TOTAL LUBRICANTS HONG KONG LTD AND OTHERS v. CHRISTOPHE DE LA CROPTE DE CHANTERAC AND OTHERS

CACV 37/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 37 OF 2012

(ON APPEAL FROM HCA NO. 1694 OF 2008)

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BETWEEN

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J U D G M E N T

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Hon Yeung VP:

1.  I agree with the judgment of Kwan JA and would make an order in terms of paragraph 37 hereof.

Hon Kwan JA:

2.  This is an appeal of the 5^th and 6^th defendants against decision No 3 of Poon J on 7 February 2012 in HCA 1694/2008 (“the 2012 Judgment”).  Leave was granted by this court[1] for the appeal to be brought but limited to the first two grounds of appeal, to raise arguments of res judicata and functus officio.

The background

3.  The relevant background matters may first be stated as follows.

4.  The plaintiffs brought this action against their former officers and employees in September 2008, alleging that these individual defendants (the 1^st to 4^th defendants) had acted in breach of contractual, fiduciary and/or equitable duties in defecting to and launching the 5^th defendant as a competitor.  The 6^th defendant is a company in the same group as the 5^th defendant.  The 5^th and 6^th defendants were added as defendants in November 2008.  As against all six defendants, the plaintiffs alleged they took part in an unlawful means conspiracy.

5.  The defendants applied to strike out the statement of claim (“the SOC”) on the grounds it did not disclose any reasonable cause of action and that it was an abuse of process.  The plaintiffs applied to amend the statement of claim.  The strike out and amendment applications were heard at the same time and Poon J gave his first decision on 15 December 2009 (“the 2009 Judgment”).

6.  By the 2009 Judgment, insofar as the 5^th and 6^th defendants are concerned, Poon J concluded that the proposed amended statement of claim (“the ASOC”)[2] did not disclose a reasonable cause of action based on breach of confidence (absent any proper plea for breach), infringement of copyright (absent the title of the 1^st plaintiff to sue and infringement by the 5^th and 6^th defendants), and unlawful means conspiracy (absent a plea of the intent to injure and that the acts complained of were carried out with such intent).  He disallowed the proposed amendment in the ASOC, struck out the relevant parts of the SOC and dismissed these claims against the 5^th and 6^th defendants.  The outcome was that all the claims against the 5^th and 6^th defendants in the SOC were dismissed and all the paragraphs on remedies and relief in the SOC which concerned them were struck out. Poon J directed the 5^th and 6^th defendants, in consultation with the 1^st to 4^th defendants, to prepare a draft order for the plaintiffs’ comment and submit the draft with comments to the court for approval.

7.  Despite protracted correspondence, the parties were unable to agree on the proper disposition of the matter following the 2009 Judgment.  So the matter went back to Poon J for disposal on paper of what had divided the parties.  Poon J gave decision No 2 on 24 February 2010 (“the 2010 Judgment”).  As regards the 5^th and 6^th defendants, Poon J held as follows:

“4. The first point is whether the 5^th and 6^th defendants remain proper defendants. As I have already struck out and dismissed all the claims against the 5^th and 6^th defendants, it must follow that the action against them is also dismissed. They cease to be proper defendants. All the references to them must be struck out from the [draft amended statement of claim].”

8.  The plaintiffs did not appeal the 2009 Judgment or the 2010 Judgment.  In June 2010, they issued a summons to re-amend the SOC.  The application was heard by Poon J in January 2011 when it was adjourned part heard and resumed only in December 2011.  The draft re-amended statement of claim (“the RASOC”) that was eventually placed before Poon J at the resumed hearing had undergone several revisions.  The plaintiffs took into account the judge’s rulings in the 2009 Judgment and the 2010 Judgment and tackled the deficiencies as identified to get their pleadings in order.  By the RASOC, the plaintiffs sought, among other things, to advance a properly pleaded claim of unlawful means conspiracy against the 1^st to 4^th defendants and the 5^th and 6^th defendants (who had ceased to be parties to the action after the 2010 Judgment).

9.  Poon J resolved the dispute regarding the application in the 2012 Judgment.  In respect of the amendments concerning the 5^th and 6^th defendants, he held that the plaintiffs had satisfied the pleading requirements of an unlawful means conspiracy.  The plea of intent to injure and of carrying out the acts with such intent was set out in the RASOC.  He ruled that the 5^th defendant is plainly a necessary and proper party to this claim even if it had not otherwise committed any independent wrong.

