LI XINGHAO v. LAU PUN

HCA 2116/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2116 OF 2011

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DECISION

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The application

1.  This is the defendant’s application under Order 18 r.19 that the whole of the Statement of Claim against the defendant should be struck out on the grounds that:-

(a)  It discloses no reasonable cause of action; it is scandalous, frivolous or vexatious; it may prejudice, embarrass or delay the fair trial of the action; and/or;

(b) It is an abuse of the process of the Court, as the subject matter of this proceeding, and/or substantially the same point has been litigated and/or decided by a Court of competent jurisdiction, namely廣東省佛山市中級人民法院 (2011) 佛中法民四初字第198號.

2.  Mr. B Wong, counsel acts for the plaintiff and Mr. B. Ma, counsel acts for the defendant.

The common legal and factual background

3.  It is trite law that the claim must be obviously unsustainable, the pleadings unarguably bad and that it is impossible, not just improbable, for a case to succeed before a court will strike out: Ha Francesca v Tsai Kut Kan (No. 1) [1982] 1 HKC 382 at 392G-H.

4.  It is the common fact that the defendant had delivered a cheque to the plaintiff in the sum of $7,142,700 payable to the plaintiff to guarantee the performance of the borrower in Contract No. 2010111501 (the contract).  The cheque was duly presented for payment but was dishonoured and returned to the plaintiff with the reason “Refer to Drawer”. Having made demands for payments from the defendant, who refused to pay, the plaintiff took out this action.

The grounds under paragraph 1(a): no reasonable cause of action etc.

5.  Mr. Ma submits that since the plaintiff had pleaded that the cheque was delivered by the defendant to guarantee the performance of the borrower in the contract, the delivery of the cheque was conditional, that is to say, the cheque was only to guarantee the performance of the contract, which he further submits, renders this case different from the ‘ordinary dishonoured cheque’ cases.  He argues that the plaintiff is now suing the defendant on the guarantee.[1]  He then goes further to say that the plaintiff has failed to plead consideration for the guarantee; as such, on this ground alone, he submits, the statement of claim is defective and should be struck out.[2]

6.  Mr. Wong argues that Mr. Ma’s submission is based on (i) a misreading of the statement of claim and (ii) wrong interpretation of the law under the Bills of Exchange Ordinance Cap 19.[3]

7.  Mr. Wong first relies upon Drake v Michell (1803) 3 East 251 and Wegg Prosser v Evans [1895] 1 QB 108 CA to contend that “there is no bar for a plaintiff to pursue a cause of action under the cheque whilst there was a separate action on the underlying contract”.

8.  He further refers to the decision of the Court of Appeal in C A Pacific Forex Limited v Lei Kuan Ieong [1999] 1 HKLRD 462 wherein the plaintiff claimed against the defendant over two dishonoured cheques issued by the defendant in its favour pursuant to an agreement, in which it was provided that any dispute should be referred to arbitration. The defendant, whilst admitting having issued the dishounoured cheques, nevertheless argued that the arbitration clause covered the bills of exchange in question.  Seagroatt J. delivered the judgment and said at 463J:

“The Appellant contends that the issue in relation to the cheques is a dispute arising out of this agreement and so is subject to arbitration.

When a cheque in payment is dishonoured the payee of the cheque viz. the receiver of the unconditional order or promise to pay can sue either on the cheque, or on the underlying contract for failure of consideration. The former course is always advantageous. The reasoning behind it is simply that commercial life and practice requires that a Bill of Exchange be recognised as a peculiar animal. If persons were allowed to dishonour such vital and fundamental orders of payment under a contract so as to render a promise or order conditional and therefore of uncertain value, such commercial exchange would be fraught with uncertainty.

At 466H

It also offends what must in my respectful view be the logical consequence of the commercial principle - there must be an express inclusion of bills of exchange if such an arbitration clause is to bite in this way. Furthermore, as matter of business commonsense and efficacy, no right thinking merchant is going to agree to forego his rights on a dishonoured cheque.  They cannot be taken away by implication.”

