XCHRX LO LI v. LO SHING AND OTHERS

1996, No. A4492

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 4492 OF 1996

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J U D G M E N T

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Introduction

1. The Plaintiff and the 1st Defendant ("D1") are brothers. The 2nd Defendant ("D2") is D1's wife whereas the 3rd Defendant ("D3") is his daughter. Since at least about February, 1985, the Plaintiff and D1 and their respective families have been living on different portions of a floor in King's Road, Hong Kong ("the suit property"). According to the evidence filed herein, disputes erupted between the two families and they ended up regular visitors to the local police station from time to time.

2. In September, 1992, finding that the situation could not be tolerated any more, the Plaintiff herein commenced an action against D1 (as the only defendant) in High Court Action No. A6576 of 1992 ("the earlier action"). In the earlier action, the Plaintiff contended in the Statement of Claim that possession of a portion of the suit property was given to D1 pursuant to an oral tenancy agreement made in December, 1985 (this date was amended to February, 1985 when the earlier action came to be tried in October, 1994). D1 denied the claim and pleaded in his Defence and Counterclaim that the suit property was in truth co-owned by him together with the Plaintiff.

3. As stated earlier, the earlier action was tried in the High Court in October, 1994. The trial lasted for some 8 days. The Plaintiff and his father testified for the Plaintiff's case and D1 and D3 testified for the Defence. Judgment was pronounced on 7 November, 1994. The learned trial Judge came to the view that he could not believe any of the witnesses and dismissed both the Plaintiff's claim and D1's counterclaim. I should mention that it was admitted in the earlier action that the Plaintiff was the registered owner of the suit property. It was also not disputed that D1 was liable to pay a sum to the Plaintiff on a monthly basis (the only dispute being whether the payment was rent or contribution to the mortgage instalment). Despite these, the learned trial Judge did not consider the Plaintiff to have made out his claim for possession, or that he should be entitled to any monetary judgment for arrears of the said monthly sums. It therefore appears that the learned Judge did not believe anything said by any of the witnesses.

4. After Judgment was pronounced on 7 November, 1994, an application was made by the Plaintiff to the learned Judge for leave to amend the Statement of Claim. The amendment sought can be found in the solicitors' letter dated 21 November, 1994 which reads:-

"12. Alternatively, the Plaintiff avers that [D1] was, at all material times, occupying [the suit property] as a bare licencee or with the bare consent of the Plaintiff which licence or consent had been revoked by the Plaintiff's letter dated 8 September, 1992 or by the commencement of the present Action.

13. [D1] has failed to deliver vacant possession of [the suit property] despite the revocation of the licence or consent and is still occupying [the suit property] as a trespasser."

5. An affirmation was filed in this action by counsel who acted for the Plaintiff in the earlier action. According to this affirmation, the application came to be heard on 23 November, 1994. Paragraphs 14-15 and 18-19 of his written skeleton submissions stated:-

"It is also trite law that before entry of judgment or the drawing up of an order, this Honourable Court still has the jurisdiction to reconsider the matter further ...

In the light of the findings of this Honourable Court, the status of the Defendant must be that he was occupying the Suit Premises as a licencee or with the consent of the Plaintiff, the registered owner of the Suit Premises. ...

It is once again trite law that a bare licence is always revocable. By the demand letter ... and/or the taking out of the present proceedings, the licence or consent had already been revoked ...

The Plaintiff is thus entitled to an Order for Possession, mesne profits and costs etc of this Action"

(italics supplied).

6. According to counsel's affirmation, the learned Judge refused the application on the ground that it was misconceived. The learned Judge further said that he had merely found the parties to have failed to prove their respective cases without making any positive finding.

7. I must say that I have the greatest sympathy for these litigants. The practical consequence of the dismissal of their respective claims meant that not only do they continue to stay together in the suit property and try to endure this long-standing disconcerted relationship, from the Plaintiff's point of view, fire was added to fuel when D1 could stay there without the need to pay anything.

8. Surprisingly no appeal was brought by either party against the said Judgment, or the refusal of the application for leave to amend. Instead, in April, 1996 (some 3-1/2 years after the commencement of the earlier action and 1-1/2 years after the Judgment therein) the Plaintiff commenced this action against D1-D3.

The Plaintiff's Claim and Defendants' Defence in this Action

9. In the Statement of Claim filed herein on 23 April, 1996, the cause of action was set out in paragraph 3 as follows:-

"By an oral agreement between the Plaintiff and [D1] in or about February, 1985, the Plaintiff permitted the Defendants to use and occupy the southern portion of [the suit property] upon [D1] paying the Plaintiff a monthly sum of HK$1,200 together with a share in the management fees, rates and electricity charges.".