10.  Poon J dealt with the additional points raised by Mr Barlow, SC (who appeared for the 5^th and 6^th defendants throughout) in opposing the amendments in this way:

“17. He submitted that the plaintiffs’ present application is an abuse of process. He argued that the court had already struck out and dismissed the plaintiffs’ claim of conspiracy against the 5^th and 6^th defendants. It would be an abuse of process if they are now allowed to resurrect the claim. He referred to the well known cases such as Yat Tung Investment Co Ltd v Dao Heng Bank Ltd & Ors [1975] AC 581 and Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 in support. I need not go into the cases in detail. Plainly, what the plaintiffs have done here is not an abuse of process. I previously struck out and dismissed their claim against the 5^th and 6^th defendants purely on a pleading point. That is to say, their cause of action as then pleaded was deficient. What they do now is to formulate their claim properly. They are not trying to resurrect the exact plea, which had been struck out, without improvement. If that is what they are doing, then the principle of res judicata or abuse of process would apply. I reject Mr Barlow’s submission.

18. Mr Barlow then submitted that the present application offends the CJR imperatives enshrined in Order 1A and 1B of the Rules of the High Court. I note that the plaintiffs have taken almost 3 years to properly formulate their claims against the 5^th and 6^th defendants. The delay on any view is highly unsatisfactory. But I do not think the court should penalize the plaintiffs by striking out. It is too drastic a step to take. Any prejudice caused to the 5^th and 6^th defendants can be properly compensated by costs and if necessary, an appropriate adjustment on interest on any judgment sum that may be awarded against them after trial.”

11.  So Poon J gave leave to the plaintiffs to amend as per the RASOC and the 5^th and 6^th defendants are brought back into the action.  These defendants appeal against the 2012 Judgment contending that:

(1) each of the 2009 Judgment and the 2010 Judgment was a final judgment of the Court of First instance;

(2) the plaintiffs were entitled to appeal from each but chose not to do so;

(3) from (at the latest) the date when the period for appealing the 2010 Judgment had expired, the 5^th and 6^th defendants had an accrued right of res judicata not to be sued by the plaintiffs for the same conspiracy cause of action;

(4) for the purpose of res judicata, pleas or attempted pleas of a cause of action are to be addressed as a matter of substance rather than as a matter of exact form; and

(5) by reason of Poon J’s departure from the principles summarised above, the 2012 Judgment was erroneous in law and should be set aside.

12.  Mr Bleach, SC, who appeared with Ms Ismail for the plaintiffs, did not take issue with the propositions in (1), (2) and (4).  The crux of the matter is (3), whether res judicata would apply to bar the plaintiffs from bringing a claim of unlawful means conspiracy against the 5^th and 6^th defendants.

Res judicata – cause of action estoppel

13.  Res judicata is a generic term of which cause of action estoppel and issue estoppel are two species (R (Coke-Wallis) v Institute of Chartered Accountants [2011] 2 AC 146 at para 26).  Mr Barlow rested his arguments on cause of action estoppel alone.  He also relied on res judicata in the wider sense in Henderson v Henderson (1843) 3 Hare 100 at 114 to 115, which applies to cause of action estoppel (Arnold v National Westminster Bank Plc [1991] 2 AC 93 at 104F to 105D).  A bar created by cause of action estoppel is absolute with no exception for special circumstances (Spencer Bower & Handley, Res Judicata, 4^th ed, para 7.04).  Where this kind of estoppel applies, its effect is to bar re-litigation of the entire cause of action including reformulation of that cause of action.

14.  The term “cause of action estoppel” was coined by Diplock LJ in Thoday v Thoday [1964] P 181.  He explained this type of estoppel at 197 to 198:

“The particular type of estoppel relied upon by the husband is estoppel per rem judicatam. This is a generic term which in modern law includes two species. The first species, which I will call “cause of action estoppel”, is that which prevents a party to an action from asserting or denying, as against the other party, the existence of a particular cause of action, the non-existence or existence of which has been determined to exist, i.e., judgment was given upon it, it is said to be merged in the judgment, or, for those who prefer Latin, transit in rem judicatam. If it was determined not to exist, the unsuccessful plaintiff can no longer assert that it does; he is estopped per rem judicatam. This is simply an application of the rule of public policy expressed in the Latin maxim “Nemo debet bis vexari pro una et eadem causa”[3]. In this application of the maxim “causa” bears its literal Latin meaning.”

15.  There are a number of constituent elements in a case based on cause of action estoppel:

“(i) the decision, whether domestic or foreign, was judicial in the relevant sense; (ii) it was in fact pronounced; (iii) the tribunal had jurisdiction over the parties and the subject matter; (iv) the decision was – (a) final; (b) on the merits; (v) it determined a question raised in the later litigation; and (vi) the parties are the same or their privies or the earlier decision was in rem.” (Spencer Bower & Handley, para 1.02)

16.  Of critical importance in the present situation is whether the earlier judgments determined a question raised in the subsequent litigation which resulted in the 2012 Judgment.

