YUE LAI CHUEN v. NG KWONG CHEUNG AND ANOTHER

HCA 1833/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1833 OF 2013

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AND

HCA 1834/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1834 OF 2013

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D E C I S I O N

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The applications

1.  This hearing concerns two actions: HCA 1833/2013 and HCA 1834/2013, which will be hereinafter referred to as the “1833 action” and “1834 action” respectively.

2.  By way of two summonses dated 1 March 2016, the Plaintiff (“P”) applies to strike out: -

(a)   The second and third sentences of §5 of the Amended Defence in the 1833 Action and of the Defence in the 1834 Action, which reads:

“The Defendants aver that the Shop was purchased entirely from the funds of the 1st Defendant, and had remained the beneficial owner of the Shop. The Shop was purchased in the Plaintiff’s name at the request of the Plaintiff.”;

and

(b)   The words “the Shop and” from the third sentence of §11 of the Defence in the 1834 Action and the same words from the third sentence of §13 in the 1833 Action.

The above passages are hereinafter referred to as the “Offending Passages”.

3.  Those words in paragraph 2(b) above were omitted from the summonses.  Ds have confirmed that they will not take issue with this technical omission.  The said summonses will be dealt with as if those words had been inserted therein.[1]

4.  In the course of hearing today, P applies to further amend the summonses by adding in 1833 summons words after paragraph 5 of (1) “and the words ‘of the shop’ in paragraph 13”, and for 1834 summons words after paragraph 5 of (1) “and the words ‘ of the shop’ in paragraph 11”.  Ds have no objections to these proposed amendments.  They are allowed by consent and will be dealt with accordingly.

5.  By way of another two summonses dated 1 September 2015, the Defendants (“Ds”) have applied for leave to: -

(a)   Re-amend their Amended Defence in the 1833 action; and

(b)   Amend their Defence in the 1834 action.

6.  P concedes that should P fail in her application to strike out the Offending Passages, no opposition will be mounted to the Ds’ summonses to amend their pleadings.  However, if P succeeds her applications for striking out, Ds will still be allowed to re- amend the 1833 Amended Defence and to amend the 1834 Defence in the manner as per the draft submitted to this Court respectively. Ds agree to this proposal.  The applications will be dealt with accordingly.

7.  The parties are legally represented. [2]

O.18, r.19 RHC

8.  The discussion below is therefore on the issues as raised by P’s summonses.

9.  P’s summonses to strike out are relying on O.18, r.19 of RHC and the inherent jurisdiction of the court, on the grounds that:

(a)   the same are frivolous or vexatious;

(b)   the same may prejudice and/or delay the fair trial of the Actions; and

(c)   the same are otherwise an abuse of the process of the court.[3]

The brief facts

10.  So far as the brief facts are relevant to the discussion below, P and D1 are wife and husband.  They are in the course of the legal proceedings for divorce.  D2 is the daughter of D1 with another woman.  In 1833 action, P claims against Ds for a declaration that the matrimonial property at Broadcast Drive is held by D1 upon trust for themselves as spousal assets for the purpose of their eventual retirement and of their source of income during their retirement until the death of either of them; that the Assignment made by D1 to himself and D2 be null and void, and also for a vesting order for the said property to be vested in her and D1 as joint tenants.  In 1834 action, P claims against Ds for a declaration that shop 45 on the ground floor and a unit at Block A on 1^st floor Tung Lo Court (“the Restaurant Properties”) are held by P and D1 upon trust for themselves as joint tenants upon trust as spousal assets for the purpose of their eventual retirement and of their source of income during their retirement until the death of either of them; that the Notice of Severance of Joint Tenancy made by D1 in respect of the said shop to himself and D2 be null and void; and that the Assignment of the Restaurant Properties be set aside.