9.  Mr. Wong also relies upon S Y Chan Ltd v Choy Wai Bor [2001] 3 HKLRD 145 at 149, Recorder Kwok SC said as follows :

“A cheque is an unconditional order in writing, drawn and signed by the drawer, requiring the banker to pay on demand a sum certain in money to, or to the order of, a specified person or to bear: ss.3 and 73 of the Bills of Exchange Ordinance (Cap.19). The drawer of a cheque, by drawing it, engages that, on due presentment, it shall be paid according to its tenor, and that if it is dishonoured he will compensate the holder, provided that the requisite proceedings on dishonour are duly taken, s.55(1)(a). Extrinsic evidence is, in general, inadmissible to prove that the terms of the contract differed from those expressed in writing on the cheque: Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (15^th ed.) para.384”.

Section:	3	Heading:	Definition of bill of exchange	Version Date:30/06/1997
Form and Interpretation

(1) A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to, or to the order of, a specified person or to bearer.

(2) An instrument which does not comply with these conditions, or which orders any act to be done in addition to the payment of money, is not a bill of exchange.

(3) An order to pay out of a particular fund is not unconditional within the meaning of this section; but an unqualified order to pay, coupled with-

(a) an indication of a particular fund out of which the drawee is to reimburse himself or a particular account to be debited with the amount; or

(b) a statement of the transaction which gives rise to the bill,is unconditional.

Section:	55	Heading:	Liability of drawer or indorser	Version Date:30/06/1997

(1) The drawer of a bill, by drawing it-

(a) engages that, on due presentment, it shall be accepted and paid according to its tenor, and that if it is dishonoured he will compensate the holder or any indorser who is compelled to pay it, provided that the requisite proceedings on dishonour are duly taken;

(b) is precluded from denying to a holder in due course the existence of the payee and his then capacity to indorse.

Section:	73	Heading:	Definition of cheque	Version Date:30/06/1997

(1) A cheque is a bill of exchange drawn on a banker payable on demand.

(2) Except as otherwise provided in this Part, the provisions of this Ordinance applicable to a bill of exchange payable on demand apply to a cheque.

10.  In reply to Mr. Wong’s submissions, Mr. Ma, in his reply submissions argues that Drake v Michell (1803) 3 East 251 and Wegg Prosser v Evans [1895] 1 QB 108 CA have different factual bases.  In these two cases, the cheques were given to the plaintiff to satisfy an existing debt under the guarantee.  He says “In such case, no doubt the claim on the cheque and the claim on the guarantee are different.”  He therefore argues that so far as Plaintiff’s Statement of Claim is concerned, the cause of action is the “guarantee”; there is one and only one underlying cause of action of the plaintiff’s claim; the reason being, the cheque was to “guarantee” the performance of the borrower’s contract, and the said cheque was always subject to the contract.

11.  Mr. Ma has not replied to the legal proposition of the Court of Appeal in C A Pacific Forex Limited that a cheque can be a separate cause of action by the plaintiff against the defendant.  Nevertheless, he admits that if the cheque were used to pay the debt under the guarantee and if it is dishonoured, it can be a separate cause of action, distinct from the guarantee itself, against the drawer of the cheque.  I consider that the separate cause of action for a dishonoured cheque does not lie on the purpose for which the cheque was given, but rather on the statutory provisions of the Bills of Exchange Ordinance, Cap. 19, as referred to above.  Mr. Ma will accept that if the dishonoured cheque can be a separate cause of action, the issues concerning the guarantee will not be relevant for the trial on the dishonoured cheque.

12.  I tend to agree with Mr. Wong that the plaintiff has only made reference to the guarantee to give the necessary background as to why the cheque was delivered; as such, it does not mean that the plaintiff has pleaded the cause of action on the guarantee and the plaintiff is, in accordance with C A Pacific Forex Limited, entitled to take the advantage of pleading a dishonoured cheque as his cause of action.

13.  It will therefore be not necessary for me to consider the pleading of consideration of the guarantee in the Statement of Claim as complained by the defendant.

14.  Paragraph 1(a) ground fails.

Paragraph 1(b) ground – res judicata

15.  Mr. Ma relies upon the relevant legal principles having been recited by Deputy Judge Au Yeung (as she then was) in Yick Tat Development Co v. Yung Chung Yiu (unreported 17/03/2011, HCA1590/2007):-

‘RES JUDICATA?

36. The general statement of principle can be found in the case of Ray Chen v. Wan Ching Lam & another, HCA 4582 of 2001, Ma J (as he then was).

“22. I begin with a statement of the general principles:

(1) Res judicata in its narrow sense simply means that a party will not be permitted to relitigate in subsequent proceedings issues which have already been adjudicated upon in previous proceedings by a court of competent jurisdiction. This form of abuse of process is often known as res judicata proper or res judicata in its classic or narrow sense.

