REGAL WISE DEVELOPMENT LTD v. YICK SHING CONTRACTORS LTD

DCCJ 3493/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3493 OF 2012

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BETWEEN

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DECISION

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I. INTRODUCTION

1.  This is an appeal by the defendant against the decision of Master Ho made on 5 March 2013:-

(i) ordering the dismissal of the defendant’s application to strike out the plaintiff’s statement of claim dated 8October 2012 (“the Second Action”); and

(ii) directing a joint trial of the Second Action with an earlier action taken out by the plaintiff, DCCJ 2136/2012, against the defendant (“the First Action”).

2.  The hearing of the joint trial has been fixed to commence on 10 May 2013, with 13 to 15 May 2013 also reserved.

3.  The defendant asks that the Second Action be struck out and that the directions given by Master Ho catering for the joint trial of the two actions be annulled.  The defendant also seeks costs for this appeal on indemnity basis. 

II. ISSUES

4.  The main issue for this court to decide is whether the Second Action, which the defendant says is based on the same cause of action relying on the same facts relating to the same parties, amounts to an abuse of process offending the doctrine of res judicata in the wider sense as stated by Wigram VC in the well-known case of Henderson v Henderson.[1] Although the defendant has also pleaded that the Second Action is frivolous and vexatious,[2] Ms Yan, counsel for the defendant, clarified in her submissions in court that they are not standalone grounds but are dependent on the allegation of abuse. 

III. RELEVANT FACTS

5.  The following facts which are relevant to the present appeal are based on the helpful written submissions of Ms Yan prepared for the purpose of this appeal:-

(a)     the plaintiff was the defendant’s subcontractor in relation to a construction project;

(b)     pursuant to a document dated 9 January 2012 prepared by the defendant and signed by the plaintiff (“the Declaration”), the parties purported to settle the project fees owed by the defendant to the plaintiff in the sum of $952,022.56, to be paid by nine monthly installments commencing on 31 January 2012 and ending on 30 September 2012;

(c)     the defendant issued and delivered nine post-dated cheques to the plaintiff to pay for the nine installments;

(d)     the plaintiff presented the first three of those cheques on their respective due dates and obtained payment totaling $317,340; 

(e)     afterwards the defendant stopped the 4^th to the 9^th cheques and alleged that it was acting under a mistake when it issued the nine cheques to the plaintiff;

(f)     on 25 June 2012, the plaintiff took out the First Action against the defendant, alleging that the defendant had breached the terms of the Declaration, with a view to recover the remaining $634,662.56 from the defendant;

(g)     by a summons dated 16 July 2012, the plaintiff applied for  summary judgment in respect of the First Action but the application was refused on 12 September 2012 by Master Ho who granted the defendant unconditional leave to defend;

(h)     meanwhile, the plaintiff continued to present the remaining cheques for payment on their respective due dates and as a consequence all of them were dishonoured;

(i)     on 8 October 2012, the plaintiff took out the Second Action suing the defendant on the 4^th to the 9^th cheques which had been dishonoured;

(j)     on 9 October 2012, the defendant filed and served it defence and counterclaim for the First Action; it is the defendant’s case in the counterclaim that it had in fact overpaid the plaintiff for the project by $92,902 and it also seeks the restitution of the first three cheques in the sum of $317,340;

(k)     on 22 October 2012, the plaintiff filed and served its reply and defence to counterclaim for the First Action;

(l)     the defendant by a summons dated 5 November 2012 applied to strike out the Second Action; the plaintiff, on the other hand, by a summons dated 12 November 2012 applied for summary judgment in respect of the same; and

(m)     on 5 March 2013, Master Ho dismissed both summonses of the plaintiff and the defendant and gave directions for a joint trial of the First and the Second Actions.

IV. RELEVANT LEGAL PRINCIPLES

Appeal from master’s decision

6.  I remind myself that this is an appeal by way of an actual rehearing of the defendant’s application to strike out the Second Action and I should treat the matter as though it came before me for the first time.  I will give the weight it deserves to the previous decision of the master but I am in no way fettered by the previous exercise of his discretion: see para 58/1/2, Hong Kong Civil Procedure 2013. 

