicable to Zhang’s proposed counterclaim in the first action as it is applicable to the claim of Themis Exco in the second action or their proposed counterclaim in the first action.

(Discussion re costs)

Costs

41.  I order Zhang to pay City, Filon and Chan the costs of the first summons.  I reserve the costs of the fifth summons. 

42.  On the costs of the second, third and fourth summonses, these summonses were decided on the basis of competing considerations.  It is important that both sides should ventilate all their considerations to the other side as early as reasonably practicable so that the other side can consider what move to take or what concession to make.  Since some major considerations and an important concession were only made by the City, Filon and Chan at the hearing, Zhang and Themis Exco were deprived of an opportunity to consider whether to push ahead with the three summonses or to take some other more preferable course.  To disclose such considerations at the hearing is usually too late as the situation has become more or less crystallised; hence, the need for early skeleton submissions to lay bare the important points.

43.  Since City, Filon and Chan have been late in making known some key considerations and an important concession, I would only order Zhang and Themis Exco to pay them 75 per cent of their costs in the three summonses.