HEALTHY LIVING PRODUCTS INTERNATIONAL LTD AND ANOTHER v. MURRAY ALASTAIR ELLIOT

HCA 1463/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1463 OF 2009

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D E C I S I O N

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1.  This is an application by the defendant (“Elliot”) to strike out the statement of claim, dismiss the action and vacate the registration of the amended writ of summons from the Land Registry.

2.  Elliot relies on Order 18, rule 19(1) of the Rules of the High Court.  He says that the statement of claim (a) discloses no reasonable cause of action, or (b) it is scandalous, frivolous or vexatious, or (c) it may prejudice, embarrass or delay a fair trial of the action, or (d) it is otherwise an abuse of the process of the court.  He also relies on the inherent jurisdiction of the court.

3.  The ground for the striking-out is res judicata.  Elliot says that this is the third time that he is being sued by the 1st plaintiff (“Healthy Living”) and those associated with it, including the 2nd plaintiff (“Chan”).  The subject matter of this action is a property at Lot No. 215 in Demarcation District 219, 56, Hing Keng Shek, Sai Kung, the New Territories.  Healthy Living used to be the registered owner of the property.  Chan was and is its director.  The property had been assigned to Elliot on 2 August 2006 pursuant to an order of Deputy Judge Gill made on 19 July 2006 in HCA3202/2003 (“the first action”).

4.  Healthy Living in this action seeks to obtain declarations, among other matters, that the assignment to Elliot is void and an order for the return of the property and damages to be assessed.  Chan seeks damages for mental distress, physical discomfort and inconvenience caused by Elliot’s breach of the formal agreement for the sale and purchase of the property and damages for infliction of emotional distress. 

The Statement of Claim

5.  Healthy Living and Chan pleaded that Healthy Living is Chan’s “self-owned company” and the property was purchased under Healthy Living’s name for Chan’s family, the directors and shareholders of Nu Life International (“Nu Life Int’l”) and Chan and her daughter (paragraphs 31(vi), (ix) and (xvi)).

6.  By a provisional agreement dated 14 June 2003 and made between Healthy Living and Elliot, Healthy Living agreed to sell the property to Elliot for $8,830,000.  The provisional agreement was signed by Chan and her son, Khan Jawid Iqbal (“Khan Jawid”) on behalf of Healthy Living. Khan Jawid was also a director of Healthy Living.  Chan then on behalf of Healthy Living signed a formal sale and purchase agreement with Elliot on 26 June 2003.

7.  Healthy Living and Chan alleged in this action that immediately before the signing of the formal agreement, Elliot was told through his wife that Chan had no authority to sign the formal agreement singly on behalf of Healthy Living.  Despite this, Elliot still procured Chan to sign the formal agreement for Healthy Living.  Chan and Healthy Living thus pleaded that the formal agreement was not binding on Healthy Living. 

8.  Furthermore, Elliot, in disregard of his oral promise to Chan’s daughter given on 21 June to back out from the transaction and without waiting for the return of Khan Jawid to participate in the matter, procured the registration of the formal agreement at the Land Registry against the property. 

9.  Healthy Living and Chan further pleaded that Chan at the material time was in frail physical condition and did not have the necessary mental capacity to enter into the formal agreement, and Elliot was fully aware of her conditions.

10.  Healthy Living and Chan further pleaded that Chan entered into the formal agreement as a result of some misrepresentations made to her by Elliot through his estate agent, one Miss Lau, to the effect that Chan’s signature would not make the formal agreement valid or binding and that Elliot would not register this agreement at the Land Registry before it was signed by Khan Jawid. 

11.  Healthy Living and Chan also pleaded that the above matters constituted undue influence by Elliot on Chan.

12.  Healthy Living and Chan then pleaded that Elliot had breached the formal agreement in failing to tender the balance of the purchase price at $7,947,000 on 25 August 2003, the date of completion, and Elliot’s repudiation of the formal agreement was accepted by Healthy Living. Healthy Living then claimed loss and damage from Elliot.  Such loss and damage are basically the legal fees incurred in previous legal proceedings referred to below.

13.  Chan also claimed loss and damage flowing from Elliot’s breach of the formal agreement.  Chan pleaded that Elliot’s repudiatory breach caused frustration to her.  The previous legal proceedings brought by Elliot herein also caused her anxiety, mental and emotional distress, physical discomfort and inconvenience.

