中國精密機械進出口有限公司 v. BEASON TRADING COMPANY LTD

HCMP 2867/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEDDINGS NO 2867 OF 2012

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J U D G M E N T

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Introduction

1.  The parties’ dispute concerned the beneficial ownership of a property in Kenny Court on Kennedy Street Hong Kong (“Property”).

2.  The plaintiff company (“P”) issued an originating summons under HCMP 2867 of 2012 (“1^st Action”) against the defendant company (“D”) on 21 December 2012, seeking, among other things, declaratory reliefs including a declaration that P was/is the beneficial owner of the Property.

3.  Subsequently, on 23 April 2013, P issued a writ under HCA 673 of 2013 (“2^nd Action”) against D as 1^st defendant, and two of the directors of D, namely Li Cheng Ping (“Li”) and Li’s wife Wu Li Hua (“Wu”) respectively as 2^nd and 3^rd defendants, seeking, among other things, various injunctive reliefs.

4.  On 28 January 2014, P issued the notice of appointment to hear the originating summons in the 1^st Action (“Notice of Appointment”), the hearing of which was fixed on 18 February 2014.

5.  About a week before the hearing, on 10 February 2014, D issued a summons under O 18 r 19 and inherent jurisdiction in the 1^st Action for the 1^st Action to be struck out or alternatively permanently stayed (“Striking Out Summons”).

6.  This was followed by P’s summons issued on 14 February 2014 for the 2^nd Action to be consolidated with the 1^st Action (“Consolidation Summons”).

7.  At the hearing on 18 February 2014, DHCJ Sakhrani ordered, among other things, that the Notice of Appointment, the Striking Out Summons, and the Consolidation Summons all be adjourned and fixed for hearing at the same time.

Brief Background

8.  P was/is a company incorporated in June 1980 under the laws of Mainland China. 

9.  According to P, since about 1989, P and a company in Hong Kong called Bibond Limited (“Bibond”) entered into a joint venture trading business, and that for such purpose they jointly set up D, a limited company incorporated under the laws of Hong Kong, on 30 August 1989.

10.  D denied that there was any such joint venture as alleged by P.  According to Li, it was him who set up and controlled Bibond, and that through Bibond’s trading business, Li met one Cheung Tung (“Cheung”) and one An Gui Lan (“An”), both Mainland Chinese living in Hong Kong at the time and working for a company called Tai Seng Trading Company[1] (“Tai Seng”) in Hong Kong.  It was Li’s case that Bibond and Tai Seng had entered into a joint investment agreement and that D was then set up for such purpose.  

11.  What was not in dispute was that at the time when D was incorporated, the 2 subscriber’s shares were issued to Li and Cheung as founders, and after incorporation Li and Cheung were each issued 4,999 shares, totaling 5,000 shares of HK$1 each.  There were 4 directors, Cheung, An, Li, and Wu.

12.  It was P’s case that Cheung and An were nominees for P, while Li and Wu nominees for Bibond.

13.  According to Li, sums were then invested by Tai Seng and there were also loans from Tai Seng to Bibond.  It was further Li’s case that as a result of negotiations between him and Cheung, all loans advanced by Tai Seng to Bibond would be treated as a loan advanced by Tai Seng to D, and that part of the loan had been repaid by D. 

14.  Further, according to Li, the Property was acquired by D  upon the request of Cheung and An, as living quarters for D’s female  personnel, including An and one Ko Kwai Ching (“Ko”), D’s then deputy general manager who had been seconded from the Tai Seng to D. 

15.  The date of assignment of the Property was 26 September 1990 and the purchase price stated therein was HK$1,275,000.  There were additional miscellaneous costs and disbursements, and the total acquisition costs were higher.  The parties gave different amounts for the total costs of acquisition.

16.  P and D also gave different versions as to how the acquisition costs were paid.  According to P, Li had paid for the acquisition costs on behalf of P.  However, according to Li, the majority of the acquisition costs were paid by An as a loan from director to D, and the balance was provided by D.  Further, Li said between December 1991 and 31 December 1993, the amount of the loan had been repaid to An.

17.  P relied on an agreement dated 10 August 1994 (“Agreement”) signed by one Yang Pei Xin (“Yang”) on behalf of P, and Li on behalf of Bibond and D[2] to the effect that Li acknowledged owing P a total of US $950,000, out of which a sum of US $175,152.20 was to be deducted.  The sum of US $175, 152.20 was stated to be the equivalent of the amount of HK $1,366,187.50, which was said to be the total acquisition costs for the Property Li had paid on behalf of P.  Further, it was stated in the Agreement that the Property was bought in D’s name on behalf of P and that both parties agreed to transfer as soon as possible the legal title of the Property to P’s subsidiary in Hong Kong, Welldo Strong Ltd.

