CHINA CITIC BANK INTERNATIONAL formerly known as CITIC BANK INTERNATIONAL LTD formerly known as CITIC KA WAH BANK LTD v. LI YAN HUNG AND OTHERS

HCMP 2208/2019

[2024] HKCFI 1410

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2208 OF 2019

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D E C I S I O N

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A. INTRODUCTION

1.  This is the hearing of:

(1)  the plaintiff’s application by Summons dated 30 November 2023 for leave to appeal against the Judgment of this court dated 17 November 2023 (“Judgment”) on the proposed grounds of appeal set out in the draft Notice of Appeal annexed thereto (“Draft NOA”); and

(2)  the plaintiff’s application by Summons dated 19 December 2023 to amend the Draft NOA as per the draft annexed thereto (“Amended Draft NOA”).

2.  The factual background of the case is summarised at §§7-11 of the Judgment.  In gist:

(1)  In the main action between the plaintiff and the defendants (“Main Action”), the plaintiff seeks to enforce a mortgage dated 16 October 2009 over a property registered in the 1^st defendant’s name (“Mortgage”) upon the 2^nd defendant’s default in repaying its secured indebtedness.

(2)  The 1^st defendant counterclaims for various reliefs on the purported basis that inter alia: (i) her son (“Son”) has a beneficial interest in the mortgaged property under a declaration of trust (“DT”) which binds the plaintiff and takes priority over the Mortgage; and (ii) the Mortgage should be set aside/rescinded by reason of non est factum, misrepresentation and/or undue influence.  It is important to note that the 1^st defendant’s counterclaim is mounted on two different bases: the first of which is on the premise that the Mortgage is valid, but the Son’s interest under the DT takes priority over the Mortgage.

(3)  By Summons dated 25 October 2022 (as amended on 10 March 2023), the plaintiff applied for retrospective leave to issue a Third Party Notice dated 17 February 2023 against the 2^nd third party (the “Firm”) (“TPN”) to seek an indemnity and damages on the purported basis that (i) the Firm prepared the DT for the 1^st defendant’s execution (“DT Claim”); and (ii) the 1^st defendant is able to vitiate the Mortgage in the Main Action for reasons attributable to the Firm (“Li Claim”). 

3.  By the Judgment, leave to issue the TPN was refused on the basis that (i) the DT Claim is “wholly unarguable for want of loss” (at §37); and (ii) the Li Claim is “frivolous and bound to fail” (at §44).  On any view, this was a determination of the substantive merits of the plaintiff’s intended third party claims against the Firm (“TP Claims”), and the intended third party proceedings have been wholly concluded as a result of the Judgment. 

4.  In summary, the Firm contends that leave to appeal should be refused on the basis that (i) no such leave is in fact required and this court has no jurisdiction to grant the same (see Section B below); (ii) in any event, the intended appeal has no reasonable prospect of success and is plainly unarguable (see Section C below) and there is no other reason in the interests of justice why the appeal should be heard (see Section D below).

B.  LEAVE TO APPEAL IS NOT REQUIRED

5.  Section 14(1) of the High Court Ordinance, Cap 4 (“HCO”) provides that, subject to sub-section 3 and section 14AA, an appeal shall lie as of right to the Court of Appeal from every judgment or order of the Court of First Instance in any civil cause or matter.

6.  Section 14AA(1) of the HCO makes general provisions that, except as provided by rules of court, no appeal lies to the Court of Appeal from an interlocutory judgment or order of the Court of First Instance in any civil cause or matter unless leave to appeal has been granted.

7.  Section 14AA(2) of the HCO then provides that rules of court may specify a judgment or order of any prescribed description to which section 14AA(1) does not apply and that accordingly an appeal lies as of right from the judgment or order. 

8.  Such exceptions are contained in Order 59, rule 21 of the Rules of the High Court (“RHC”).  Relevantly, rule 21(1)(a) provides that an appeal lies as of right for any “judgment or order determining in a summary way the substantive rights of a party to an action”.

9.  Order 59, rule 21(2) then sets out (non-exhaustively) a number of specific types of judgments or orders which fall within this category, such as (i) “an order striking out an action or other proceedings or a pleading or any part of the pleading under Order 18, rule 19 or under the inherent jurisdiction of the Court” (sub-paragraph (b)); and (ii) “an order dismissing or striking out an action or other proceedings for want of prosecution” (sub-paragraph (f)).

