GREAT HARVEST PROPERTY INVESTMENT LTD v. HO FREEMAN CHI MAN AND OTHERS

HCA 560/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 560 OF 2010

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D E C I S I O N

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1.  The applications before me concern the plaintiff (“Great Harvest”) and the 1^st defendant (“Ho”). The former applies for summary judgment; and the latter applies for striking out of the claim. The circumstances in which these applications came about are somewhat peculiar; and both parties were the authors of them.

BACKGROUND

2.  Great Harvest was the vendor of 4 houses in a development in Tai Po, the New Territories, to the 2^nd and the 3^rd defendants (“the Purchasers”) in 2010.  Pursuant to the provisional agreements between them dated 7 March 2010[1], initial deposits in the total sum of HK$3.2 million were paid, which consisted of HK$3 million paid by way of cheques dated 8 March 2010 drawn by Ho and payable to Messrs Deacons, the solicitors acting for Great Harvest in the deal. The Purchasers defaulted; and Great Harvest sought to forfeit the deposits.  Ho’s cheques were presented but dishonoured.

3.  Great Harvest first commenced the present action against Ho on the dishonoured cheques.  It managed to obtain a default judgment; but the same was set aside in April 2011.

4.  Great Harvest then amended its statement of claim.  Besides maintaining the action against Ho on the cheques, it added the Purchasers as the 2^nd and the 3^rd defendants; and claims against the Purchasers for the deposit as well as damages for breach of the provisional agreements.

5.  In September 2011, Ho took out a summons under O.14A or alternatively O.33 for the determination of whether Great Harvest, not being the holder of the cheques, was entitled to sue Ho on the cheques; and if not, for the striking out of the claim.

6.  Great Harvest then sought to re-amend the statement of claim.  Essentially, it sought to plead the agreement by Ho to pay the deposit in consideration of Great Harvest discharging the same obligations of the Purchasers.  The application to re-amend, together with Ho’s O.14A/O.33 summons, went before DHCJ Mimmie Chan (as she then was).

7.  On 22 February 2012, DHCJ Mimmie handed down her decision.  She refused leave to Great Harvest to re-amend (to introduce the contractual claim against Ho).  Considering the existing pleaded claim against Ho, DHCJ Mimmie Chan concluded that Great Harvest, itself not being holder of the cheques, could not maintain the action on the cheques against Ho.  The claim on the cheques was accordingly struck out. Lacking any other cause of action, the action against Ho was dismissed.  Ho dropped out of the picture[2].

8.  Great Harvest then changed its legal representatives and sought to sue Ho again.  It did so by an application in May 2012 for re-amending its writ and pleading so as to join Ho back as the 1^st defendant.  That was allowed by consent in July 2012[3]. Ho rejoined the picture; and is now represented by another legal team.

9.  By summons filed on 1 November 2012, Great Harvest applies for summary judgment against Ho on the basis of the now re-amended statement of claim.  Ho responded with affidavit evidence essentially raising issues to be tried.

10.  In March 2013, the O.14 application went before the master for substantive argument.  The master raised the issue of res judicata (in the wide sense) which apparently never crossed the mind of the parties.  The master adjourned the matter to enable Ho to consider if an application for striking out of the claim against Ho on the ground of abuse of process should be taken out.  This Ho eventually did by way of summons filed on 19 March 2013.

11.  Both sides’ applications have been directed to be heard at the same time.  Hence the present hearing.

PRINCIPLES

12.  Ho’s summons sets out various grounds for the application; but his counsel Mr Wong confirms that the sole ground for striking out is abuse of the process.  Only if this is clearly and obviously such a case will the claim be struck out.

13.  The principles governing summary judgment are trite.  Judgment will be given only if there is no defence.  Leave to defend will nevertheless be given if the case should be tried for some other reasons.  Whilst Great Harvest, as the plaintiff, has the burden to prove its claim, Ho, as the defendant, has the burden to condescend upon particulars and show a credible defence.