The First Action: HCA3202/2003

14.  As mentioned above, Healthy Living entered into the provisional agreement with Elliot on 14 June 2003.  Chan and her son, Khan Jawid, signed for Healthy Living.  Pursuant to the provisional agreement, Healthy Living and Elliot made a formal agreement on 26 June 2003.  Chan signed the formal agreement alone on behalf of Healthy Living.  The completion day was fixed on 25 August 2003. 

15.  However, on 21 July, the then solicitors of Healthy Living informed the solicitors of Elliot that there were illegal structures in the property.  That did not deter Elliot.  On 6 August 2003, Healthy Living’s solicitors further wrote to Elliot’s solicitors, alleging that Nu Life Int’l had paid the down payment and the mortgage instalments for the purchase of the property by Healthy Living.  Hence, Nu Life Int’l was the beneficial owner of the property.  Healthy Living’s solicitors suggested returning the deposit to Elliot and cancelling the formal agreement.  This was refused by Elliot.

16.  Then another firm of solicitors, which represented one Nu Life International (Hong Kong) Limited (“Nu Life HK”), wrote to Elliot’s solicitors on 12 August and alleged that this company had from time to time transferred money into the account of Healthy Living to meet the monthly mortgage instalments.  Hence, this company had an equitable interest in the property and it was objecting to the sale of the property to Elliot. Elliot was still undeterred. 

17.  Healthy Living did not complete on 25 August, and Elliot issued the first action on the next day.  Nu Life HK and Khan Jawid were added as the 2nd and 3rd defendants in this action on 7 November.

18.  Healthy Living in its re-re-re-amended defence and counterclaim pleaded that the property was acquired by Nu Life Int’l through Healthy Living and it was held by Healthy Living as trustee for Nu Life Int’l.  Nu Life HK was then incorporated on 29 October 1999 to take over from Nu Life Int’l its business and beneficial interest in the property.  Khan Jawid was a paid director of Nu Life HK.  It further pleaded that Khan Jawid had, before signing the provisional agreement, told the estate agent, Miss Lau, that Healthy Living needed an authorisation to sell the property.  The deal was then cancelled with Elliot’s agreement on 21 June 2003 because Healthy Living could not obtain the authorisation.  

19.  Healthy Living also pleaded that prior to the making of the provisional agreement, Elliot was already aware of or put on enquiry that the property was subject to the beneficial interest owned by Nu Life HK.  However, Elliot’s disappointment caused by the cancellation motivated Healthy Living to agree with Elliot to still proceed with the formal agreement subject to Healthy Living obtaining the authorisation to sell.  Nevertheless, they agreed that the provisional agreement and formal agreement would still have to be cancelled if the authorisation was not forthcoming.

20.  Healthy Living then ascertained on or about 24 June and then also told Elliot that no authorisation would be given, and the provisional agreement was cancelled on the same day.  However, Healthy Living went on to plead that it was upon the agreement to proceed subject to obtaining authorisation and the ascertainment on about 24 June that no authorisation would be given that Chan on about 26 June on behalf of Healthy Living entered into the formal agreement with Elliot, and Elliot paid the further deposit of $383,000 to Healthy Living.

21.  This appears to contradict the earlier part of the defence which pleaded that the provisional agreement had been cancelled on or about 24 June.  Nevertheless, Healthy Living then pleaded that for these reasons, it was never the intention of Healthy Living and Elliot to complete the sale and purchase of the property if Healthy Living could not obtain the authorisation.

22.  Healthy Living then pleaded that Elliot had refused the suggestion of Healthy Living’s solicitors made by letter of 6 August to have the sale and purchase cancelled and the deposit returned to him.  He insisted on completion.  However, on 25 August 2003, Elliot failed to tender the balance of the purchase price and had repudiated the formal agreement.  Healthy Living then forfeited the deposit and counterclaim for the deficiency in price below the purchase price.

23.  The matters pleaded in the re-amended defence of Nu Life HK are similar to those in the re-re-re-amended defence and counterclaim of Healthy Living.  The re-re-amended defence of Khan Jawid is also the same as the re-re-re-amended defence and counterclaim of Healthy Living.