10.  In applying the provisions above, the following principles are applicable:

(1)  Whether an order is an interlocutory one within the meaning of section 14AA(1) of the HCO is a separate question from whether it falls within RHC Order 59, rule 21.  It is envisaged that there may be orders which are interlocutory and therefore prima facie require leave to appeal but which fall within rule 21 and may therefore be appealed as of right: Securities and Futures Commission v Lu Ruifeng[2022] 1 HKLRD 1349 at §31 (G Lam JA).

(2)  Whether an order falls within RHC Order 59, rule 21(1)(a) turns on what the order actually determines, rather than its collateral practical effect.  Cases where there is no decision on any issue of substantive merit between the parties do not fall within the rule, even if the effect of the decision may well spell the end of the proceedings in question: Lu Ruifeng (Ibid) at §33.

(3)  Only judgments or orders which by themselves deal with the substantive rights of a party fall within the ambit of RHC Order 59, rule 21(1)(a): Lo King Yeung v Eddie Chu Hoi Dick [2017] 4 HKLRD 723 at §§13-14 (Au J, as he then was).

(4)  The court has no jurisdiction to grant leave to appeal where no such leave is in fact required: Montgomery v Chung Cheuk Hung Hero [2018] 5 HKLRD 158 at §14 (Chow J, as he then was); Excel Concrete Ltd v The Concrete Producers Association of Hong Kong Ltd, HCA 938/2011 (unrep, 27/09/2013) at §20 (DHCJ Marlene Ng, as she then was).  This is plainly not a “tactical” stance as the matter goes to this court’s jurisdiction. 

11.  In the present case, I agree with the Firm that no leave is required to appeal against the Judgment as it is one which by itself determined the substantive rights between the plaintiff and the Firm, and is therefore appealable as of right under RHC Order 59, rule 21(1)(a):

(1)  The Judgment determined the substantive merits of the TP Claims by finding that: (i) the DT Claim is “wholly unarguable for want of loss” (at §37); and (ii) the Li Claim is “without substantial foundation and incapable of proof” and “frivolous and bound to fail” (at §44).  These are clearly findings that will give rise to Res Judicata as between the Firm and the plaintiff as to the matters necessarily determined, and the conclusions on these matters cannot be challenged in subsequent litigation between them (whether in separate proceedings or at a later stage of the same proceedings).

(2)  Further, the effect of the Judgment (and the Order dated 17 November 2023 at §2) is tantamount to a dismissal of the TP Claims (in that this court determined they are unarguable and should not be allowed to be made) and must therefore have determined the parties’ substantive rights.

(3)  The matter may also be tested this way.  If the plaintiff had issued the TPN before it served its Defence to the 1^st defendant’s Counterclaim, it would have been able to do so without leave under RHC Order 16, rule 2 and the Firm would have applied to strike out the TPN (as it did with the 1^st defendant’s Third Party Notice: Judgment at §4), rather than to oppose leave for issuance of the TPN.  This court would have struck out the TPN for the reasons stated in the Judgment, and this strike-out order would have been appealable as of right under RHC Order 59, rule 21(2)(b).  It must follow that the Judgment is also appealable as of right, for it will be illogical if leave to appeal is required when the TPN was issued after the plaintiff’s Defence to the 1^st defendant’s Counterclaim and retrospective leave was applied for and refused by the court (ie the present case), but not so when the TPN was issued before then, and subsequently struck out by the court.  The difference in timing cannot possibly affect the substance and effect of the court’s decision, which involves a determination of substantive rights under RHC Order 59, rule 21(1)(a).

12.  The plaintiff contends that the Judgment does not fall within RHC Order 59, rule 21(1)(a) by reason that the Judgment is interlocutory.  This is however beside the point.  As held in Lu Ruifeng (Supra) , a judgment or order may be interlocutory but nevertheless fall within RHC Order 59, rule 21 and thus appealable as of right: see paragraph 10(1) above. 

13.  Similarly, the plaintiff’s reliance on the “application test” is misplaced: the “application test” determines whether a judgment is final or interlocutory for the purpose of section 14AA(1) of the HCO and bears no relevance to the operation of RHC Order 59, rule 21(1)(a), which is applicable even to interlocutory judgments. 

14.  In the premises, I hold that this court has no jurisdiction to grant leave to appeal in respect of the Judgment, and the plaintiff’s applications fall to be dismissed in limine.