14.  In considering either application, the court is not supposed to conduct a mini-trial of the dispute on affidavits.

STRIKING OUT

15.  In question is res judicata in the wide sense, whereby it becomes an abuse of process to raise in subsequent proceedings matters which could and should have been litigated in earlier proceedings: see Henderson v Henderson (1843) 3 Hare 100 (at 115, per Wigram VC); Yat Tung Investment Co Ltd v Dao Heng Bank Ltd & Anor [1975] AC 581 (at 590, per Lord Kilbrandon). Negligence, inadvertence or accident, which led to the previous failure to litigate the matters now raised in subsequent proceedings, is no excuse.

16.  That a matter could have been raised in earlier proceedings per se is not necessarily abusive.  What is required is a broad, merits based judgment which takes into account of the public and private interest involved and also takes in 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 Johnson v Gore Wood & Co (a firm) [2001] 2 WLR 72; Ngai Few Fung v Cheung Kwai Hung [2008] 2 HKC 111 (at 115B-C).

17.  Mr Chiu for Great Harvest submits that the consideration of res judicata in the wide sense is predicated on there being 2 sets of proceedings; but his client is not seeking to vex Ho by way of subsequent proceedings.  This is always the same set of ongoing proceedings.  The introduction of the current claim against Ho was merely a matter of amendment of the pleading, which entails the application of the rules governing amendment[4].

18.  If Mr Chiu’s argument is accepted, the legal scepticism for res judicata could be avoided just by opting to re-join the opponent in the action instead of commencing a fresh action for effectively a second bite of the cherry.  In principle, that cannot be right, if one truly adopts the broad approach of considering what amounts to misuse or abuse of process of the court in the circumstances of each case.

19.  In substance, not only has Great Harvest’s last application to amend the pleading been dismissed; but the remaining claim against Ho has also been struck out. Upon that, DHCJ Mimmie Chan ordered that the action against Ho was dismissed with costs of the action.  That was the adjudication on the merits of the action against him by the court.

20.  The attempt to re-start a claim against Ho on the same facts, in my view, falls fairly and squarely within the consideration of whether there is misuse or abuse of process for res judicata.  Whether Great Harvest did so by way of a fresh action or, as it turned out, an application to re-join the defendant in the action, in my view, hardly makes material difference.  In both cases, the potential abuse arises out of charging Ho with a new cause of action on the same set of facts which founded the previously dismissed action.

21.  The cause of action that Great Harvest failed to introduce last time was that Ho assumed contractual liability to pay the HK$3 million initial deposit in place of the Purchasers.  The alleged breach was his failure to pay.  That was a contractual claim separate from the claim on the cheques.  That would be inconsistent with the pleaded stance of the company that the Purchasers remain liable for the same deposit.  DHCJ Mimmie Chan thus refused leave for such amendment.

22.  With the recent re-amendment, Great Harvest once again stages a contractual claim against Ho; but this time it is alleged that in consideration of Great Harvest’s agreeing to defer the payments of the initial deposits by the Purchasers (which would have been by way of cashier order upon the signing of the provisional agreements), Ho impliedly promised it that the cheques would be honoured in discharge of the Purchasers’ obligations to pay the same.  This was an alleged contractual promise to Great Harvest separate from the obligation of Ho as the drawer to the payee of the cheques.  In both cases, the alleged breach was the dishonour of the cheques.

23.  Be it the cause of action on the cheques or that sought to be introduced by way of amendment (which was refused in February 2012) or the current pleaded cause of action, all are based on the same set of facts.  The present claim that Ho impliedly promised that the cheques would be honoured clearly overlaps with the original claim against Ho as the drawer of the cheques.  By putting forward the last proposed amendment that Ho assumed liability to pay the deposits, Great Harvest had clearly considered the availability of cause of action in contract against Ho at that time.  That Ho attributes the failure to put forward the present cause of action then to the mistakes of his then legal representatives, in my view, is no excuse.

