LAM HEI SHING JOSEPH v. 郭達標 AND OTHERS

HCA697/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 697 OF 2007

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J UD GM EN T

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1. This is the plaintiff’s application by his amended summons for:

(1)  an order under O.14 RHC that summary judgment be entered against the 2^nd defendant (“D2”) and the 3^rd defendant (“D3”) for the declarations in the terms of the re-amended statement of claim;

(2)  a determination under O.14A RHC against the 1^st defendant (“D1”), D2 and D3 of the issue as set out in the schedule attached to the amended summons; and

(3)  costs.

2. The schedule of issue (“the issue”) as set out in the amended summons is:

“(1)  The 2^nd and 3^rd Deeds referred to in paragraphs 4 (b) and (c) of the Re­-Amended Statement of Claim filed herein on 19^th July 2007 taken together constitute by their nature and effect an agreement of maintenance and / or champerty not justifiable at law and as such are illegal and unenforceable.

(2)  The 1^st and 4^th Deeds referred to in paragraphs 4 (a) and (d) of the Re­-Amended Statement of Claim filed herein on 19^th July 2007 taken together constitute by their nature and effect an agreement of maintenance and / or champerty not justifiable at law and therefore and as such are illegal and unenforceable.”

3. The declarations sought in the prayer for relief in the re-amended statement of claim are as follows:

(1)  As against D2:

“ A declaration that the 1^st Deed and the 2^nd Deed were illegal and therefore unforceable and not binding on the Plaintiff;”; and

(2)   As against D3:

“ A declaration that the 3^rd Deed and 4^th Deed were illegal and therefore unenforceable and not binding on the Plaintiff.”

4. The plaintiff’s pleaded case (by paragraph 3 of the re-amended statement of claim) is that by a series of negotiations between the plaintiff and D1 since December 2005 to about 12 May 2006, the plaintiff and D1 entered into an agreed arrangement by which :

(a)    the plaintiff was to appoint Mr Henry Wai (“Wai”) partner of Messrs Kao, Lee & Yip (“KLY”) as his legal representative representing the plaintiff :

(i)      in his potential claim to 50 shares in a Hong Kong company, Universal Triumph Ltd, (“the 50 shares”) which represented 5% of the total investment interest in the Siberian Fur Building (now known as Zhongda Building) in Tsimshatsui, Kowloon; and

(ii)     in his and his two companies’ claims in on-going proceedings in the High Court being High Court Action No. 652 of 2004 (“HCA652”);

(b)    the plaintiff’s liability in legal costs incurred by KLY in relation to the plaintiff’s claim in relation to the 50 shares would be limited to HK$100,000 and legal costs in excess of this amount would be met by D1 and other unknown partners of his;

(c)    the plaintiff’s liability as well as the liability of the plaintiff’s two companies in legal costs incurred by KYL in HCA652 would be limited to HK$250,000 the excess of which would be borne by the 1^st defendant and other unknown partners of his;

(d)    in return for the financial support in legal costs referred to in (b) and (c) above, D1 and his unknown partners would acquire a share of 35% in the outcome of both the plaintiff’s claims to the 50 shares and HCA652.

5. Pursuant to the alleged agreed arrangement the plaintiff on behalf of himself and his two companies executed the 4 Deeds on 12 May 2006 as follows:

(a)     a Deed between the plaintiff and his two companies and D2 by which the plaintiff and his two companies declared a trust on “all their demands, claims, counterclaims, rights, powers, remedies and relief in [HCA652] and all their assets and properties in and/or derived from the subject matters of [HCA652] and all benefits and fruits of [HCA652]” to be held on trust from the date of the Deed as to 65% for the plaintiff and his two companies and 35% for D2 (“the 1^st Deed”);