11.  The events leading to the claim are that P and D1 each held a property in their own names respectively.  In 1996, they entered into an oral agreement, whereby each of them mortgaged their respective properties to the banks and obtained altogether $5 million loan, which was used for the purchase of the Restaurant Properties (originally consisting of another unit above shop 45, which had been sold) and registered in their joint names as joint tenants. Each of them had to pay the mortgage instalments in equal shares and if any one of them failed to do so, the one in default would have to indemnify the other who had paid the instalments with interest.  It is the case of P that the properties were and are held by the two of them upon trust for themselves as joint tenants and upon trust for the two of them as spousal assets for the purpose of their eventual retirement and as a source of income during their retirement.  It was discovered by P that D1 had assigned the matrimonial property to himself and D2 as joint tenants.  He had also executed a Notice of Severance of Joint Tenancy in relation to the Restaurant Properties on 23 November 2012.  By a purported Assignment dated 29 January 2013, D1 purported to assign, by way of gift for nil consideration, his interest and benefit in the Restaurant Properties jointly to himself and D2.

12.  The grounds for P to take out this application are that the Offending Passages are inconsistent with the finding of the fact in another earlier action HCA 2861/2003 (“the 2003 action”) between P and D1 whereby P claimed against D1 for reimbursement of the payments of instalments, which she had paid for his share of contribution, for the mortgages of their respective properties for the said loans for the purchase of the Restaurant Properties.  In that action, P obtained summary judgment against D1.  D1 had not appealed against this Judgment.  P therefore says that the fact that the Restaurant Properties were purchased by the joint contributions of P and D1 by way of mortgaging their respective properties, ie shop 6 of Po Hing Building by P and the matrimonial property by D1 respectively, pursuant to the oral agreement in 1996 and that D1 is holding the Restaurant Properties in trust as agreed had been found by the court.  The Offending Passages are inconsistent with the facts found by the court in HCA 2861/2003, ie that P was the beneficial owner of shop 6 and are therefore res judicata.  They amount to abuse of the proceedings and must be struck out, relying upon the legal principles in Henderson v Henderson(1843) 3 Hare 100.

The relevant legal principles

13.  P relies on the doctrine of res judicata in the wider sense (often referred to as the Henderson v Henderson abuse) as the basis of her application to strike out the Offending Passages.

14.  The law recognises that it may be an abuse of procedure to litigate matters which have, or should have been decided in earlier proceedings.

15.  The basic rule is that, where a matter becomes the subject of adjudication, the court requires the parties to put forward their whole case and will not, save for special circumstances, permit them later to reopen matters which might have been brought forward as part of the already concluded litigation.

16.  Res judicata for this purpose is not confined to issues which the court were actually asked to decide in the original litigation, it also covers issues or facts which are so clearly part of the subject matter of the original litigation and so clearly could have been raised then that it would be an abuse of process to allow new proceedings to be started in respect of them.[4]

17.  Ds have no dispute on the legal principles in Henderson v Henderson[5]and its extended scope.

18.  The ultimate question for the court to decide: is the conduct of D1 an abuse of the process, taking all circumstances into consideration?  The burden is on P to prove abuse and on D1 to raise special circumstances for exemption.  Johnson v Gore Wood & Co. [2002] 2 AC 1.

19.  Abuse is a fact sensitive issue, which cannot have a catch-all formula.  The court must take into consideration the private interest, the public interest and all the factual circumstances.  Since the doctrine will shut a party from litigation, which no court should exercise but after a scrupulous examination of all the circumstances.  Yat Tung Investment Co. Limited v Dao Heng Bank [1975] AC 581 at 590.  It is a matter of the court’s discretion.

Discussion

20.  Ds argue that the legal principles of res judicata should not apply to the present matter, the reasons of which are set out and considered below.

21.  Ds submit that the applications for striking out were late and P had delayed the matter.  Ds refer me to the decision of the Court of Final Appeal in Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72 where the CJ had a discussion on this issue.  In this case, the Court of Final Appeal adopted the reasons of the Court of Appeal, which held that the Court of First Instance was in error in not taking into consideration that the application for striking out on the ground of res judicata was too late for the defendant to apply at the trial stage. See paragraph 88.