C.  THE INTENDED APPEAL HAS NO REASONABLE PROSPECT OF SUCCESS AND IS PLAINLY UNARGUABLE

15.  Apart from the fact that the plaintiff’s applications should be dismissed for want of jurisdiction alone, none of the proposed grounds of appeal in the Amended Draft NOA are reasonably arguable and the plaintiff’s applications should be dismissed on this additional basis.  

16.  The court’s approach is summarised as follows:

(1)  For leave to appeal to be granted, the court must be satisfied that the intended appeal has a reasonable prospect of success (or that there is some other reason in the interests of the justice that the appeal should be heard): Hong Kong Civil Procedure 2024, Practice Note 59/2A/4.

(2)  The grant or refusal of leave to issue a third party notice is an exercise of the court’s discretion: Hong Kong Civil Procedure 2024, Practice Note 16/2/5.  No appeal would be entertained unless it can be shown that (i) the judge exercised his discretion under a mistake of law or in disregard of principle or under a misapprehension as to the facts; or (ii) that he took into account irrelevant matters or failed to exercise his discretion, or the conclusion which the judge reached in the exercise of his discretion was “outside the generous ambit within which a reasonable disagreement is possible”: Hong Kong Civil Procedure 2024, Practice Note 59/0/54. 

(3)  The exercise of discretion must be plainly wrong and it is insufficient that the appellate court would prefer a solution which the judge had not chosen: Hong Kong Civil Procedure 2024, Practice Note 59/2A/4.

17.  In the Judgment, this court held that the DT Claim is “wholly unarguable for want of loss” in that: (i) the Mortgage incontrovertibly has priority over the DT under section 3(2) of the Land Registration Ordinance, Cap 128; and (ii) accordingly, the plaintiff is not bound by the Son’s alleged beneficial interest under the DT: at §§32-37.

18.  On the plaintiff’s case, this court allegedly “erred in failing to consider properly the DT in its proper context”: Amended Draft NOA at §1.  The plaintiff asserts that its claim was not based on “the loss of priority of the Mortgage vis-à-vis the DT” but rather “its possible loss of security, in that the Mortgage might be set aside on the basis of [the 1^st defendant’s] plea that the Mortgage had not been properly explained to her in the context of the whole transaction”: Amended Draft NOA at §1(b).

19.  This assertion is baseless and not reasonably arguable:

(1)  First, the DT Claim (as argued by the plaintiff at the 11 September 2023 hearing before this court) is clearly based upon “the loss of priority of the Mortgage vis-à-vis the DT”, as opposed to the Mortgage being set aside.  Contrary to §1(d) of the Amended Draft NOA, this court did not misunderstand the plaintiff’s case at all:

(a)  This is clear from the plaintiff’s submissions to this court: (i) in response to the Firm’s contention that the DT Claim is hopeless by reason that the Mortgage had priority over the DT, the plaintiff did not argue that the Firm misunderstood its case; (ii)instead, the plaintiff sought to contend that the plaintiff would be bound by the DT if it was found at trial that the plaintiff acted mala fide,^[1] which could not have been relevant if the DT Claim were premised upon the Mortgage being set aside (as the plaintiff now contends).

(b)  It is also plain from the TPN that the DT Claim is based on the DT having priority over the Mortgage: (i) the TPN specifically refers to the 1^st defendant’s counterclaim against the plaintiff for a declaration that the plaintiff’s rights under the Mortgage were subject to the Son’s alleged beneficial interest (§(ii) on p.2); (ii) the TPN then purports to claim an indemnity or damages “in the event any of the declarative relief claimed by [the 1^st defendant] is granted” (§(i) on p.3); and (iii) importantly, the TPN pleads two different bases for such claim, one of which is the DT being executed in breach of the Firm’s duty to the plaintiff (§5 on p.4), and the other of which is the 1^st defendant’s case for setting aside the Mortgage being established (§6 on p.5).

(c)  Clearly, as correctly understood by this court, the TPN pleads two separate and distinct claims against the Firm: (i) one based on the execution of the DT and on the Mortgage being subject to the same (ie the DT Claim); and (ii) the other based on the setting aside of the Mortgage (ie the Li Claim).  The plaintiff’s attempt to recast its case by conflating the two is wholly without merit.