17.  Further explanation on the meaning and effect of cause of action estoppel can be found in these passages in Halsbury’s Laws of England, 5^th ed, vol 12:

“1174. Meaning of ‘cause of action estoppel’. Where res judicata is pleaded by way of estoppel to an entire cause of action, rather than to a single matter in issue, it amounts to an allegation that the whole legal rights and obligations of the parties are concluded by the earlier judgment, which may have involved the determination of questions of law as well as findings of fact. To decide which questions of law and fact were determined in the earlier judgment the court is entitled to look at the judge’s reasons for his decision and his notes of the evidence, and is not restricted to the record; but as a general rule, the judge’s reasons cannot be looked at for the purpose of excluding from the scope of his formal order any matter which, according to the issues raised on the pleadings and the terms of the order itself, is included in it.”

“1175. Doctrine applicable wherever same cause of action determined on the merits. In all cases where the cause of action is really the same and has been determined on the merits, and not on some ground (such as the non-expiration of the term of credit) which has ceased to operate when the second action or claim is brought, the plea of res judicata should succeed. The doctrine applies to all matters which existed at the time of the giving of the judgment and which the party had an opportunity of bringing before the court.”

“1176. Effect of previous judgment. Although it is true that estoppel by record must be reciprocal (that is, both parties must be precluded from re-opening matters determined in a prior case), a judgment in favour of a defendant is not always as decisive in his favour on the points in issue as judgment for a claimant would be, despite the fact that it is equally conclusive of the claim brought. Where a claimant recovers judgment, it almost necessarily follows that all the issues raised by the defendant have been determined in the claimant’s favour; there must at least have been a decision on the merits. A judgment may, however, have been passed in favour of the defendant on dilatory grounds, or on one only of many alternative defences, and circumstances may have arisen entitling the claimant to judgment which were not in existence when the first claim was brought. The burden is on the defendant to show that the judgment relied on was obtained upon grounds or in circumstances which afford him a defence to the subsequent claim.” (Emphasis supplied)

18.  Mr Barlow submitted that the dismissal of the action against the 5^th and 6^th defendants by the 2010 Judgment was a summary determination of legal entitlements giving rise to a cause of action estoppel to bar re-litigation of those legal entitlements.  The fact of dismissal of the action is sufficient to give rise to a cause of action estoppel and it is unnecessary to enquire into the basis of the dismissal of the action against these defendants.  I do not think this is supported by the passages in Halsbury’s Laws of England quoted earlier and as emphasised.  To ascertain whether there was determination in the 2010 Judgment of a question raised in the subsequent litigation, it is necessary to look into the nature and effect of that earlier judgment[4].  The burden is on the 5^th and 6^th defendants to show that the 2010 Judgment was obtained upon grounds or in circumstances which afford them a defence to the subsequent claim which is advanced on the basis of the re-formulated pleading.

19.  In the 2009 Judgment, Poon J ruled that the proposed amendments in the ASOC were inadequate to disclose a reasonable cause of action against the 5^th and 6^th defendants in conspiracy by unlawful means due to the absence of a plea of the intent to injure and that the acts complained of were carried out with such intent.  The 2010 Judgment addressed the consequences of the judge’s ruling in the 2009 Judgment.  The judge made a determination on paper having considered the correspondence exchanged between the parties’ solicitors after the 2009 Judgment.  He did not consider anything other than the form of the order to give effect to the 2009 Judgment and the consequences of the adequacy or otherwise of the SOC in light of the 2009 Judgment.  He held that as he had already struck out and dismissed all the claims against the 5^th and 6^th defendants in the SOC, it must follow that the action against them should also be dismissed.  As submitted by Mr Bleach, the fact that the action was dismissed against the 5^th and 6^th defendants was not to the point, as it was a necessary consequence of the judge striking out all the claims against these defendants in the SOC.  There was no argument or consideration by the judge as to preclude the plaintiffs from advancing a properly formulated pleading of conspiracy subsequently.

20.  The 2012 Judgment addressed the adequacy of the pleading of an unlawful means conspiracy in the RASOC, with the material difference that amendments were made to correct the deficiency in the SOC by pleading intent to injure.  The judge ruled that the RASOC, with the material amendments, had satisfied the pleading requirements of a claim of unlawful means conspiracy and hence he allowed the amendments sought.