(b)     a Deed between the plaintiff and D2 by which the plaintiff declared a trust on the 50 shares which the plaintiff beneficially owned but was at the time legally held by one To King Yan, Adam and to hold the same on trust from the date of the Deed as to 65% for the plaintiff and 35% for D2 (“the 2^nd Deed”);

(c)     a Deed between the plaintiff and D3 by which it was agreed that the plaintiff was to be responsible for the legal costs and expenses incurred in respect of the plaintiff’s intended claim for the 50 shares up to the limit of HK$100,000 the excess of which was to be paid by D3 (“the 3^rd Deed”);

(d)     a Deed between the plaintiff and D3 by which it was agreed that the plaintiff was to be responsible for the legal costs and expenses incurred for HCA652 up to the limit of HK$250,000 the excess of which was to be paid by D3 (“the 4^th Deed”).

6. D2 and D3 are and were at all material times BVI companies in which D1 had interests.

7. It is not disputed that the 4 Deeds were entered into as part and parcel of an arrangement which was agreed between the plaintiff and D1.

8. The plaintiff further alleges that he executed the 4 Deeds in reliance on warranties and/or assurances and/or representations made by Wai to the plaintiff in a meeting on 28 April 2006 at which D1 was present and as particularized in paragraph 6 of the re-amended statement of claim.  This is denied by the defendants.

9. The plaintiff’s case, which is denied, is that the 4 Deeds were illegal and unenforceable for being unlawful maintenance of lawsuits and champerty.

10. The plaintiff also alleges that D2 interfered with the process of the settlement of the plaintiff’s intended claim for the 50 shares resulting in the delay of the settlement of that claim by 5 months causing the plaintiff to lose HK$1,250,000 being the difference between the original settlement offer of HK$9,000,000 and the final settlement sum of HK$7,750,000.  This is denied.

11. The plaintiff’s claim against D1 is for damages for misrepresentation and for interference with the settlement of the plaintiff’s intended claim for the 50 shares.  These are matters which Ms Chan, for the plaintiff, accepted will have to be resolved at trial as there are disputes of fact which can only be resolved at trial.

12. However, the plaintiff by his amended summons seeks summary judgment under O.14 against D2 and D3 for the declarations sought.  The plaintiff also seeks a determination of the issue under O.14A against D1, D2 and D3.

13. Ms Chan submitted that on the undisputed facts before the Court the plaintiff is entitled to summary judgment for the declarations sought and also to a determination of the issue in his favour.  She submitted that there is no triable issue on the question of whether or not the 4 Deeds are champertous agreements which she submitted were illegal and unenforceable.

Maintenance and champerty

14. The leading authority in Hong Kong on the law of maintenance and champerty is the recent Court of Final Appeal decision in Unruh v Seeberger [2007] 10 HKCFAR 31.

15. It was held that the common law rules making maintenance and champerty criminal offences, torts and a ground of public policy for invalidating tainted contracts were part of Hong Kong law prior to 1997 and remained applicable by virtue of art. 8 of the Basic Law.  Maintenance was still directed at “officious intermeddling” in someone else’s litigation.  And champerty, a form of maintenance, still involved the notion of a division of the spoils, which might encourage perversion of justice and trafficking in litigation.

16. In a careful and detailed judgment Ribeiro PJ analysed the development of the law of maintenance and champerty.

17. In his analysis, he said at paragraph 86:

“ The prohibition of maintenance and champerty is a matter of public policy and involves a value judgment that certain conduct should be considered “officious intermeddling” in someone else’s litigation or “trafficking in litigation” which deserved to be made unlawful.  Unsurprisingly, the content of that value judgment has fundamentally changed, reflecting the radical development of society in general and of the legal system in particular over the last seven hundred years.”

18. And at paragraph 89, Ribeiro PJ cited with approval what Lord Roskill said in Trendtex Trading Corp v Credit Suisse [1982] AC 679 at page 702:

“ the courts have adopted an infinitely more liberal attitude towards the supporting of litigation by a third party than had previously been the case.”