22.  Where ‘late’ or ‘delay’ is relied upon, these words must be understood within the context of the decisions of the court.  The Court of Appeal in the above case held that the application was late because it was at the trial stage.  It is quite apparent that to raise such an issue at the trial stage will have a lot of consequences such as not having enough time for the other party to prepare their case to meet the challenge causing injustice or to disrupt the trial altogether, which is inconsistent with the administration of justice.  In this case, the delay is a matter of about six months where the matter has not been set down for trial.  This complaint of late application does not warrant merits.

23.  D1 relied upon his second affirmation filed on 30 March 2016.  He said that he was not fully aware of the context of the affirmation he had made for the summary judgment application in the 2003 action as his solicitor had not explained clearly to him.  That is only one-sided allegation that cannot be accepted without further evidence, especially from the solicitor acting for him.  He then said that in that action the main issue was not about the ownership of any of the properties owned by him or by P jointly, but rather was about the oral agreement alleged by P.  He did not tell the Court about the real ownership of any of those properties since it was not necessary for the Court to rule on that.[6]  One must bear in mind that whether he should give evidence to bring out the fact of the ownership of shop 6 in defence should have been the advice given by his legal representatives to him.  The legal representatives should have taken into account of the pleaded claim and the possible defence before giving him the advice.  It is therefore not acceptable for D1 to say that he was not properly advised before he signed his affirmation for the O.14 proceedings.

24.  It must be borne in mind that for O.14 applications, P must establish a prima facie case, then onus is on D to show triable issue Yue Tai Plywood & Timber Company Limited v Far East (Wagner) Engineering Limited (p.7) (Recorder J Leong, 19 April 2001) [2001] 2 HKLRD 446; see also Billion Silver Development Ltd. v All Wide Investments Ltd. [2000] 2 HKC 262 (C.A. Mayo JA and Ribeiro J.) at page 8.  Where there are real disputes of fact, or where the factual matrix is unclear, it would be a strong remedy for a court to give summary judgment to the plaintiff.  Sin Hua Bank Ltd. v Sung Foo Kee Ltd (CA Penlington, Litton JJA, Jone J.) (CACV 175/1992, 18 February 1993).  P has asserted the circumstances on which the Restaurant Properties were purchased and why she and D1 had to contribute to the payment of the mortgage instalments.  See paragraph 6 of the Statement of Claim of 2003 action at bundle 1834-182.  If D1 was in fact the sole owner of shop 6, it is inconsistent with the pleaded claim of P and it must constitute a triable issue for the court and a summary judgment would not have been entered.  The judgment entered must be based upon the facts as pleaded.  It is apparent that D1 had not set out his defence of ownership of shop 6 in the summary judgment application.  D1 further said that P’s opposition is late, that P had requested particulars from him; that the family solicitor acted for P.  All of these are not relevant to the explanation for not stating his defence of sole ownership of shop 6 in the O.14 application.

25.  Ds remind this Court of bearing in mind that this Court must consider all the circumstances, the different positions of a passive defendant (who does not counterclaim) and an “attacking” plaintiff must be relevant in judging their conduct.

26.  Ds further submit that since the 2003 action was on the issue of breach of contract between P and D1, ie, on the payment of the outstanding monthly mortgage instalments, D1 was not obliged to raise the issue of beneficial ownership of shop 6 held in the name of P.  They rely upon the case of Chiang Lily v Secretary for Justice [2009] 6 HKC 234 where the Chief Judge Ma, as he then was, discussed the application of the doctrine of res judicata, especially on whether the issue that could have been raised in the previous proceedings should necessarily be raised in those proceedings.  His analysis, after considering the House of Lords decision in Johnson v Gore Wood & Co  [2002] 2 AC 1, was that just because a point could have been raised in the earlier proceedings did not itself mean that it should have been raised.  See 255E.  This, as he quoted from the House of Lords judgment, is to avoid adopting too dogmatic an approach to what should be a broad, merits-based judgment which takes account of the public and private interests involved and also take into account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.  See 256A.  All in all, the discussion emphasized that the court, in considering the issue of res judicata should take into account all relevant factors and circumstances for the sake of justice.