Principles on striking out

7.  I also remind myself the following principles concerning striking out pleadings:-

(a)     it is only in plain and obvious cases that the court should exercise its summary powers to strike out any pleading under Order 18, Rule 19 of the Rules of the District Court: see para 18/19/4(1), Hong Kong Civil Procedure 2013;

(b)     it is for the party seeking to strike out an indorsement on a writ or pleading to demonstrate that the case is a plain and obvious one in which the other party’s claim is bound to fail: see para 18/19/4(1), Hong Kong Civil Procedure 2013;

(c)     the expression “frivolous or vexatious” includes proceedings which are an abuse of the process.  A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed.  A proceeding is vexatious when it is oppressive and/or lacks bona fides: see para 18/19/8, Hong Kong Civil Procedure 2013;

(d)     the process of the court must be used bona fide and properly and must not be abused.  The court will prevent the improper use of its machinery, and will, in a proper case summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation.  The categories of conduct render a claim frivolous, vexatious or an abuse of process are not closed but depend on all the relevant circumstances and for this purpose consideration of public policy and the interests of justice may be very material: see para 18/19/10, Hong Kong Civil Procedure 2013; and

(e)     the power to stay or dismiss an action under the inherent jurisdiction of the court on the ground that it is obviously frivolous or vexatious is discretionary, just as it is under Order18 Rule 19.  A judicial discretion must be used as to what proceedings are vexatious; for the court must not prevent a suitor from exercising his undoubted rights on any vague or indefinite principle.  The jurisdiction will only be exercised in exceptional circumstances: see para 18/19/13, Hong Kong Civil Procedure 2013.

Extended doctrine of res judicata

8.  Based on the dicta of Wigram VC in Henderson v Henderson, a wider principle of res judicata has developed that it may be an abuse of procedure to litigate matters which have, or could have, been decided in earlier proceedings.  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 (except under special circumstances) permit them later to reopen mattes which might have been brought forward as part of already concluded litigation. 

9.  The principle in Henderson v Henderson has been considered and further developed in various case authorities, including Yat Tung Investment Co Ltd v Dao Heng Bank Ltd;[3] Johnson v Gore Wood & Co;[4] Ngai Few Fung v Cheung Kwai Hung;[5] Healthy Living Products International Ltd v Murray;[6]and Ko Hon Yue v Chiu Pik Yuk.[7]  Briefly stated, the Courts have now adopted the following dicta of Lord Bingham in Johnson v Gore Wood & Co:-

“It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. This is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes 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. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not.” [8]

10.  Ma CJ, who gave the judgment of the Court of Final Appeal in Ko Hon Yue v Chiu Pik Yuk, considered various facets of the doctrine against the backdrop of the Civil Justice Reform in 2009 and provided the following guidance:-[9]

(1) The starting point is to recognize that the doctrine is founded on an abuse of process.  As Lord Wilberforce said in Brisbane City Council v Attorney General for Queensland, “it ought only to be applied when the facts are such as to amount to an abuse: otherwise, there is a danger of a party being shut out from bringing forward a genuine subject of litigation”.[10]

(2) This concern (that a party ought not lightly be deprived of the right to have serious matters litigated) was echoed by Lord Millet in Johnson v Gore Wood.[11]

(3) It must therefore be essential when striking out a claim on this basis (and thus preventing a litigation of that claim) that an abuse is found to exist in seeking to raise in subsequent proceedings claims or issues which could and should have been raised in earlier proceedings. This abuse will usually take the form of the other party being “vexed” (or in some cases, the terms “oppressed”, “unjustly harassed” or “unjustly hounded” are used) by the subsequent set of proceedings: Johnson v Gore Wood. [12]

(4) The abuse can also take the form of the administration of justice being brought into disrepute: see Chiang Lily[13] referring to Hunter v Chief Constable of the West Midlands Police.[14] With the procedural reforms introduced by the Civil Justice Reform in 2009, the courts in Hong Kong must now, when exercising their procedural powers, increasingly bear in mind not just the parties before them in any particular litigation but also the position of other litigants in the court process. RSC O1A r1(f) states as one of the underlying objectives of the court's procedural powers under the Rules to be “to ensure that the resources of the court are distributed fairly”.