24.  In the peculiar circumstances created by Great Harvest, the present claim is caught by the principle of res judicata in the wide sense both in principle and in substance.

25.  However, this is not the end of the matter.

26.  Ho complains that it is an abuse of process for Great Harvest to re-join Ho as a defendant for the purpose of vexing him again by a cause of action which could and should have been advanced before the action against him was dismissed.  Ho could have taken issue but he did not.  Instead, he consented to the re-amendment by Great Harvest.

27.  Mr Wong submits that his client’s consent has no effect or implication on the consideration.  I do not agree.  By consenting to the amendment, Ho, without qualification, agreed to be re-joined as a defendant for the purpose of the new cause of action on the same set of facts.  This was a considered decision on his part.

28.  It is also improper for Ho to now challenge such amendment by way of a post-amendment striking-out application.  Ho is effectively seeking to retract his consent and to upset the order of the master after both parties have been heard specifically on the consent order in July 2013.  As Mr Chiu submits, this is tantamount to a collateral attack on the order by devious means.  This renders Ho’s attempt another form of abuse of process.

29.  In the peculiar circumstances created by Ho, it becomes unjust for Ho to take the issue of res judicata; and, in any event, improper to do so by the present striking-out application.

30.  All these lead to my conclusion that the striking-out application must be dismissed.

Summary judgment

31.  Ho essentially argues that there are substantial factual disputes which could not be resolved other than by way of trial including:

(1)   dispute as to whether Ho assumed any personal liability to Great Harvest;

(2)   dispute as to the loss and damage to Great Harvest; and

(3)   delay in making the application.

The alleged implied promise

32.  As to whether there was the alleged implied promise by Ho to Great Harvest, Ho emphasizes the following features of the case:

(1)   This was not an ordinary or common property transaction.  The parties to the deal had negotiated for hours before the provisional agreements were signed on 7 March 2010.

(2)   Ho had no interest in the sale and purchase between Great Harvest and the Purchasers; and he had no reason to assume liability to pay the initial deposit.  He drew the cheques simply because the Purchasers did not have cashier order or sufficient cash to pay for the initial deposits under the provisional agreements.

(3)   It was understood between Great Harvest and Ho that the cheques would be exchanged by the cheques of the Purchasers (the 2^nd defendant) in 7 days when the formal sale and purchase agreements would be signed.  The cheques were not meant to be presented for payment but as gesture of genuine intention to purchase only.

33.  In my view, that the deal was concluded after hours of negotiation did not make it any extraordinary or uncommon as alleged.  At the end of the day, the scenario was consistent with the Purchasers paying the initial deposits partly by credit card and partly by cheque upon the signing of the provisional agreements.

34.  Ho asserts that the cheques were not supposed to be presented but were mere gesture of genuine intention of the Purchasers.  He is effectively suggesting that whilst both were made in respect of the initial deposits payable upon the signing of the provisional agreements, the nature of the part by cheques was different from nature of the HK$200,000 by way of credit card.  That was hardly credible.

35.  Further, if the cheques were not supposed to be presented in any event, they hardly had any value at all, not even as a gesture of genuine intention on the part of the Purchasers to proceed.  The allegation defies common sense.

36.  Whilst the period under clause 6(b) of the provisional agreements was indeed amended from the standard 3 days to 7 days (ie 15 March 2010), the rest of the clause remained unchanged.  In other words, it remained the agreement between Great Harvest and the Purchasers that the latter should attend the office of Great Harvest’s solicitors, now within 7 days, for the purpose of signing the formal sale and purchase agreement and to make the further payment in accordance of the payment terms.  According to the payment terms, that would be the further deposits, not the initial deposits.

37.  In the circumstances, Ho’s assertions that his cheques were drawn and received on the basis that they were not supposed to be presented or honoured at all are hardly credible.

38.  Again, this is not the end of the matter.

39.  As mentioned, Ho drew the cheques to enable the Purchasers to pay the initial deposits upon signing of the provisional agreements.    That he did so in the circumstances would not mean that he assumed personal liability to pay the initial deposits.  At least this is arguable.  Great Harvest accepted the cheques in payment of part of the initial deposits as the Purchasers’ performance of the provisional agreements.