10. In the Re-Amended Statement of Claim, it was pleaded in paragraph 4A:-

"Further or in the alternative to paragraphs 3 and 4 above, by an agreement made by or to be inferred from the conducts of the Plaintiff and [D1], the Plaintiff agreed to grant to [D1] a licence for the use and occupation of the Southern Portion at a monthly licence fee ...

(a) [D1] and his family moved into the Southern Portion sometime in or about February, 1985 without any objection on the part of the Plaintiff.

(b) [D1] paid the Plaintiff the sum of HK$1,200 per month since moving into the Southern Portion in respect of the use and occupation of the Southern Portion together with half of the outgoings.

(c) There was no tenancy agreement between the Plaintiff and [D1] and [D1] did not move into the Southern Portion in pursuance of any agreement or arrangement whereby [D1] was to have any proprietary interest in [the suit property] or in the Southern Portion.".

11. In their Defence, the Defendants denied the Plaintiff's claim and repeated D1's defence that the suit property is co-owned by him and the Plaintiff. It was further pleaded the Plaintiff is estopped from bringing this action by the principle of res judicata.

The Position of D2 and D3 in this Action

12. In the earlier action, only D1 was sued whereas in this action the Plaintiff sues D1 and his wife and daughter. However, at least for the purpose of the present application, no distinction was made about the position of the 3 defendants. When submissions were made by counsel, the 3 defendants were treated as one. Neither Mr. Wong nor Mr. Sham argued that different considerations should be given to any of them or that the outcome of the present application should differ for the different defendants.

13. I consider the above approach is correct because the dispute between the Plaintiff and the 3 defendants hinges on whether the relationship between the Plaintiff and D1 was a licence or a co-ownership. If the Plaintiff succeeds in his claim against D1, D2 and D3 would not have any further defence. On the other hand, if D1 should establish his defence, there is no need for D2 or D3 to put forward any other.

The Present Application

14. On 15 January, 1999, the Plaintiff took out an application which contained 3 parts: the first part relied on R.H.C. Ord. 14 r. 1 and the Court's inherent jurisdiction, the second part relied on Ord. 18 r. 19 and the Court's inherent jurisdiction and the last part relied on Ord. 14A.

15. At the hearing, Mr. Wong's submissions were premised almost entirely on the third limb, that is, the Ord. 14A part; the same can be said of Mr. Sham's reply submissions. The parties accepted that the outcome of the other two parts of this application would automatically follow the Court's determination on the third part.

(1) Relevant Legal Principles

16. The crux of the arguments advanced before me was whether the doctrine of res judicata applies to either or both of the parties' pleaded case in this action. The legal principles relevant to this application are not in dispute, although the manner in which they should be applied to this application is.

17. The first case relied on by both parties was Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd. [1975] A.C. 581. The part of the case relied upon (p. 590) was:-

"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. The locus classicus of that aspect of res judicata is the judgment of Wigram V.-C. in Henderson v. Henderson (1843) 3 Hare 100, 115, where the judge says:-

'... where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.'

The shutting out of a 'subject of litigation'―a power which no court should exercise but after a scrupulous examination of all the circumstances―is limited to cases where reasonable diligence would have caused a matter to be earlier raised; moreover, although negligence, inadvertence or even accident will not suffice to excuse, nevertheless 'special circumstances' are reserved in case justice should be found to require the non-application of the rule. ...

The Vice-Chancellor's phrase 'every point which properly belonged to the subject of litigation' was expanded in Greenhalgh v. Mallard [1947] 2 All E.R. 255, 257 by Somervell L.J.:

'... res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but ... it covers issues of facts which are so clearly part of the subject matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceedings to be started in respect of them.'."

(italics supplied).

18. Another case referred to by the parties was the more recent House of Lords case of Arnold v. National Westminster Bank Plc. [1991] A.C. 93. The Judgment categorised the doctrine into two types: cause of action estoppel and issue estoppel. Lord Keith said this in his Judgment (at pp. 104-5):-

"... Cause of action estoppel arises where the cause of action in the later proceedings is identical to that in the earlier proceedings, the latter having been between the same parties or their privies and having involved the same subject matter. In such a case the bar is absolute in relation to all points decided unless fraud or collusion is alleged, such as to justify setting aside the earlier judgment. The discovery of new factual matter which could not have been found out by reasonable diligence for use in the earlier proceedings does not, according to the law of England, permit the latter to be re-opened. ... ";

"Issue estoppel may arise where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceeding between the same parties involving a different cause of action to which the same issue is relevant one of the parties seeks to re-open that issue."

(italics supplied).