(5) In examining aspects such as abuse, the court is concerned with balancing interests: not just those of the litigants before it, but also taking into account the other interests involved in the administration of justice. It is important therefore here to emphasise that when the court is dealing with the Henderson v Henderson type of abuse, it is not looking at an absolute bar to litigation such as issue estoppel or cause of action estoppel.  On the contrary, in considering this type of abuse, the court is required to assess a number of factors and balance competing interests.  See here, Bradford and Bingley Building Society.[15]  It is also worth making the following observations at this juncture:-

(a) There is conceptually an important distinction between absolute bars such as issue estoppel and the type of abuse with which we are concerned.  In the former situation, the party who seeks to re-litigate an issue or cause of action has already had his day in court, whereas in the latter situation, that party has not: cf Johnson v Gore Wood (“It is one thing to refuse to allow a party to re-litigate a question which already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which is not previously being adjudicated upon” per Lord Millett). [16]

(b) The assessment of different factors and balancing competing interests can be said to be an exercise of a discretion.  A number of decisions of the English Court of Appeal, however, have cast doubt on whether the court does indeed exercise a discretion as such: see Aldi Stores Ltd v WSP Group Plc [17]and Stuart v Goldberg Linde (a firm).[18] [19]

V.  CONSIDERATION OF THE SUBMISSIONS

Election

11.  Ms Yan submitted that the plaintiff by taking out the First Action had elected to sue on the Declaration rather than on the six dishonoured cheques.  The Second Action, so the argument goes, was an attempt by the plaintiff to have a “second bite at the cherry”.  

12.  The premise of the above of submission is that there would have been a cause of action accrued to the plaintiff in respect of the cheques when the First Action was taken out on 25 June 2012.  It should be noted, however, that at the time only the 4^th cheque (dated 30 April 2012) and the 5^th cheque (dated 31 May 2012) had become due and had been presented for payment.  Ms Yan submitted that the plaintiff could have relied on the doctrine of “anticipatory breach” in contract law and sued on the remaining cheques before their respective due dates, as they had already been countermanded.  No authorities were provided for this legal proposition. 

13.  With respect, I am unable to accept the submission that when the plaintiff took out the First Action, he had an accrued right of action in respect of the cheques which were then not due for payment.  My reasons are as follows:-

(i) Section 47, Bills of Exchange Ordinance, Cap 45, says:-

(1) A bill is dishonoured by non-payment:-

(a) when it is duly presented for payment and payment is refused or cannot be obtained; or

(b) when presentment is excused and the bill is overdue and unpaid. 

(2) Subject to the provisions of this Ordinance, when a bill is dishonoured by non-payment, an immediate right of recourse against the drawer and indorsers accrues to the holder. 

(Emphasis supplied)

(ii)    A cheque is a bill of exchange: s 73.  Therefore, although the 6^th to the 9^th cheques (“the remaining cheques”) had already been countermanded by the defendant, they were not dishonoured for non-payment within the meaning of s 47 unless and until they had been duly presented for payment or they had become overdue and unpaid.  

(iii)   The learned author of Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes, 17^th Edition, at para 6-084 makes a distinction between “right of recourse” and “right of action” and says that:-

“The position is therefore that a right of recourse against the drawer and indorsers accrues to the holder immediately upon dishonour, so that he can at once give them notice of dishonour; but his right of action accrues only when notice of dishonour is received …”

(iv)    In the present case, however, notice of dishonour was dispensed with as the defendant had countermanded payment: see s 50(2)(c)(v).  It follows that the plaintiff would have the right of action accrued to him in respect of the remaining cheques after, but not before, they had been presented on their respective due dates and the plaintiff had been refused payment. 

(v)     It would be unnecessary for me to consider in the present case whether presentment of the remaining cheques would have been excused or dispensed with, as they had in fact been duly presented.  Nevertheless, I note that the fact that the holder (the plaintiff in this case) has reason to believe that the bill will, on presentment, be dishonoured does not dispense with the necessity for presentment: see s 46(2)(a), Bills of Exchange Ordinance, Cap 45.   See also the common law rule in Hill v Heap[20], where it was held, where the defendants had given orders to the drawer not to pay the bill if presented, and that those orders had been communicated to the payee, that it formed no excuse for the non-presentment for payment.