18.  Li, however, stated that he did not sign the Agreement and that the contents of the Agreement were the result of forgery[3].

19.  Cheung later passed away in 1997.  Yang and An subsequently retired.

20.  It would appear that D then became dormant and ceased its business on 31 December 1998.

21.  D’s case was that after completion of the purchase of the Property on 26 September 1990 until June 1992, the Property was used by D as its female staff quarters and all utilities were paid by D.  D did not dispute that between June 1992 and February 2013, and notwithstanding the cessation of business, Ko was the one who was allowed to occupy the Property as her residence to the exclusion of other female staff and all utilities were paid by Ko.

22.  P’s case was that at all material times, there were only two sets of keys to the Property, one held by P’s staff and the other one kept in the safe in P’s office.

23.  P later issued the 1^st Action on 21 December 2012.

24.  Then in about February 2013, D resorted to self-help in breaking open the lock to the Property and gaining possession of the Property. 

25.  This led P to issuing the 2^nd Action on 23 April 2013.

The 1^st Action

26.  The originating summons is based on P’s assertion of beneficial ownership over the Property and the orders sought in the originating summons in the 1^st Action are, briefly:

(i)     A declaration that the Property is held by D upon trust for P absolutely;

(ii)    A declaration that P is the beneficial owner of the Property;

(iii)   An order that D do execute all necessary documents to transfer the legal title to P;

(iv)   An order that if D fails to comply with an order in (iii) above, P’s solicitor be nominated by court to execute such documents for the transfer to P.

27.  To support the originating summons, a Mr Kiu Tung Sing (“Kiu”), an authorized representative of P, had filed two affirmations, the 2^nd one being in reply to Li’s 1^st affirmation.

The 2^nd Action

28.  The claim in the 2^nd Action was based on breach of trust and/or fiduciary duty by D and trespass by Li and Wu and the reliefs sought in the endorsed statement of claim on the writ in the 2^nd Action are, briefly:

(i)     An injunction to compel D and/or Li and/or Wu to allow P unlimited and unrestricted access to the Property;

(ii)    An injunction to restrain the 3 defendants from unlawfully preventing P from entering into and/or having access and/or enjoying possession of the Property;

(iii)    An injunction to restrain the 3 defendants from unlawfully preventing P from having access to household items and furniture in the Property, as per the list attached to the writ (“Items”);

(iv)   An injunction to compel the 3 defendants to deliver up the Items to P;

(v)    Damages for breach of trust and/or fiduciary duty against D;

(vi)    Damages for detention and/or conversion of the items.

29.  A defence has been filed on 11 July 2013 on behalf of D, Liu and Wu.

Relevant principles applicable to the Striking Out Summons

30.  This court has power to strike out or stay pleadings under O 18 r 19 of the Rules of the High Court and also under its inherent jurisdiction.  In relation to applications under O 18 r 19 (1) (d), as pointed out in paragraph 18/19/10 of the Hong Kong Civil Procedure 2014 Vol 1, the process of the court must be used bona fide and properly and must not be abused, and the categories of conduct rendering a claim frivolous, vexatious or an abuse of the process are not closed but depend on all the relevant circumstances and for this purpose considerations of public policy and the interests of justice may be very material.

31.  Further, the court’s jurisdiction to strike out or dismiss proceedings is discretionary and is only to be exercised in plain and obvious cases.

Basis for D’s Striking Out Summons

32.  The ground which D relied on for his application was that P had been maintaining 2 legal actions against D over the same or substantially the same subject matter, namely the beneficial ownership in the Property, and that was an abuse of the legal process.

33.  D’s Counsel Mr KM Chong submitted that the appropriate order would be to strike out or stay permanently P’s 1^st Action for the following reasons:

(i)     The 1^st Action was still in the early stage of the proceedings;

(ii)    As conceded by P, there was a substantial dispute on facts which would render it inappropriate for the 1^st Action to continue without an order for the same to be treated as if begun by writ;

(iii)   But for the Striking Out Summons, P would then be allowed to maintain 2 actions, if an order in (ii) were given;

(iv)    Given the 2^nd Action was instituted later in time and as P was claiming therein, apart from beneficial interest in the Property, also other ancillary reliefs, it would be cheaper to allow the 2^nd Action to continue.

P’s competing Consolidation Summons

34.  P’s Counsel, Ms Wong, on the other hand, submitted that the causes, the reliefs sought and the parties were different in the two actions.

35.  Ms Wong accepted that the 1^st Action should continue as if it had begun by writ and sought a consolidation of the two actions, with directions given for the consolidated actions.