(2) Res judicata in its so-called wider sense is the principle that ‘the court requires the parties to that litigation to bring forward the whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matters which might have been brought forward as part of the subject in context, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.’: see Henderson v. Henderson (supra), at 115 per Sir James Wigram VC.  In Yat Tung Investment Company Limited v, Dao Heng Bank Limited (supra), Lord Kilbrandon said at 590A-B, ‘But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings.”

37. In Harvest Good Development Limited v. Secretary for Justice & others [2007] 4 HKC 1, Hartmann J said, at para 99,

“There need not be a specific finding as to cause of action estoppel or issue estoppel. It will suffice if there is a finding that, in all the circumstances, the attempt to raise issues which could, and should, have been raised earlier goes against the public interest; that is, the general interest in ensuring finality in litigation as well as the interests of the parties themselves …”

38. The doctrine applies equally to matters that were resolved or dismissed in proceedings outside Hong Kong but which the same party attempts to raise afresh in a Hong Kong action: Wee Soon Kim Anthony v. UBS AG Hong Kong Branch, HCA 2005 of 2004; China North Industries Investment Ltd and another v. Ronald Chum & others CACV 321 of 2006, at paras 46-55.”’

16.  Mr. Ma has also referred to the decision of Mr. Justice Hartmann (as he then was) in Harvest Good Development Ltd v Secretary for Justice & Ors (unreported) HCAL 32 of 2006, where the learned judge said the all issues that could have been raised should be raised in one legal proceeding because “It is a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by successive suits when one would do.  That is the abuse at which the rule is directed.”

17.  The authorities above set out, as stated in Ray Chen’s case, supra, the general, broad legal principles in relation to the issue of res judicata.

18.  It appears that the defendant relies upon the narrow sense of res judicata as the complaint here is that the plaintiff had pleaded the dishonoured cheque in the action in the Mainland and a judgment had been made by the Intermediate People’s Court and the plaintiff should not be allowed to institute the present proceedings here again.  However, Mr. Ma has referred to the wider sense of res judicata in the authorities and in his reply submissions.  See paragraphs 34 to 35 of the reply submissions.

19.  The second limb of this striking out application requires a more microscopic examination of the application of res judicata.  I have therefore invited respective counsel to consider the following authorities for discussion this morning:

(a)  First Laser Limited (第一激光有限公司) v Fujian Enterprises (Holdings) Company Limited (華閩(集團)有限公司) FACV 6/2011 delivered on 6 July 2012;

(b)  China North Industries Investment Limited v Ronald R.C. Chum, Simon Murray and Anthony K.Y. Lo [2010] 5 HKLRD 1 delivered by Stock JA on 21 December 2007.

20.  In the decision of the Court of Final Appeal in First Laser Limited (第一激光有限公司) v Fujian Enterprises (Holdings) Company Limited(華閩(集團)有限公司) FACV 6/2011 delivered on 6 July 2012, the court had a discussion over the issue of res judicata.  The matter involved disputes involving a joint venture between Macau and Fujian interest and one of the principal issues for the Court of Final Appeal’s determination was the effect of the judgment of the Supreme People’s Court on the validity of the agreement.  Lord Collins, NPJ in the judgment said:

“The principles

45. The starting point is clear. Although the Hong Kong SAR and the Mainland PRC are part of one country, for the purposes of the conflict of laws they are separate law districts, and a judgment of the Supreme People’s Court is a foreign judgment, and will be enforced or recognized in Hong Kong only if it fulfils the conditions for enforcement or recognition at common law.

46. At common law a judgment of a foreign court of competent jurisdiction which is final and conclusive and on the merits will be conclusive in Hong Kong proceedings if the parties are the same and the issue is identical: Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853.  Lord Reid, at 918-919, said, however, that there were at least three reasons for being cautious in any particular case.  First, it might not be easy to be sure that a particular issue has been decided or that its decision was a basis of the foreign judgment and not merely collateral or obiter.  Secondly, it might be most unjust to hold that a litigant should be estopped from putting forward his case because it was impracticable for him to do so in an earlier case of a trivial character abroad with the result that the decision in that case went against him.  Third, there could be no estoppel of this character unless the foreign judgment was a final judgment on the merits.”