27.  Bearing the above caution in mind, it is difficult to explain, in D1’s case in 2003 action, D1 should not raise the defence that he was the beneficial owner of shop 6.  In his second affirmation, he mentioned that he was only sued on the 1996 oral agreement and “No one had ever explained to me that I had to explain to the Court about my ownership in the shop and the history of its purchase more than 20 years before then.” See paragraph 11 of his second affirmation at 1883-146. It is clear that P was claiming for reimbursement of the paid mortgage instalments pursuant to the 1996 oral agreement.  This oral agreement set out the mortgage of her shop 6, the mortgage of the matrimonial property by D1 for the loan to purchase of the Restaurant Properties by way of contributions to the purchase money at the relevant time.  More significantly, D1 had said in his opposing affirmation that shop 6 was P’s own property and she had mortgaged her own property. See paragraph 5 of his affirmation filed on 9 September 2003.  It also cries out for explanation for the change of his evidence in these proceedings. D1 has not offered any acceptable explanation.

28.  It is obvious that if what D1 now says is true, he could have defence to the 2003 action because what P said in the Statement of Claim must be wrong – a factual issue had arisen for trial.  But he conceded to the fact himself on his own affirmation.

29.  D1 argues that neither P nor the Court could dictate how D1 should defend a purely contractual claim based on an oral agreement allegedly reached more than 25 years after the purchase of the shop.[7]  That I agree.  However, D1 has to be seen on his own conducts in the legal proceedings.  If the situation cries out for explanation such as this, he has the burden to satisfy this Court that he had good reasons for not setting out the true facts, which could have constituted a defence or a triable issue for the O.14 application.  The reasons that he had put forward are not acceptable in the circumstances of this case.

30.  Ds submit that there would be no prejudice to P for the issue of the beneficial ownership of shop 6 to be raised.  I agree with P that such issue will cause P to dig out all the financial statements dated back 40 years ago.  In fact, with D1’s own admission as mentioned above, it is simply unfair for Ds to raise this issue again in these proceedings.

31.  The law requires this Court to exercise its discretion having considered all the circumstances put forward by Ds.  Having considered the reasons, I am not satisfied that Ds have discharged their burden successfully.  As such, I hold that the Offending Passages are caught by the doctrine of res judicata, which is an abuse of the legal process and must be struck out.  So I order.

32.  P is successful in the striking out applications in respect of the 1833 action and the 1834 action.  Accordingly, Ds’ summonses for leave to re-amend the 1833 Amended Defence and amend the 1834 Defence are as per the draft submitted as mentioned in paragraph 6 above.

Costs and order

33.  As to the costs of these applications, including the costs reserved and for today’s hearing,  the costs for the striking out applications and the costs for the amendments applications are to be assessed together summarily under O.62, r.9A, RHC.  The global costs will be taking into account of the time for the argument and the time for preparing for the applications.  The major part of the time is for the argument on striking out and little time was spent on the amendments.  The costs of and occasioned by Ds’ applications for amendment will be to the plaintiff, to be assessed if not agreed in any event.  As to the costs of the striking out and the amendments for the hearing today, the costs (with certificate for counsel) are assessed at $120,000, to be paid by Ds to P within 14 days from the date hereof.

Case Management Conference

34.  The matter is adjourned to 10:30 am on 1 February 2017 for the 3^rd Case Management Conference, with the following directions:

(a)   The parties shall obtain Counsel's advice within 28 days after close of the amended pleadings;

(b)   All interlocutory applications as may be advised shall be taken out within 14 days thereafter; such applications, if contested, shall be fixed before the Registrar for argument;

(c)   Liberty to apply;

(d)   Costs of this Case Management Conference, (15 minutes) be in the cause.