Discussion

36.  Mr Chong had referred this court to  the following passage of Sir J Donaldson MR in Buckland v Palmer [1984] 3 ALL E R 554 CA which was subsequently applied by the Hong Kong Court of Appeal in Choi Gain Chee & Ors v Kowloon Development Co Ltd CACV 371 of 2005 :

“The public interest in avoiding any possibility of two courts reaching inconsistent decisions on the same issue is undoubted and this alone would suggest that two actions based on the same cause of action should never be allowed. Equally clear is the public interest in there being finality in litigation and in protecting citizens from being ‘vexed’ more than once by what is really the same claim. Against this must be set the public interest in seeing that justice is done…[4]”

37.  In Buckland, the defendant’s vehicle was involved in a collision with the plaintiff’s vehicle, which was seriously damaged. A large portion of the costs of the repairs was met by the plaintiff’s insurers and the plaintiff issued the first action to sue the defendant for the uninsured balance.  The defendant paid the uninsured amount into court and the first action was stayed.  Subsequently, the plaintiff’s insurers discovered that the defendant was uninsured and the insurers then issued the second action in the name of the plaintiff to recover the costs of the repairs.  The defendant applied to strike out the second action, which was not allowed at first instance and led eventually to the appeal.  In the end, the defendant’s appeal was allowed by the Court of Appeal which ordered the second action to be struck out, without prejudice to an application to remove the stay on the first action and for leave to amend the particulars of claim in that action.

38.  In Choi Gain Chee, the dispute between the parties concerned the development of land/project.  Three plaintiffs issued the first action, the first 1^st and 2^nd plaintiffs seeking to establish beneficial/proprietary interests over the land/project and the 3^rd plaintiff seeking damages for breach of contract, and also specific performance. The claim over the beneficial/proprietary interests was struck out due to insufficient pleading of facts but the order was suspended to allow the plaintiffs to amend their statement of claim.  Their subsequent application for amendment was however dismissed.  17 months later, the 1^st and the 3^rd plaintiffs issued the second action pleading that they were the beneficial owners of the land/project, or alternatively they should have a proprietary interest.  The second action was justified on the ground that the 3^rd plaintiff’s cause of action for beneficial or proprietary interest was not pleaded, or not pleaded in the same way as the first action.

39.  The issues before the Court of Appeal were whether the 3^rd plaintiff’s claim for beneficial/proprietary interest over the land/project was arguable and whether there had been an abuse of process.  The Court came to the view that the 3^rd plaintiff’s claim was completely unarguable and found there was no justification for the 1^st and the 3^rd plaintiffs to start the second action.

40.  In the present case, Ms Wong had submitted that the two actions were not duplicitous as they were instituted on wholly separate bases and sought wholly different remedies, namely :-

(i)     The 1^st Action related to P’s assertion of beneficial ownership over the Property whereas the 2^nd Action was taken out to “vindicate” P’s possessory rights in the Property;

(ii)    The 1^st Action sought declaratory and consequential remedies to rectify a status quo that P had beneficially owned the Property since its acquisition in 1990, whereas the 2^nd Action sought to right a wrong which occurred in early 2013 by seeking injunctive reliefs;

41.  Ms Wong had referred this court to Lam Pak Cheung and Lin Zhen Lue HCMP 1364 of 2006, unreported, 8 July 2008.

42.  In Lam Pak Cheung, the plaintiff brought the first set of proceedings by originating summons against several parties including his son, claiming ownership of a company which the plaintiff and his wife established.  After failing to obtain an interlocutory injunction against his son from disposing of his interest in the company, no further steps were taken by the plaintiff in the first set of proceedings.  Then, about a year later, the plaintiff commenced another action by writ.  His son applied to strike out the first set of proceedings.  The plaintiff sought to stay his first set of proceedings pending the determination of the writ action.

43.  Fok J, as he then was, was of the view that the underlying subject matter of the two actions were the same, namely the plaintiff’s claim to ownership of a company.  It was  held in that case that (i) the two sets of proceedings were materially duplicitous and the complexity and nature of the underlying disputes between the parties were such that it was more appropriate for the issues to be framed properly by way of pleadings and to be tried accordingly, and that the proper course for the plaintiff would have been to apply for the first set of proceedings to continue as if it had been begun by writ and to seek directions for the service of pleadings[5]; (ii) whether the court should strike out or stay the original action depended on its view as to whether the plaintiff ought to have anticipated that there would be substantial disputes as to the facts which would render the originating summons procedure adopted inappropriate, and if so, it would have been likely that the court would have penalized him as to costs upon making an order under O 28 r 8, and if not, the usual costs order on an order to continue as if by writ was that the costs be in the cause[6]; (iii) on the evidence, the plaintiff should have anticipated that there would be substantial disputes as to facts, and had he applied under O 28 r 6, the court would have penalized him as to costs, and the only rational reasons for him wishing to keep the first action alive was to avoid an adverse costs order on its dismissal or discontinuance or to avoid the future risk of its being struck out for want of prosecution, and as such, his stance in having commenced two overlapping sets of proceedings against substantially the same parties and for substantially the same relief but in seeking to keep the original action alive when the more appropriate writ action was now being prosecuted, was an abuse of the court’s process, and the original action would be struck out.[7]

