CHEONG SHING LTD v. YU KWAN

HCA12021/1998 & HCA2183/2001

IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

   ACTION NO. 12021 OF 1998

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BETWEEN

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(Consolidated by the Order of
Deputy High Court Judge Muttrie dated 6 March 2002)

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D E C I S I O N

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1.  This is an application by the plaintiffs to strike out the 3^rd defendant’s (D3) counterclaim.

2.  The counterclaim comes to this court as a result of the Court of Final Appeal’s direction that it be remitted to the trial judge for disposal.

3.  This court had originally heard the entire claim in 2005 and 2006. Inter alia, this court found that :

(i)  the defence of oral joint venture was rejected;

(ii)  the plaintiffs had paid $38.76 million to the defendants as a loan.  D1, D3 and D5 were liable to repay the loan to the plaintiffs;

(iii)  $6.5 million and $4 million had already been paid by D3 to the plaintiff in partial discharge and thus the judgment was for the balance of $28.26 million; and

(iv)  D3’s counterclaim for $9 million was dismissed.

4.  D1, D3 and D5 appealed to the Court of Appeal. The appeal was dismissed.

5.  They appealed further to the Court of Final Appeal (“the CFA”). The CFA confirmed that the sum claimed, $28.26 million, was due to the plaintiffs and, specifically payable to P2. The CFA confirmed that only $28.26 (the sum actually claimed) was due because D3 had already paid over the balance of $10.5 million. The CFA determined that only D1 and D5 were liable to repay the $28.26 million but not D3. The “judgment below” was discharged and the court, in spite of being urged to do so by D3’s counsel (Mr Benjamin Chain both in the CFA and on this application), declined to enter judgment on D3’s counterclaim and ultimately remitted it to this court for “disposal”.

6.  The basis of D3’s counterclaim has never varied. In it he claims that he lent $6.5 million to P3, Mr Yu. He also claims that $4 million was extracted from him by representatives of P1 by duress whilst he was on a visit to Xian in China. He admits that $1.5 million was paid to him by Mr Yu therefore counterclaims the balance of $9 million.

7.  In this application Mr Peter Ng, SC has relied, inter alia, on two important extracts from the CFA judgment. They are :

“But Minshen Hong Kong is not out of pocket to the tune of $38.76 million.  Its claim has always been for $28.26 million, having received the two sums mentioned in para. 31 above.  Any claim on the basis of unjust enrichment must then be confined to the sum of $28.26 million, leaving it to the party who had partially relieved Mr Lo of his personal liability to seek repayment from him.”  [Emphasis added]

8.  The message here is clear. P2 is entitled to the return of $28.26 million. $10.5 million having been already paid “leaving it to the party who had partially relieved Mr Lo of his personal liability (namely D3) to seek repayment from him” (namely Mr Lo). There is no suggestion that any repayment could come from the plaintiffs.

9.  Secondly, a little later in the judgment the CFA said :

“Mr Chain, counsel for Mr Kong, submits that if this Court should conclude that the $38.76 million was not a loan, we should then give judgment on his counterclaim and order repayment of the two sums referred to in para. 31 above.  In his pleadings the $6.5 million was said to be a loan to Mr Yu made in early 1998, and the $4 million was said to be money extracted from him by duress in August 1998.  The judge had made no findings with regard to those two sums upon which this Court, in its appellate capacity, can act.  Whether Mr Kong has some claim by way of subrogation against Mr Lo in consequence of the judgment of this Court is not something which requires our consideration.”  [Emphasis added]

10.  Thus, in the context of dealing with Mr Chain’s submission (to the CFA) that judgment be entered on D3’s counterclaim, the court said that because the court at first instance found it unnecessary to deal with the merits of the counterclaim (it having found for the plaintiffs, as did the CFA). There were no findings in relation to D3’s counterclaim upon which the CFA could act. It was not being said that there were no findings at all by the court at first instance in relation to the two sums. Plainly there had been; findings which supported the plaintiffs’ case, findings which were not disturbed by the CFA.

11.  The Court of First Instance’s judgment (including the dismissal of the counterclaim made on the basis that the plaintiffs had been successful), was discharged by the CFA. It now therefore remains for this court to “dispose” of it as directed by the CFA.

12.  Mr Chain submits on this application, and I agree, that I should proceed on the basis that the CFA judgment was the judgment given at first instance and deal with the counterclaim accordingly.

13.  The position therefore is that :

i) D1 and D5 were unjustly enriched to the extent of $38.76 million;

ii) D3 is excluded as a party to the unjust enrichment (as was D4 at the original trial);

iii) D1 and D5 are liable to repay $28.27 million to P2; and

iv) D1 and D5’s liability to P2 had been partially discharged by D3’s two payments totalling $10.5 million.

14.  It is agreed on all sides that P2 should receive $38.76 million. Mr Chain submits that P2 should first of all return $10.5 million to D3 and then claim the same sum from D1 and D5. Mr Ng submits that D3 has no claim against P2 for the return of the money and should simply claim for it against D1 and D5 (as mooted by the CFA judgment).

15.  I agree that D3 has no claim against P2 arising out of the CFA judgment. Firstly the two limbs of D3’s pleaded counterclaim have been rejected by three courts. Secondly, the undisturbed findings on the evidence are consisted with legitimate payments.

16.  The only glimmer of a counterclaim which remains is based on the argument that the Court of First Instance determined that the transaction was proved to have been a loan whereas the CFA did not support the finding of a loan but found instead that D1 and D5 had been unjustly enriched by the plaintiffs. Mr Chain therefore submits that if it was not a loan he is entitled to revive his counterclaim ab initio.

17.  I do not agree. I agree with Mr Ng that to permit D3 to do so would be an abuse of process. It would permit D3 to relitigate two issues upon which he has been unsuccessful at three different previous levels.

18.  Were the counterclaim to be relitigated, as pleaded, D3 would be asking this court to conclude, on all the evidence which has already been heard, that the $6.5 million to P3 was a loan and the $4 was extracted by duress. This would amount to a reversal of previous findings, findings which have been confirmed. In my judgment this offends the doctrine of res judicata and would be an abuse of process.

19.  Res judicata is defined in Spencer Bowen, Turner and Handley’s text as follows :

“This doctrine, res judicata, is not a rule of evidence but one of substantive law, for which the underlying public policy is the interest of the community in the termination of disputes and the finality of judicial decisions and, further, the need for individuals to be protected from vexatious multiplicity of suits.  It arises where a claim has previously been finally determined between the parties, or their privies, by a court of competent jurisdiction and the same issue falls directly in question in subsequent proceedings (cause of action estoppel) or where the issue has been determined by such a court as a necessary step in reaching judgment in case between those parties or their privies (issue estoppel).”

20.  Given D3’s obvious reluctance to go cap in hand to D1 for the return of his money it is not difficult to foresee the multiplicity of applications which would arise if this court permitted D3 to seek repayment by the route proposed by him. It would involve applications to amend pleadings on both sides, applications to re-instate D1 and D5 into the litigation, application to oppose all of the above, applications to rehear parts of the evidence, legal arguments from all parties concerning, inter alia, issue estoppel and limitation periods.

21.  This would amount to a “vexatious multiplicity of suits” which, in my judgment, is neither permissible nor justified. It is not permissible because it would be an abuse of process and it is not justified because it is bound to fail.

22.  I make an order in terms of the plaintiffs’ summons dated 4 February 2010 that D3’s re-amended counterclaim be struck out because it discloses no reasonable cause of action and that it is vexatious and an abuse of process. The counterclaim is dismissed with costs including the costs of this application to be taxed if not agreed.