21.  In the earlier judgments, there was no determination that the 5^th and 6^th defendants are not liable to the plaintiffs for their part in the alleged unlawful means conspiracy.  As Poon J had stated, he “previously struck out and dismissed [the plaintiffs’] claim against the 5^th and 6^th defendants purely on a pleading point.”  All that was determined by the judge was that on the pleading in the SOC or the ASOC, the plaintiffs had not pleaded a reasonable cause of action of unlawful means conspiracy against the defendants and the claim against them should be struck out on that basis.  If the plaintiffs had sought to re-litigate by bringing a claim of unlawful means conspiracy against the defendants based on the SOC or the ASOC, there would be cause of action estoppel.  But that was not what happened here.  The ground for determination in the earlier judgments had ceased to operate in the subsequent litigation, when the plaintiffs re-formulated their pleading to correct the deficiency identified in the earlier judgments to get their pleadings in order.

22.  Mr Barlow sought to rely on the decision of the House of Lords in Workington Harbour & Dock Board v Trade Indemnity Co Ltd (No 2) [1938] 2 All ER 101 to support his contention that the same cause of action had been determined in the present case so as to give rise to cause of action estoppel, despite the amendment of pleading in the subsequent litigation.

23.  In Workington Harbour, the plaintiffs sued on a bond given by the defendants to guarantee performance of a contractor who had undertaken work for the plaintiffs.  The bond provided that a certificate which complied with certain criteria would prove the amount due.  In the first action, to establish the defendant’s liability under the bond, the plaintiffs relied on a certificate which they said complied with the criteria.  The first action failed because the certificate did not specify a relevant act or default as required.  The plaintiffs brought a second action relying this time not on the certificate but on the underlying facts, which they claimed amounted to breaches of contract triggering liability under the bond.  In holding that the second action failed on the basis of res judicata, Lord Atkin said at 105 to 106:

“The question will always be open whether the second action is for the same breach or breaches as the first, in which case the ordinary principles governing the plea of res judicata will prevail. In the present case, in my opinion, the plaintiffs are suing on precisely the same breaches as those in the first action, and for the same damages, though on different evidence … I am satisfied that the first action raised the issue of all the contractor’s breaches, and treated, and meant to treat, the engineers’ certificate as conclusive proof of both the breaches and the losses arising therefrom … The result is that the plaintiffs, who appear to have had a good cause of action for a considerable sum of money, fail to obtain it, and on what may appear to be technical grounds.”

24.  Mr Barlow submitted that in the subsequent litigation the plaintiffs here are suing on the same breaches and for the same damages as in the claim of unlawful means conspiracy in the first action, notwithstanding the amendment to the pleading.

25.  I do not think Workington Harbour provides support for Mr Barlow’s contention.  It is apparent from the extract of Lord Atkin’s judgment quoted above that the issues in the first action “covered every breach by the contractor and all the damage suffered by the plaintiff in consequence”, so these issues were “precisely the same as those in the second action” (see R (Coke-Wallis) v Institute of Chartered Accountants, supra at para 63).  This is not the situation in the present case.  The question determined in the earlier judgments was not the same as the question raised in the subsequent litigation determined in the 2012 Judgment.

26.  Mr Barlow relied also on these statements in para 5.28 in Spencer Bower & Handley:

“A decision dismissing one of several defendants from proceedings is final and res judicata for that defendant although the proceedings continue against others: Dundas v Waddell (1880) 5 App Cas 249. In these cases the so-called interlocutory decision is really part of a composite final decision.”

27.  The situation in Dundas v Waddell was very different.  There an issue (that eighty-one acres of land were teind free) was distinctly raised and adjudicated upon in the earlier proceedings, so the plea of res judicata provided a bar to re-litigation of the same issue in that case.

28.  For all the above reasons, I reject Mr Barlow’s arguments that cause of action estoppel would apply in the present situation.

Res judicata in the wider sense

29.  Mr Barlow also invoked res judicata in the wider sense, though he did not appear to rely on this strongly.  Where a case does not fall within the rules of res judicata, the court may still exercise its discretion under its inherent jurisdiction to prevent litigation that amounts to abuse of process to stop a party from raising an issue which was or could have been determined in earlier proceedings.  Mr Barlow argued that prior to the 2010 Judgment, the plaintiffs had every opportunity to attempt to plead a reasonable cause of action that complied with the rules of civil procedure but had not done so.  It was an abuse of process for the plaintiffs to raise in subsequent litigation matters which could and therefore should have been litigated in earlier proceedings, citing Yat Tung Investment Co Ltd v Dao Heng Bank [1975] AC 581at 590.