40.  By the dishonour of the cheques, the Purchasers defaulted in complying with clause 6(b) of the provisional agreements.  As mentioned, clause 6(c) was invoked, which entitled Great Harvest to the remedies set out there.  That is the contractual right of Great Harvest against the Purchasers for non-payment of the initial deposits (represented by the cheques).

41.  That a drawer of a cheque by his conduct of drawing and handing over the cheque created a mandate that the cheque will be honoured is beyond dispute.  The party entitled to enforce that mandate against the drawer is the holder (invariably, the payee) of the cheque.  If a promise to the like effect needs to be implied, it would be vis-à-vis the drawer and the payee.

42.  Now the claim is that Ho is somehow bound by a similar implied promise to Great Harvest, which will be independent of his (inevitable or implied) promise to the payee of the cheques, and the Purchasers’ similar promise to Great Harvest (implied in their discharge of the payment obligations to it under the provisional agreements).

43.  Great Harvest has no right against Ho as the drawer.  Nor does it have right against Ho for liability to pay the initial deposits.  In the circumstances, I have my reservation about the claim.  Also in view of how this allegation came about against the background mentioned above, whether Great Harvest and/or Ho ever perceived such a promise as a matter of fact should be called into question.

44.  As Mr Chiu accepts in his submission, this is an inference that his client asks the court to draw from the circumstances.  For the matters discussed above, whether there was in fact such implied promise by Ho should not be answered without trial.  Alternatively, relevance of the circumstances in which the allegation came about calls for a trial under the “some other reasons” limb.

The alleged loss and damage

45.  Ho raises dispute as to how and why the amount of the cheques represents the loss to Ho as claimed.

46.  The cheques were made out in payment of the initial deposits payable pursuant to the respective provisional sale and purchase agreements.  Clause 6(d) of the agreements between Great Harvest and the Purchasers invariably provides that if the purchaser fail to sign the formal agreement or pay the further deposit, etc, Great Harvest as the vendor would be entitled to forthwith determine the agreement and forfeit all payments on account of the purchase price up to 10% of the purchase price; or to seek specific performance of the agreement.  There is no dispute that the Purchasers defaulted; and Great Harvest opted for the termination of the deal and forfeiture.  The initial deposit under each agreement represented by the respective cheque amounts to less than 10% of the respective purchase price.  On the basis of Great Harvest’s case, what flows from the alleged breach on the part of Ho is the loss of what Great Harvest would have been entitled to forfeit pursuant to the provisional agreements with the Purchasers.

47.  I understand the basis of the alleged loss and damage.  As I take the view that the case should go to trial, I need say no more on this.

Delay

48.  Ho criticises Great Harvest for delay of more than 2 years since the commencement of action before taking out the present application for summary judgment.

49.  The default judgment against Ho was set aside in April 2011.  Then there were Ho’s O.14A application and Great Harvest’s application to amend its pleading. Following the determination of the applications against Great Harvest in February 2012, Great Harvest sought to re-join Ho as a defendant, which was consented to in July 2012.  The present application for summary judgment was taken out on 1 November 2012.

50.  The delay, if any, should be the period between July and November 2012.  On the scale of things, this is relatively a non-substantial consideration that should be held against Great Harvest.

CONCLUSION

51.  Ho’s summons to strike out is dismissed.  I have considered but decided not to dismiss Great Harvest’s summons or to impose conditions before Ho can continue to defend.  The case should just go to trial.

52.  In such event, Great Harvest should have its costs of and occasioned by Ho’s summons, including any costs reserved and half of the costs of this hearing, in any event.  Subject to that, costs of Great Harvest’s summons shall be in the cause.  Costs shall be taxed, if not agreed, with certificate for counsel. Unless an application is made within 14 days to vary, this costs order, now nisi, shall become absolute.