44.  Ms Wong did not dispute the general principles set out in Buckland but submitted that the existence of two actions arising out of the same or substantially the same subject matter would not constitute abuse per se.  Further, it was submitted by Ms Wong that the facts of the present two Actions were quite different from Buckland, Choi Gain Chee, or Lam Pak Cheung.

45.  In both Buckland and Choi Gain Chee, it was the subsequent second action which was struck out.  As has been said by Fok J, as he then was, in Lam Pak Cheung, where proceedings are in existence based on a particular cause of action, it is prima facie an abuse of process to bring a second action based on the same case of action and the latter action is liable to be struck out (emphasis added).

46.  In Buckland, the cause of action in the subsequent action was the same as the first and the relief sought was the same, except the first one was for the uninsured amount, and the subsequent one was for the insured amount.  In Choi Gain Chee, it would appear that the cause of action of the 3^rd plaintiff had already existed at the time of the first action, but it was not pleaded, and in any event, the Court of Appeal found that the 1^st and the 3^rd plaintiffs’ case was unarguable, and it was an abuse of process to issue the subsequent action.

47.  In the present case, Ms Wong submitted that the causes of action for breach of trust and/or fiduciary duty, and the act/s of trespass arose only after D’s self-help actions in February 2013, and such causes of action did not exist at the time of the 1^st Action.  Ms Wong thus submitted it could not have been an abuse of process to issue the 2^nd Action, and there was no abuse when the 1^st Action was issued.

48.  In my view, the underlying subject matter of the 1^st Action and the 2^nd Action was quite clearly the same, namely P’s claim to beneficial ownership of the Property.  Plainly, as in Lam Pak Cheung, the two actions should not proceed in parallel, and this was recognized by Ms Wong and hence the Consolidation Summons was issued.

49.  In Lam Pak Cheung, there was no application by the plaintiff under O 28 r 8, and by the plaintiff himself seeking a stay, he had “tacitly” recognized that the original action was redundant[8]. In fact, notwithstanding having served a notice to proceed after 12 months, the plaintiff took no further steps in the original action and then he commenced the subsequent writ action.

50.  Fok J had said in Lam Pak Cheung that whether he should strike out or stay the original action would depend on the view he took as to whether the plaintiff ought to have anticipated that there would be substantial disputes as to facts which would render the originating summons procedure inappropriate[9]. As mentioned earlier, it was then held that the plaintiff ought to have so anticipated and that the only rational reason for him to with to keep the original action alive was to avoid adverse costs order or to avoid future risk of its being struck out for want of prosecution.

51.  Unlike Lam Pak Cheung, I find there was no sufficient evidence before this court at this stage to show that P ought to have anticipated that there would be substantial disputes as to the facts which would render the originating summons procedure of the 1^st Action inappropriate at the time of its issue.

52.  After the issue of the originating summons, P had obtained an extension of time to file its supporting affirmation in the 1^st Action. According to Kiu’s 2^nd affirmation, soon after the issue of the originating, in February 2013, Li and Wu had gone to Beijing to meet with P’s representatives, including Kiu, at P’s office there to discuss a settlement of the matter, and Li had agreed to sign a settlement agreement after the Chinese New Year to return the Property to P but requested certain payments of his efforts in managing and maintaining the Property.  Kiu said after he returned to Hong Kong on 20 February 2013 he instructed his solicitors to prepare a draft agreement but then later Li could not be contacted and subsequently Li refused to settle[10]. 

53.  In the meantime, the sudden change of locks and the self-helped possession of the Property by D took place, and as a result thereof, P issued the 2^nd Action, which was at the same time when he filed his 1^st affirmation in the 1^st Action.  Kiu had referred to and relied on the Agreement in his 1^st affirmation.

54.  Li did not file his 1^st affirmation in opposition to the originating summons until 4 July 2013, and the earliest that it should be apparent to P that there would be substantial disputes as to the facts, particularly over the Agreement, would seem to be after Li’s 1^st affirmation was filed, which was after the issue of the 2^nd Action.