24.  Elliot in his reply relied upon section 5 of the Conveyancing and Property Ordinance, Cap. 219 which provided that no equitable interest in land can be created or disposed of except by writing signed by the person creating or disposing of the same.  There is no instrument in writing registered at the Land Registry recording the transfer of equitable interest in the property by Nu Life Int’l to Nu Life HK.  Hence, by section 3 of the Land Registration Ordinance, Cap. 128, which provided that any instrument that may affect any parcels of ground, if not registered at the Land Registry, shall be null and void as against any subsequent bona fide purchaser, the interest of Nu Life HK in the property, if any, was null and void.

25.  It appears that Healthy Living, Nu Life HK and Khan Jawid have pleaded Elliot’s knowledge of the equitable interest of Nu Life HK in the property so as to make Elliot not a bona fide purchaser as there is this plea in the defence of the three defendants to the effect that Elliot was aware or ought to have known of the beneficial interest of Nu Life HK in the property.

26.  The trial of the first action was then fixed to commence on 1 March 2006.  The first PTR took place on 13 January 2006. There was a second PTR on Monday, 23 January 2006.  At the end of the business hours on the Saturday before that, the solicitors for Healthy Living and Khan Jawid served a summons on Elliot’s solicitors, seeking to amend their defences and file fresh evidence.  The substances of the proposed amendments were that there had been duress and undue influence on Chan by the estate agent employed by Elliot and Healthy Living.  They also sought to plead that Chan was of unsound mind and not fit to give her consent at the time.

27.  The application to amend was dismissed by Deputy High Court Judge Gill.  The learned judge said the proposed amendments were late and substantial.  The defence in the proposed amendments was known well before a few weeks before the trial.  There was no evidence to explain the delay.  The proposed amendments were also prejudicial to Elliot.  If the proposed amendments were allowed, the trial was unlikely to proceed on the due day. The application to amend and, consequentially, the applications to file medical reports on Chan and new witness statements were all dismissed.

28.  Healthy Living and Khan Jawid appealed.  But the appeal was dismissed on 24 February 2006 by the Court of Appeal.  Rogers VP said in para 9 of the judgment:

“…  However, having been taken through the various documents, including the affidavits which were filed in the Order 14 proceedings and one of the witness statements, the more that I was taken through them, the more I saw that there was no justification for any delay.  There is little justification that I can see for raising these matters now.  The evidence, at best, amounts to some high-pressure salesmanship on the part of the estate agent but no more.  The evidence shows, quite clearly, as far as I can see, that Madam Chan was in control of her faculties at the time.  She may have wanted to rid herself of a “salesman with a foot in the door”, and the 3^rd defendant may have been annoyed about the price obtained for the house and that consternation was expressed, no doubt, at the time when he actually signed the provisional sale and purchase agreement.  But this unfortunately does not, to my mind, amount to duress, nor does it begin to establish that Madam Chan was of unsound mind.”

29.  The first action then proceeded to trial before Deputy Judge Gill on 6 March 2006, having been adjourned from 1 March.  Chan made a witness statement for Healthy Living, Nu Life HK and Khan Jawid and gave evidence for them at the trial.

30.  The learned judge found in favour of Elliot.  He accepted that Nu Life Int’l owned the beneficial interest of the property, but decided that such interest had not passed to Nu Life HK.  The learned judge also found that Elliot had no actual or constructive notice of the interest of Nu Life Int’l or Nu Life HK until the receipt of the letter of 6 August 2003 from Healthy Living’s solicitors.  The learned judge also found in favour of Elliot on the other matters in dispute. He ordered specific performance of the sale and purchase by Healthy Living and dismissed the counterclaim.

31.  Healthy Living and Nu Life HK lodged an appeal against the judgment, but the appeal was dismissed by consent on 2 April 2007.

Second Action: HCA1157/2006

32.  On 29 May 2006, Nu Life Int’l started the second action against Healthy Living and Elliot.  Nu Life Int’l claimed that it was the owner of the beneficial interest of the property and Healthy Living was holding the property as its trustee.  It relied on the findings of Deputy Judge Gill in his judgment in the first action.  It also claimed that Elliot was aware of this when notified by the letter dated 6 August 2003 of Healthy Living’s solicitors.  It claimed that Healthy Living and Elliot should jointly convey the property to it.