19. In a later part of his Judgment, Lord Keith discussed the applicability of issue estoppel where in later proceedings a party has brought forward further relevant material which could not by reasonable diligence have been adduced earlier. At pp. 108-9 he said:-

"It is to be noted that there appears to be no decided case [on the point] ... But there is room for the view that the underlying principles upon which estoppel is based, public policy and justice, have greater force in cause of action estoppel ... than they do in issue estoppel ... In my opinion your Lordships should affirm it to be the law that there may be an exception to issue estoppel in the special circumstance that there has become available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided, being material which could not by reasonable diligence have been adduced in those proceedings ... ".

20. Whilst the parties did argue that the doctrine should not apply in this action, they did not do so on the ground that the Judgment in the earlier action only rejected the evidence adduced and made no positive findings (see for example, paragraph 26(2) of Mr. Wong's written submissions). I consider that counsel was correct not to do so because the doctrine has been held to apply where a petition was dismissed on the ground of insufficient evidence: see 16 Halsbury's Laws of England 4th ed., para. 982 citing Re May (1885) 28 Ch.D. 516, 518 (also at pp. 520-1).

(2) The Ord. 14A Part

21. The two questions of law posed for my determination in this part of this application by the Plaintiff are:-

"(A) whether the Defendants are estopped from relitigating the issues as to whether 'it was agreed between the Plaintiff, [D1] and their father ... that [the suit property] was purchased for the common use of both the Plaintiff and [D1] and their respective families', and whether [D1]'s payment (and his obligations to make the same) were as contributions to mortgage repayments, by reason of the doctrine of res judicata ... ";

(B) whether the Plaintiff is estopped from bringing the action herein by the principle of res judicata as alleged by [the Defendants] at Paragraph 9 of the Defence ... ".

22. In short, Mr. Wong argued that the res judicata doctrine is applicable to the Defence raised in this action (that is, question (A) should be answered in the affirmative) but it is not applicable to the Plaintiff's claim herein (that is, question (B) should be answered in the negative). On the other hand, Mr. Sham contended that the doctrine is fairly and squarely applicable to the Plaintiff's claim of a licence. He further submitted that if the Court agreed with him, there is no need for him to make a separate application to strike out the Plaintiff's case because "Upon such determination the Court may dismiss the cause or matter or make such order or judgment as it thinks just" under Ord. 14A r. 1(2).

23. The nature of the Plaintiff's case in this action was summarised by Mr. Wong in his skeleton submissions as follows:-

"the Plaintiff in raising the licence claim is not seeking to contradict or attack or re-open [the Judgment]. Indeed, given the undisputed facts as summarised hereinabove [these facts are similar to those pleaded in paragraph 4A of the Statement of Claim], and the effect of [the Judgment] barring further arguments on tenancy or co-ownership, the relationship between the parties being of licence is the only possible conclusion as a result of [the Judgment]" (at paragraph 26(1)).

Later, at paragraph 27(4) of his written submissions, Mr. Wong reiterated this point when he said:-

"by reason of [the Judgment], the only possible relationship between the parties was one of licence. ... ".

24. Given the way in which he advanced the Plaintiff's claim in this action, it is surprising that Mr. Wong would contend that the doctrine does not apply to the Plaintiff's claim. This is reinforced by Mr. Wong's admission that there was no need for the Plaintiff to adduce any further evidence in support of the claim in this action because all the necessary evidence has been adduced (or admitted) in the earlier action. In effect, Mr. Wong argued that the learned trial Judge should have taken the matter one step further to declare a licence.

25. To frame a claim based on a licence instead of one based on a tenancy seems to me to be merely switching the label without any change in the substance. One only has to compare the proposed amended claim in the earlier action (set out in the letter dated 21 November, 1994) with what was pleaded in paragraph 3 of the Statement of Claim herein to see that the same contention was being made. Similarly, the way in which the matter was argued by Plaintiff's counsel in the earlier action (as set out in his written submissions applying for leave to amend) and by Mr. Wong (in paragraphs 26(1) and 27(4) of his written submissions) also shows that the arguments are in essence the same. I do not consider the addition of paragraph 4A to the Statement of Claim materially changed the nature of the Plaintiff's claim. In these circumstances, I cannot agree with Mr. Wong's submissions that the doctrine does not apply to the Plaintiff's claim herein.

26. When he argued that this claim based on a licence could not have been raised in the earlier action (even up to the stage when Plaintiff's counsel applied for leave to amend), it appears Mr. Wong was saying it could not have been raised as a matter of fact because the learned trial Judge refused the application. However, the fact that the application was disallowed did not mean it could not and therefore should not be raised in the earlier action. The Plaintiff (or his legal representatives) must have considered in the earlier action (probably even up till now) that the learned trial Judge was wrong in both dismissing his claim and refusing the application for leave to amend. It would have been perfectly proper (and possible) to lodge an appeal against these decisions earlier. I say nothing about whether such an appeal (if lodged) would have succeeded or not. But the point is in law these matters would have been proper matters to be raised in the appeal.