55.  In Li’s 1^st affirmation, he pointed out that it would be improper for P to proceed with the originating summons due to the serious factual disputes involved. 

56.  After Li’s 1^st affirmation, the defence in the 2^nd Action was filed by the defendants on 11 July 2013.  About two weeks later, on 26 July 2013, D’s solicitors sent a letter to P’s solicitors pointing out that P should withdraw the 1^st Action by way of consent summons with costs to the defendant, failing which D would issue an application to strike it out (“D’s Letter”)[11].  There was no reply to D’s Letter from P’s solicitors.

57.  However, both actions then seemed to come to a standstill for almost 7 months until about end of January 2014 when Kiu eventually filed his 2^nd affirmation in reply to Li’s 1^st affirmation in the 1^st Action, followed shortly thereafter by the filing of the notice of appointment for the hearing of the originating summons at about end of January 2014.  D then issued the Striking Out Summons.

58.  2 days later, P’s solicitors wrote to D’s solicitors on 12 February 2014 proposing to seek the court’s directions that the 1^st Action to continue as if begun by writ and be consolidated with the 2^nd Action (“P’s Letter”)[12].  This time, there was no response from D, which then led to P issuing the Consolidated Summons.

59.  Although it could be said that P should have made an application under O 28 r 8 earlier, as seen in P’s Letter, this could have been a matter to be canvassed at the 1^st hearing of the originating summons.  Further, even though P appeared to be seeking substantive orders in the notice of hearing, the 1^st hearing was fixed for only 15 minutes and realistically when D was clearly opposing the substantive orders, the matter would be adjourned with directions, and any O 28 r 8 directions could have been sought during that 1^st hearing and again this seemed to be what P had intended to do as in the first paragraph of P’s Letter, as P’s solicitors had referred to the then upcoming hearing.  

60.  Mr Chong pointed out that instead of issuing the 2^nd Action, P could have amended its originating summons to include its new causes of actions and reliefs/remedies.  However, D was not seeking an order that the 2^nd Action should be struck out.

61.  Mr Chong had also accepted that if the 1^st Action were to be struck out or stayed, the amended statement of claim in the 2^nd Action would need to be further amended to include all the claims and reliefs sought in the originating summons, and he indicated that D would have no objection to any further amendment.  

62.  Ms Wong submitted that the above was only indicated by Mr Chong during the hearing.  It seemed to this court that there had clearly been lack of communication between the parties’ solicitors.

63.  Having said this, in my view, the facts of the present case are different from those in Lam Pak Cheung.   I do not find that there was sufficient evidence that there had been an abuse of legal process by P.  P had made it clear that it was not seeking to continue the two actions in parallel and had proposed a way forward with a consolidation and filing of consolidated pleadings. 

64.  Having considered all the circumstances in this case, I accept Ms Wong’s submissions that the two actions are to be consolidated and will give those directions as sought in the Consolidation Summons.

Order

65.  My order is to the following effect:

(i)     D’s Striking Out Summons issued on the 10 February 2014 in the HCMP 2867 of 2012 be dismissed;

(ii)     HCA 673 of 2013 be consolidated with HCMP 2867 of 2012 ;

(iii)    In the consolidated actions, Beason Trading Company Limited shall be the 1^st defendant, Li Cheng Ping the 2^nd defendant, and Wu Li Hua the 3^rd defendant.

(iv)    P do file its consolidated statement of claim within 21 days from the date of this order;

(v)     The defendants do file their consolidated defence within 21 days thereafter;

(vi)     P do file its consolidated reply, if any, within 21 days thereafter.

66.  As for costs, although D is the unsuccessful party, I am of the view that an appropriate order will be costs of both summonses be in the cause.   This is an order nisi which shall be final after 21 days.

67.  Lastly, I would like to thank both Counsel for their helpful submissions to the court.

[1]The company seemed to be referred to as Tai Seng Co Ltd in the Joint Investment Agreement of29.06.89 but as Tai Seng Trading Company in an earlier Memorandum of Agreement of 23.03.09, but according to Li, he later discovered that no Tai Seng Co Ltd had ever existed.

[2] B: 151

[3]Para 56, Li’s 1st affirmation, BI:76

[4] At pg 558 in Buckland, and also see para 65, in Choy Gain Chee

[5] Headnote Holding (1), at pg 36

[6] Headnote Holding (2), at pg 36

[7] Headnote Holding (3), at pg 36

[8] Para 47, pg 45

[9] Para 48, pg 45

[10] Para 22, BI:47-48

[11] BII: 426

[12] BII:427