33.  Elliot applied to strike out this action on the ground of res judicata.  The matter was before Deputy Judge Gill again.  The learned judge gave his determination on 12 September 2007.  He referred to the conduct of the first action.  Nu Life HK and Nu Life Int’l had the same beneficial shareholders and directors.  The learned judge took the view that those in control of the two companies had embarked on a considered strategy to use Nu Life HK to claim the beneficial interest in the property in the first action, which strategy was supported by Healthy Living and Khan Jawid.  The first action called for a determination of which of the competing equities of Elliot and Nu Life HK had priority.  Nu Life Int’l should have known about it and should have applied to join as a defendant to provide an alternative defence.  It chose not to do so.  The learned judge therefore held that the second action was an abuse of process by virtue of the extension of the doctrine of res judicata.  He struck out the action with costs to Elliot.

34.  Before the second action was struck out on 12 September 2007, Chan had on behalf of Healthy Living already assigned the property to Elliot on 2 August 2006.  The assignment was, however, subject to the second action.

Analysis and Decision

35.  This action is the third claim on the property. It is brought by Healthy Living and Chan.  I have already summarised above the grounds pleaded in the statement of claim.  The main allegation is that Healthy Living held the property on trust for Chan’s family, the shareholders and directors of Nu Life Int’l and Chan and her daughter.  This claim is not the same claim as made by Nu Life Int’l in the second action where Nu Life Int’l alone claimed the beneficial interest in the property.

36.  Healthy Living and Chan further pleaded in this action that Chan had no authority to sign the formal agreement and Elliot had been told about this.  Elliot had registered the formal agreement in breach of his promise.  Chan also did not have the necessary mental capacity to enter into the formal agreement, and Elliot was aware of it.  There was also misrepresentation and undue influence exercised on Chan which vitiated the formal agreement.  There was also the argument that Elliot had breached the formal agreement by failing to pay the balance of the purchase price on the completion day.

37.  It is the case of Chan and Healthy Living that Healthy Living is Chan’s company.  Chan also gave evidence for the defendants at the trial of the first action.  It is therefore clear that Chan could have applied to be joined as a defendant in the first action and put in her counterclaim there.  It is obviously her considered decision not to do so.

38.  For the doctrine of res judicata in the wider sense, I quote here the judgment of Lord Kilbrandon in Yat Tung Investment Co. Limited v Dao Heng Bank Limited [1975] AC581 at 590: 

“… But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings. The locus classicus of that aspect of res judicata is the judgment of Wigram VC in Henderson v Henderson (1843) 3 Hare 100, 115 where the judge says:

‘Where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward only because they have, from negligence, inadvertence or even accident, omitted part of their case.  The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.’”

The shutting-out of a ‘subject of litigation’-a power which no court should exercise but after a scrupulous examination of all the circumstances-is limited to cases where reasonable diligence would have caused a matter to be earlier raised; moreover, although negligence, inadvertence or even accident will not suffice to excuse, nevertheless ‘special circumstances’ are reserved in case justice should be found to require the non-application of the rule.” 

39.  The Vice Chancellor’s phrase “every point which properly belonged to the subject of litigation” was expanded in Greenhalgh v Mallard [1947] 2 All ER 255, 257 by Somervell LJ:

“Res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but that it covers issues or facts which are so clearly part of the subject-matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them.”

40.  I also refer to the judgment of Cheung JA in Ngai Few Fung v Cheung Kwai Heung [2008] 2 HKC 111 at para 16 and 17:

“16. In Johnson v Gore Wood & Co. (a firm) [2001] 2 WLR 72 the House of Lords explained the rationale behind the Henderson ‘abuse of process’ principle:

(1) The principle is to serve public interest in that there should be finality in litigation and that a party should not be twice vexed in the same matter.

(2) This is reinforced by the current emphasis on efficiency and economy on the conduct of litigation, in the interests of the parties and the public as a whole.

(3) The onus is on the party alleging abuse.

(4) The bringing of a claim or the raising of the defence in later proceedings may, without more, amount to abuse if the court is satisfied that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.

(5) It is, however, not necessary, before abuse may be found, to identify any additional elements such as a collateral attack on a previous decision or some dishonesty. But where those elements are present, the later proceedings will be much more obviously abusive.

(6) There will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. Per Lord Bingham of Cornhill at p 90.

17. Lord Bingham, however, emphasised this:

‘It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so far as to render the raising of it in later proceedings necessarily abusive.  That 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.’”