30.  The present state of the law on the Henderson v Henderson type of abuse is as stated in Johnson v Gore Wood [2002] 2 AC 1 at 29H to 31F, which has been followed in Hong Kong (see Chiang Lily v Secretary for Justice [2009] 6 HKC 234 at paras 55 to 66; Ko Hon Yue v Chiu Pik Yuk & Ors, FACV 8/2011, 23 February 2012 at paras 82 to 83).  Whether an action was an abuse of process as offending against the public interest in the finality of litigation should be judged broadly on the merits taking account of all the public and private interests involved and all the facts of the case.  It is wrong to take a dogmatic approach and 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.

31.  Pertinently, the Chief Justice said this in Ko Hon Yue v Chiu Pik Yuk & Ors, at para 83:

“ (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 at 31A-B.

…

(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[5]at 1490F-H. 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 at 59D (“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).

(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 have cast doubt on whether the court does indeed exercise a discretion as such: see Aldi Stores Ltd. v WSP Group Plc. [2008] 1 WLR 748, at 762C-D (para 16) and Stuart v Goldberg Linde (a firm) [2008] 1 WLR 823, at 845E-846C (para 81).  It is unnecessary for present purposes to decide whether or not a discretion is actually being exercised. The more important point to bear in mind is that an appellate court is obliged to pay sufficient regard to the decision of the court below and should be reluctant to interfere where the decision is based on the assessment or balancing of a number of factors.  Nothing in the two said cases suggests otherwise; in fact, quite the contrary.”

32.  The defendants’ objections based on the Henderson v Henderson type of abuse were fully canvassed before Poon J, who determined this in para 18 of the 2012 Judgment.  Bearing in mind the above principles, this court is obliged to pay sufficient regard to the decision of the judge, who had balanced the competing interests and came down in favour of the plaintiffs refusing to strike out their claim as re-formulated.  We should be slow to interfere with his discretion based on the assessment or balancing of a number of factors.  Besides, in granting leave to the 5^th and 6^th defendants to appeal against the 2012 Judgment, leave was refused to argue that the judge had erred in the exercise of his discretion in allowing the pleading to be re-amended, see para 53 of the Reasons for Judgment in HCMP 658/2012.

33.  I reject also the arguments of the defendants on res judicata in the wider sense.

Functus officio

34.  Mr Barlow submitted that as each of the 2009 Judgment and the 2010 Judgment was a final judgment from which the plaintiffs did not appeal, after the expiry of the relevant appeal periods, the judge became functus officio with no jurisdiction to adjudicate over the same cause of action between the same parties and with no jurisdiction to vary or reverse the 2010 Judgment.  Hence, the 2012 judgment was made without jurisdiction and is a nullity.  In support of this contention, he cited Badar Bee v Habib Merican Noordin [1909] AC 615 at 622 to 623; Isaacs v Robertson [1985] 1 AC 97 at 102H to 103E; Strachan v The Gleaner Co Ltd [2005] 1 WLR 3204 at paras 32 and 33; and Re VGM Holdings Ltd [1941] 3 All ER 417.

35.  One should first ascertain the question that was adjudicated upon in the earlier proceedings to see if it was the same as the subject of the subsequent litigation.  As stated in Badar Bee v Habib Merican Noordin at 623: “It is not competent for the Court, in the case of the same question arising between the same parties, to review a previous decision not open to appeal.  If the decision was wrong, it ought to have been appealed from in due time.”

36.  For the reasons given earlier, I am satisfied that the 2012 Judgment did not determine the same question in the earlier judgments.  The 2012 Judgment did not undermine in any way the question determined in the earlier judgments.  The arguments on functus officio must fail.

Conclusion

37.  I would therefore dismiss the appeal of the 5^th and 6^th defendants and make an order nisi they should pay the plaintiffs’ costs of the appeal, with a certificate for two counsel.

Hon Barma JA:

38.  I agree with the Judgment of Kwan JA.

39.  In my view, all that Poon J decided in the 2009 Judgment was that the SOC and ASOC did not disclose a reasonable cause of action of unlawful means conspiracy against the defendants, but not that no such reasonable cause of action could ever be pleaded.

40.  I would add that it would be preferable, where a pleading is struck out as disclosing no reasonable cause of action, for the plaintiff to be given an opportunity to put forward a viable pleading within a specified time.  If no such pleading is put forward within the time limit (which may be extended in appropriate cases), a plaintiff who later seeks to bring a claim may well be prevented from doing so, not on the grounds of res judicata, but on the basis that the new claim would be an abuse of process, particularly where no good reason could be provided for his having failed to avail himself of the opportunity to put forward the claim at the earlier stage.