14.  Based on the above, the position as at 25 June 2012 was that the plaintiff could not have sued the defendant on the remaining cheques which were yet to be due and presented. 

15.  During the cause of submissions, there appeared to be some suggestion that the plaintiff could have sought to amend the pleadings of the First Action by including the claim in respect of the post-dated cheques, rather than to take out the Second Action.  I also reject that argument for the following reasons:-

(a)     It is well-established that an amendment takes effect, not from the date when the amendment is made, but from the date of the original document which it amends.  Thus, when an amendment is made to the writ, the amendment dates back to the date of the original issue of the writ and the action continues as though the amendment had been inserted from the beginning: see para 20/8/2, Hong Kong Civil Procedure 2013.

(b)     As such, an amendment should not be allowed in respect of new causes of action which accrues since the issue of writ: para 20/8/6, Hong Kong Civil Procedure 2013.

(c)     At the time when the First Action was taken out, only the 4^th and the 5^th cheques had been dishonoured for non-payment.  Although it might be technically possible to amend the pleadings of the First Action by including a claim for just these two cheques, as Mr Fung for the plaintiff submitted, it would not served any meaningful purpose as there were the remaining cheques.  

16.  Could it be said then that the plaintiff should not have taken out any action in June 2012 but should have waited until after the last of the post-dated cheques had been dishonored, so that all claims could be included in one action against the defendant?  However, if this proposition was right, then a payee who had been issued by a drawer a number of post-dated cheques due on different dates would not be able to sue on any of those cheques until all the cheques had been dishonoured for non-payment.  That proposition not only is not supported by any case authorities, but could also result in injustice to the payee. 

17.  Based on the above, I rejected the defendant’s argument that the plaintiff had, by taking out the First Action, elected not to proceed with the action on the post-dated cheques.  Simply put, the plaintiff could not have then sued on the cheques, at least not in relation to the remaining cheques which were not yet due at the time.  Nor can it be said that the plaintiff by the Second Action is seeking to re-litigate a question which already been decided.  The First Action has not even been heard.  With respect, there is no substance in the defendant’s bare assertion that the taking out and continuation of the Second Action constitutes unjust harassment or oppression to the defendant.  In my judgment, to strike out the Second Action is to deny the plaintiff the opportunity of litigating for the first time a question which is not previously being adjudicated upon.  It is also to shut the plaintiff out from bringing forward a genuine subject of litigation.  As such, the exercise of such a right by the plaintiff can hardly be said to be oppressive.  In my judgment, there is no abuse of process and the principle in Henderson v Henderson is not engaged. 

Duplicity

18.  Ms Yan argued that the First Action and the Second Action were based on the same cause of action relating to the same subject matter and were therefore duplicitous.

19.  As per the following dictum of Diplock LJ (as he then was) in the oft-quoted case of Letang v Copper, [21]

“A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person.”

In Paragon Finance plc v DB Thakerar & Co,[22] Millet LJ (as he then was) said,

“The class definition of a cause of action was given by Brett J in Cooke v Gill (1873) LR 8 CP 107 at 116: “ ‘Cause of action’ has been held from the earliest time to mean every fact which is material to be proved to entitle the plaintiff to succeed, - every fact which the defendant would have a right to traverse.” (My emphasis.) …. I do not think that Diplock LJ [in Letang v Cooper] was intending a different definition from that of Brett J.”[23]

20.  In Upper Like Investments Ltd v Sino-Rank International Ltd & Anor, HCA 17637/1999 (unreported), which is heavily relied on by Ms Yan for this ground, Upper Like took out a mortgage action in 1993 against Sino-Rank to recover a loan of $400,000 plus interest.  That action, however, was subsequently by consent adjourned sine die.  In 1999, however, Upper Like took out another action against Sino-Rank to cover the very same loan.  Recorder A Ho, SC, observed that the consent order for adjournment in the 1993 proceedings expressly provided that there was to be liberty to restore and there was no suggestion that Upper Like could not have revived it, which would have been the proper course to take.  The learned recorder concluded that the commencement and continuance of the 1999 proceedings was an abuse of the court’s process and ordered that the proceedings be struck out.