41.  Mr Hui, counsel for Healthy Living and Chan, does not dispute the legal doctrine.  He, however, submitted that Chan is not the only shareholder and director of Healthy Living.  Healthy Living is a legal person in its own right.  Therefore, there is no sufficient degree of identity between her and Healthy Living.

42.  I disagree.  Though Chan is not the only shareholder and director of Healthy Living, the only other director is her son.  She and her son signed the provisional agreement and she signed the formal agreement.  She now says that Healthy Living is her company and it held the property for her family, herself, her daughter and the shareholders and directors of Nu Life Int’l.  In other words, Healthy Living is her vehicle to hold the property for the benefit of her, her family and others.  In this scenario, there is certainly a sufficient degree of identification between her and Healthy Living so that the decision in the first action should be binding on her in this action.

43.  Mr Hui also submitted that the defendants in the first action could not have amended their defence to plead duress and undue influence on Chan and to adduce the two medical reports by Dr Benjamin Lai on Chan dated 3 January and 10 January 2006.  Dr Lai in these reports was of the opinion that Chan was mentally not competent to sign the formal agreement.

44.  He further submitted that this question of capacity was highly relevant as Chan was the sole signatory of the formal agreement.  Healthy Living had tried its best in the first action to amend the pleadings and to adduce the medical evidence but failed.  Hence, he submitted that Healthy Living and Chan should be allowed to run these arguments again in this action. 

45.  Alternatively, Mr Hui submitted that there are special circumstances in the present case that should permit Chan to run this action.  She was not legally represented and had not obtained legal advice. She also had a long history of medical problems as detailed in the medical reports.  Account should also be taken of whether she could have expressed herself and described what had happened in the sale and purchase of the property.

46.  Despite Mr Hui’s valiant efforts, I do not accept his arguments.  The issues of duress and undue influence and the medical evidence were not allowed to be ventilated not because they were irrelevant, but because they were raised too late.  To try to raise these issues again in this action is to circumvent the decision of Deputy Judge Gill which was affirmed by the Court of Appeal.  It is an abuse of process.

47.  What Chan and Healthy Living should have done was to apply for Chan to be joined as a defendant in the first action, to raise the arguments of duress and undue influence and to procure and then adduce the medical evidence on Chan all in good time so that Elliot could properly prepare his case to meet them.  The fact that Healthy Living and Khan Jawid could not have made use of these arguments and Chan’s medical condition in their defence was only because they were too late, and that would not render the doctrine of res judicata any less applicable to these matters. Since these matters should have been raised and raised in good time in the first action, they cannot be raised in this action now.

48.  Regarding the argument that Chan had no legal advice, this ignores the fact that her son and her company, Healthy Living, were all along legally represented.  She had also given evidence as a witness in the first action.  The sale and purchase of the property was a matter that she and her son had tremendous interests in.  She was not a distant or independent party to the matter.  I do not accept that she was so ignorant and had not been taken care of by her son and her son’s advisers.

49.  Regarding the argument that Elliot had repudiated the formal agreement by failing to tender the balance of purchase price on the completion day, that argument has also been dismissed by Deputy Judge Gill in the first action who preferred the evidence of Elliot. 

50.  I therefore strike out the claims of Healthy Living and Chan for the various declarations and for the return of the property to Healthy Living and damages.

51.  Regarding the claims for damages by Chan, I accept the submissions of Mr Lee, counsel for the defendant, that there can be no claim for damages for frustration, mental anxiety, emotional distress, physical discomfort or inconvenience caused by an alleged breach of a contract like the subject contract for sale and purchase of the property (Johnson v Gore Wood & Co. [2002] 2 AC1 at page 37B to 38E).

52.  Regarding the claim for damages for the tort of intentional or reckless infliction of emotional distress, since Elliot has succeeded in the first action and obtained the conveyance of the property pursuant to the formal agreement, there is no basis for this claim either. 

53.  I therefore strike out Chan’s claims too.

54.  I also dismiss this action and order that the registration of the amended writ of summons against the property at the Land Registry be vacated. 

55.  I also make a costs order nisi that the plaintiffs do pay the costs of the defendant.  Since this is the third time that Elliot is vexed with the same subject matter, I order that the costs be taxed on the indemnity scale and be summarily assessed by me at a 9.30 hearing to be fixed outside the next 14 days unless the parties can agree the amount within the next 14 days.