27. Further, although the Plaintiff has chosen to label his cause of action in this action as a licence arrangement (his counsel has attempted to do the same in the earlier action), I do not consider that this was the only course open to him. Without going into the likelihood of success of the argument, it appears that what the Plaintiff is seeking to argue is this. The Plaintiff is admitted to be the registered owner. An occupier of the suit property (such as D1) may raise a number of defences to resist the Plaintiff's claim for an order for possession. However, the burden of proof falls on the occupier (and not on the Plaintiff) to establish one or more of these defences. If the occupier fails to do so, the Plaintiff does not have to set forth or refute all the other possible defences available to the occupier. He should be entitled to an order for possession in that event.

28. For the above reasons, I consider it is quite arguable the Plaintiff's claim in this action falls not only within the doctrine of issue estoppel but also cause of action estoppel. For the purpose of deciding this part of the application, I am prepared to approach it on the basis that his claim herein falls only within the so-called "wider" sense of the doctrine of issue estoppel (see the Yat Tung case at p. 590 above).

29. Mr. Wong's alternative argument was that there are "special circumstances" in this action which justify its continuance. I do not agree. The "special circumstances" he relied on are:-

(a) the Judgment was exceptional in that the dispute and relationship between the parties remain unresolved;

(b) the practical consequence of the Judgment is the Plaintiff is unjustly deprived of a portion of the suit property whereas D1 is unjustly enriched by continuing to occupy it free of charge.

30. As regards point (a) above, the learned trial Judge stated in the Judgment he fully appreciated the unsatisfactory result of his decision (at p. 20 of the transcript). Thus, he appeared to be fully aware of the exceptional nature of his Judgment.

31. On point (b) above, I doubt if the practical consequence of a Judgment or Order should be regarded as one of the "special circumstances" referred to in either the Yat Tung case or the Arnold case. All the decisions on this point were concerned with matters related to the merits of the claim: for example, the discovery of further materials or a change in the law.

32. The doctrine of res judicata is based on the public policy of certainty and finality of litigation. If the so-called "unjust consequence" of a judgment can be taken into account in relaxing the rule, the risk of opening a floodgate would be substantial and real. A lot of time and effort would be needed to ascertain whether the unjust consequence should be the direct or indirect consequence (and what the alleged consequence is), or whether the injustice was to be determined from the plaintiff's or defendant's point of view, and so on. The law will potentially be rendered so uncertain no one can be sure when a litigation is final, or when a lawyer can properly advise his client to re-open an issue in an earlier proceeding.

33. Further, even if the question of "special circumstances" was relevant to my consideration, I do not consider that I should as a matter of discretion allow the Plaintiff to continue this action. Mr. Wong argued that the Plaintiff's claim falls at most within the doctrine of issue estoppel, but the Defence falls within the doctrine of cause of action estoppel. For this reason, the Defence should not be allowed to put forward its case in this action even if "special circumstances" exist. I do not consider overall justice (in its widest sense) will be achieved by allowing the Plaintiff to carry on this action (in order to achieve "justice" so-called) but at the same time deny the Defence the same treatment.

34. For the above reasons, I order that the Plaintiff's claim be dismissed. For the sake of completeness, both questions (A) and (B) are answered in the affirmative.

(3) The Ord. 14 Part

35. As stated earlier, this part of the application is largely consequential in nature. Since I already dismissed the Plaintiff's claim under the Ord. 14A part, I order that this part of the application be dismissed as well.

36. Even if I had to consider this part of the application separately, I find that the Defence has raised a triable issue in relation to the res judicata doctrine which would have entitled it to unconditional leave to defend. Since this defence has already been made known to the Plaintiff before this application was taken out, this part of the application falls within Ord. 14 r. 7. I would also have dismissed this part of the application on this ground as well.

(4) The Ord. 18 r. 19 Part

37. Similarly, because I have decided to dismiss the Plaintiff's claim, there is no need to deal with this part of the application.

38. If it were necessary to do so, I would have decided that the Defence raised is barred by reason of cause of action estoppel. The Defence may be able to set aside the Judgment on the basis of fraud: see the Arnold case at p. 104 above and Lau Kak v. Cheung Mo-kit [1995] 2 H.K.L.R. 470. However, since there is no need to consider this aspect in detail, I do not propose to discuss it further save to say that this may be a possibility open to the Defence in view of D1's discovery of a document which may affect the credibility of the witnesses over an important matter.

Conclusion

39. The Plaintiff's claim in this action as well as this application are dismissed.

Costs Order Nisi

40. There is no apparent reason why a costs order nisi should not be made pursuant to Ord. 42 r. 5B(6). Costs of this action including the costs of this application are to be paid by the Plaintiff to the Defendants to be taxed if not agreed.