19. Ribeiro PJ also dealt at paragraphs 91 to 98 with various instances where conduct which would otherwise constitute maintenance or champerty has been excluded from the sphere of liability.

20. One category of excluded cases, he said, involves what may be called the “common interest” category i.e. persons with a legitimate common interest in the outcome of litigation sufficient to justify one of them in supporting the litigation conducted by another without engaging the prohibition against maintenance and champerty.

21. A second excluded category was cases involving “access to justice” considerations.  As Ribeiro PJ said at paragraph 95:

“ A second excluded category involves what might today be referred to as cases involving “access to justice” considerations.  In Hong Kong, art.35 of the Basic Law recognizes access to the courts as a fundamental right.  It has never been a defence to an action nor a ground for a stay to show that the plaintiff is being supported by a third person in an arrangement which constitutes maintenance or champerty.  Neither does liability for maintenance or champerty depend on the action or the defence being bad in law.  It follows that an attack on an arrangement said to constitute maintenance or champerty could well result in a claim which is perfectly good in law being stifled where the plaintiff, deprived of the support of such an arrangement, is unable to pursue it.  This is a powerful argument for such cases to be excluded from the ambit of maintenance and champerty.”

22. Ribeiro PJ then went on to set out at paragraphs 99 to 104 the current approach to maintenance and champerty.

23. As he pointed out at paragraph 100 :

“ the mischief to be discouraged by the law of maintenance is still ‘officious intermeddling’ in litigation in particular where this results in oppression of the person against whom the action is brought and possibly it may result in the general encouragement of litigiousness.”

24. It is important to bear in mind what he said at paragraphs 102 and 103:

“ 102.     Secondly, the fact that an arrangement may be caught by the broad definitions of maintenance or champerty is not in itself sufficient to found liability.  The totality of the facts must be examined asking whether they pose a genuine risk to the integrity of the court’s processes.  In R (Factortame Ltd) v Transport Secretary (No 8), Lord Phillips MR stated: “… one must today look at the facts of the particular case and consider whether those facts suggest that the agreement in question might tempt the allegedly champertous maintainer for his personal gain to inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice.”  It is not enough simply to say that it is the type of agreement which “savours of” champerty.

103.     Thirdly, countervailing public policies must be taken into account, especially policies in favour of ensuring access to justice and of recognizing, where appropriate, legitimate common interests of a social or commercial character in a piece of litigation.  The traditional public policies against intermeddling in litigation must be weighed against such competing values and if the balance is in favour of the latter, the conduct complained of should not be regarded as contrary to public policy.”

25. It is abundantly clear that the totality of the facts must be examined asking whether they pose a genuine risk to the integrity of the court’s process. Also, countervailing public policies must be taken into account.  The traditional public policies against intermeddling in litigation must be weighed against competing values and if the balance is in favour of the latter, the conduct complained of should not be regarded as contrary to public policy.  In my view one can only have a proper weighing exercise when the totality of the facts have been examined. 

The O.14 application

26. I am unable to accept that no triable issue has been raised on the O.14 application for the declarations sought.

27. The circumstances surrounding the execution of the 4 Deeds as well as the events which transpired after the execution of the same are disputed.

28. Contrary to the plaintiff’s allegations, D1 has affirmed that the plaintiff approached D1 telling him that he was in serious financial difficulty and that he needed money to pursue the two claims.  The plaintiff told him that he was claiming what rightfully belonged to him but was unable to get any financing from banks or elsewhere and that without financial assistance, he would not be able to pursue the two claims.  He told D1 that if he agreed to give him financial assistance to pursue the claims D1 could be repaid and compensated by way of a share in the proceeds of any successful claim.  The plaintiff was insistent, according to D1, and went to see D1 over 10 times to implore him to help.  The terms of the 4 Deeds were finally agreed in May 2006.