21.  In China North Industries Investment Limited v Ronald R.C. Chum, Simon Murray and Anthony K.Y. Lo [2010] 5 HKLRD 1, the Court of Appeal dealt with an interlocutory appeal against the judge’s order that set aside leave granted for the plaintiff to serve two sets of legal proceedings outside the jurisdiction.  One of the reasons for the judge’s decision was that the Hong Kong proceedings constituted a collateral attack upon a decision of a court in Bermuda on the same issue, albeit between different parties, an issue of res judicata.  Stock JA had discussed the general legal principles of res judicata and at paragraph 53 of the judgment, he said:

‘53. Given the nature of the conditions precedent to an abuse finding, the resolution of the issue in any case will be highly fact sensitive. ‘It is’, as Lord Hoffmann commented in Arthur Hall, ‘peculiarly a matter of judicial application to the facts of each case.’[4]. Abuse of process ‘is a concept which defies precise definition in the abstract’: Johnson v Gore Wood & Co[5]; and there is ‘no catch all formula for identifying an abuse since each case will depend on its own facts’: Simms v Conlon and another[6].

54.  The burden of establishing abuse rests on the party that relies on the earlier decision: Johnson v Gore Wood & Co[7] and Sweetman v Nathan[8] and it is to be remembered that exercise of the power has the effect of shutting out litigation so that it is a power ‘which no court should exercise but after a scrupulous examination of all the circumstances.’: Yat Tung Co. v Dao Heng Bank[9].’

22.  Mr. Ma has, in his written submissions, quoted the relevant parts of the judgment of the court in China to substantiate his argument.  I only need to highlight the following: “华应美公司与新世界公司签订的2010111501号《借款合同》，拟证明双方存在借款事实… …六. 中国银行支票一张，拟证明刘本签署的用于借款合同的担保，记载金额为7142700港元；七. 瑞士银行黄经理的名片，拟证明其身份；八. 瑞士银行退票通知书，拟证明其余额不足被退票;...... ”[10]

23.  It can be clearly seen that the cheque was referred to in the Chinese action as a piece of evidence in support of the guarantee.  There seems to be no adjudication on the issues concerning the cheque by the Chinese court. Nor have I been referred to the pleadings of the plaintiff in the Chinese action that the dischonoured cheque was pleaded as an alternative claim, apart from the guarantee.  At paragraph 24 of Mr. Ma’s reply submissions, he submits: “Further, as shown in the “起訴狀” dated 3.11.2011 of the PRC Proceeding [163], the same principal sum, i.e. the amount of the said cheque HK$7,142,700.00(roughly RMB 6m) was claimed for as the relief.”  However, this amount only refers to the debt only.

24.  At paragraph 36 of his reply submissions, Mr. Ma argues that the legal effect and the defendant’s liability under the cheque had been well canvassed and investigated in the PRC proceedings.  However, on the evidence before me, I am afraid that I am unable to accept Mr. Ma’s submissions.  The issue of res judicata might not have even arisen.  At least, there is doubt over this issue.  The court should not strike out the claim under such circumstances.

25.  There is no dispute over the extension of the doctrine of res judicata as enunciated in Nu Life International Ltd. v Healthy Living Products International Ltd. [2008] 2 HKLRD 297.  But for the reasons stated above, it will not be necessary for me to discuss the extended doctrine here.

26.  Paragraph 1(b) ground for striking out has also failed.

Conclusion and costs

27.  In the circumstances, I dismiss the defendant’s summons.

28.  As to costs, the defendant concedes that the costs of this application, including the costs reserved and for today’s hearing be to the plaintiff, with a counsel’s certificate for today’s hearing.  The costs are to be assessed under Order 62 rule 9.  The plaintiff’s solicitors have asked for time to prepare the schedule of costs, which is now available.  I take into consideration that time has been taken up for the plaintiff to prepare the schedule of costs, which the plaintiff has failed to do in accordance with the Practice Direction 14.3 paragraph 7.  The time taken for the preparation is about 20 minutes and the costs should be given to the defendant instead.  Taking a broad-brush approach of the plaintiff’s schedule of costs for $170,200.00, the assessed costs are $96,000.00 to be paid by the defendant to the plaintiff within 14 days from the date hereof.

29.  I shall now make an order in terms as follows:

(a) The defendant’s summons is dismissed;

(b) The costs of this application are as per paragraph 28.