21.  In my judgment, the Upper Like’s case is distinguishable.  I do not accept that the First Action and the Second Action are based on the same cause of action or are duplicitous.  Unlike the Upper Like’s case, where the two actions in question concerned the same loan so that it was difficult to see any reasons for Upper Like to take out the subsequent action when it could have revived the previous action, in the present case there are aspects in the First and the Second Actions respectively which are not covered by the other, so that the two actions are independent causes of action.  My reasons are as follows:

(a)     although the First and the Second Actions are between the same parties and share a common factual background, the First Action is based on an alleged breach of settlement agreement.  Although the Declaration contained terms for payment by installments, it did not mention anything about post-dated cheques.  Whilst the post-dated cheques might be evidence of the existence of the alleged settlement agreement, they do not form an essential ingredient of the First Action.  In other words, it is not material for the plaintiff to prove that the cheques had been dishonoured for them to succeed in the First Action;

(b)     the defendant has not filed any defence for the Second Action and it is yet to know what their defence is.  Barring any allegation of fraud on the part of the plaintiff in procuring the cheques, in order for the defendant to successfully defend the Second Action, it is for the defendant to show the absence or total failure of consideration: s 30 Bills of Exchange Ordinance.  For the sake of argument, even assuming that the settlement agreement, as purportedly evidenced by the Declaration, is invalid due to the defendant’s alleged mistake, it does not necessarily mean that there was absence or total failure of consideration for the cheques.  In other words, the success or otherwise of the Second Action does not necessarily depend on the First Action and they do not necessarily stand or fall together;

(c)     pragmatically speaking, it may well be that if the plaintiff succeeded on the Second Action, it might not be interested in pursuing the First Action any more.  This is because the plaintiff would not be compensated twice for the project fees which it says the defendant owes them.  However, it is a very different thing to say that the two actions are duplicitous in law; and

(d)     as discussed above, it would not be permissible for the pleadings of the First Action to be so amended as to include a claim for all of the cheques.

Frivolous and vexatious

22.  As I have mentioned earlier, these are not standalone grounds but depend on the allegation of abuse.  For the sake of completeness, I should say that it was not Ms Yan’s submission that the Second Action is not capable of reasoned argument, without foundation or that it cannot possibly succeed. 

Joint trial

23.  I have concluded that the taking out of the Second Action is neither abusive nor duplicitous. Nevertheless, should the two actions be dealt with separately or should they be heard together?  Where do the interest of justice and the public interest lie in the view of Civil Justice Reform introduced in 2009?

24.  In my judgment, there is every advantage for the two actions to be dealt with together rather than separately:-

(a)     had there been only one statement of claims, it would be difficult to see any cogent objections for the joinder of the claims for the alleged breach of the settlement agreement and the dishonoured cheques;

(b)     given that the two actions share the common factual background, there would be a large overlap of evidence.  A joint trial would save a lot of court time, public resources and costs and result in a more speedier resolution of all the disputes between the parties;

(c)     in the present case, it would be in the public interest to avoid any possibility of two courts reaching inconsistent decisions.  Furthermore, a joint trial would prevent the defendant from being “vexed” by more than one trial.  Above all, a joint trial of the two actions would be more conducive to the interest of justice as the trial judge would have a fuller picture of the disputes between the parties and would be in a better position to determine the disputes: see Buckland v Palmer, as per Sir Donaldson MR;[24] and

(d)     I cannot see how the defendant will be prejudiced by a joint trial of the two actions.  Even if the plaintiff wins on the dishonoured cheques, it will not be the end of the matter between the parties as there is still the defendant’s counterclaim to deal with.  

VI. CONCLUSION

25.  Having taking every factors into account and balancing all competing interests, I am not satisfied that the defendant has discharged its burden of showing that the Second Action should be struck out as an abuse of the court’s process. Besides, it is, in my judgment, consistent with the spirit of the Civil Justice Reform to order a joint trial of the two actions. 

26.  By way of rehearing, I dismiss the defendant’s appeal and uphold the master’s decision to dismiss the defendant’s application to strike out the Second Action.  I also uphold the master’s directions which cater for the joint trial of the First and the Second Actions.

Costs

27.  I make an order nisi that the defendant pay the plaintiff the costs of this appeal, to be taxed if not agreed.