29. It is clear, in my view, that these factual disputes can only be resolved at trial.

30. As Ribeiro PJ said in Unruh (at paragraph 95) an attack on an arrangement said to constitute maintenance or champerty could well result in a claim which is perfectly good in law being stifled where the plaintiff, deprived of the support of such an arrangement, is unable to pursue it.  That is a matter to be considered when examining the totality of the facts.  That is something which, in my view, must be resolved at trial as there are factual disputes which can only be resolved at trial.

31. I would observe that if, as D1 said, the plaintiff told him that without the financial assistance from D1 he would not be able to pursue his two claims, that is a powerful argument for excluding the 4 Deeds from the ambit of maintenance and champerty.  I was also referred to a letter dated 14 October 2006 from the plaintiff to D3 for the attention of D1 where the plaintiff said, inter alia, that:

“ I am the victim of fraud and deceit in [HCA652] and [the 50 shares claim]”.  You are the white Knight in Shining Armour……….”

32. Subsequent events showed that the plaintiff did finally settle his intended claim for the 50 shares for HK$7,750,000 without instituting proceedings.  It is certainly at least arguable that it was a perfectly good claim which might have been stifled if the plaintiff was deprived of the financial support to pursue it. 

33. It seems to me that there is at the very least a triable issue raised as to whether the 4 Deeds were illegal and unenforceable.

34. In my judgment it is not appropriate to give summary judgment on the claim for the declarations against D2 and D3.

The O.14A application

35. It is also not appropriate in my view to determine the issue under O.14A.

36. In Rockwin Enterprises Ltd v Shui Yee Ltd [2003] 3 HKC 174 at page 185 Ma CJHC (as he now is) said:

“ Where the court is not seized of all relevant facts, it would be an extremely rare case (if ever) in which the procedure under O.14A would be adopted.”

37. I respectfully agree.

38. In my judgment this is not a suitable case for a summary determination of the issue without a close examination of all the circumstances.  The Court does not have all the relevant facts giving rise to the execution of the 4 Deeds.  As I have said, the circumstances surrounding the execution of the 4 Deeds as well as the events which transpired after the execution of the same are disputed.  These disputed facts can only be resolved at trial.

39. I would also observe that the court has a residual discretion whether or not to embark on a determination of the issue under O.14A even where the issue was one that was suitable for determination without a trial and its determination would finally determine an issue in the proceedings. 

40. In Rockwin Ma CJHC also said at page 185:

“ The court can take an overall view of the matter to see the context in which the question arises.  If the court is of the view that there would not be a great saving of time or costs in determining the question (or indeed if it feels quite the opposite), this would be a factor against adopting the O 14A procedure.  For example, if the question involves an issue that is not determinative of the action or is but one of many issues or which may at the end of the day be an academic one, a court may well not embark on a determination under O 14A.  In such situations, it may be that a determination by the court leading possibly to appeals at two further levels, will result in more delay and expense to the parties than if the whole matter was decided at one go at trial.”

41. As Ms Chan accepted, there will still have to be a trial of the action even if the issue is determined in the plaintiff’s favour.  The plaintiff claims damages for misrepresentation and for interfering with the settlement of the claim for the 50 shares and Ms Chan accepted that this cannot be resolved without a trial.  In my judgment, since there will have to be a trial in any event even if, contrary to my view, the issue were suitable for a summary determination under O.14A, the summary determination of the issue will not result in a great saving of time and costs.  It would be far more desirable to have all the issues resolved at one go at trial especially when all the circumstances have been examined and findings on disputed facts have been made.  For that reason also, it is not appropriate in my view to embark on a determination of the issue under O.14A. 

Conclusion

42. I dismiss the amended summons.

43. In view of the defences that had been served prior to the taking out of the application, in my view the plaintiff should not have issued the application either for an order under O.14 or O.14A and the defendants are entitled to their costs of the amended summons.  I also make an order nisi for costs of the application to be costs to the defendants.