(2)  For completeness, the plaintiff’s assertion that “the crux of [the 1^st defendant’s] case was [a] total loss of priority in relation to the DT” is plainly wrong: Amended Draft NOA at §1(c).  The 1^st defendant’s case is that the plaintiff is bound by the DT and that the DT has priority over the Mortgage: 1^st defendant’s Defence and Counterclaim §33 and Prayer (1).

20.  In the premises, there is no reasonably arguable appeal in relation to the DT Claim.

21.  In paragraph 16 of the plaintiff’s Skeleton Submissions, the plaintiff refers to §9 of the 1^st defendant’s Defence.

22.  With reference to §9 of the 1^st defendant’s Defence, in paragraph 17 of the plaintiff’s Skeleton Submissions, the plaintiff complains that: “Whilst the Learned Judge went on to find that the black letter terms of the Mortgage were in fact explained to (and understood by) [the 1^st defendant], he failed to consider the crux of [the 1^st defendant]’s complaint that the Firm did not explain to her the interplay between the Mortgage and the DT”. (Emphasis supplied)

23.  At paragraph 19 of the plaintiff’s Skeleton Submissions, the plaintiff submits that on this basis the 1^st defendant’s “non est factum claim stands a more than reasonable chance of success. …”

24.  And at paragraph 23 of the plaintiff’s Skeleton Submissions, the plaintiff submits that: “In light of the foregoing, the [plaintiff] has clearly demonstrated that (i) when viewed against the undisputed evidence, [the 1^st defendant]’s claims in particular that of non est factum are not frivolous and bound to fail; and (ii) hence, the [plaintiff]’s appeal has a reasonable prospect of success”.

25.  With respect, the plaintiff’s submissions involve a misunderstanding of the case pleaded by the 1^st defendant.

26.  In §7 of her Defence, the 1^st defendant pleads that: “By reason of the matters pleaded in paragraphs 4 to 5 above, the 1^st Defendant relies on the doctrine of non est factum on the grounds set out above.”

27.  Two consequences follow from this.  First, the subsequent matters pleaded at §9 of the 1^st defendant’s Defence is not relevant to the 1^st defendant’s plea of non est factum.

28.  Second, at §5(d) and (e) of her Defence, the 1^st defendant pleads as follows:

“(d) In reliance on and induced by the Misrepresentation, the 1^st Defendant signed all the documents produced to her by the staff of the Firm, including inter alia the Mortgage, who did not explain to her the contents, nature or effect of the documents which were all in English and was not understood by the 1^st Defendant.

(e) Without knowledge as to the nature, content and effect of the Mortgage and the 24 August 2009 Facility Letter, the 1^st Defendant signed thereon.” (Emphasis supplied)

29.  This is a classic plea of non est factum, where a defendant complains that the transaction which the document (ie the Mortgage) purports to effect is essentially different in substance or in kind from the transaction intended.  This is not a complaint of insufficient explanation to the 1^st defendant of “the interplay between the Mortgage and the DT”.

30.  In the Judgment, this court held that the Li Claim is “frivolous and bound to fail” because: (i) the Li Claim is premised upon the 1^st defendant’s assertion that she did not understand the nature, content and effect of the Mortgage at the time of its execution (“Premise”); and (ii) the Premise is “without substantial foundation and incapable of proof” in light of the totality of evidence: at §§38-45.

31.  There is no misunderstanding on the part of this court.  The above findings dealt with the 1^st defendant’s case on non est factum as pleaded in her Defence.

32.  In particular, this court found that: (i) the Premise is contradicted by contemporaneous evidence which shows that the 1^st defendant knew full well the nature and effect of the Mortgage, namely the Confirmation Letter (at §41 of the Judgment); (ii) the Premise is further destroyed by the 1^st defendant’s own evidence that she discovered the nature of the relevant documents in November 2014 but made no complaints and took no actions until December 2020 (at §42); and (iii) the 1^st defendant has given incontrovertibly false evidence on the issue (at §43).

33.  Finally, I note that not all of the proposed grounds of appeal set out in the Amended Draft NOA have been addressed/pursued in the plaintiff’s Skeleton Submissions.  In any event, in my view, the Firm has provided sufficient responses thereto in §§24-30 of its Skeleton Submissions.

D.  NO OTHER REASON IN THE INTERESTS OF JUSTICE WARRANTING THE GRANT OF LEAVE TO APPEAL

34.  In paragraph 23 of the plaintiff’s Skeleton Submissions, the plaintiff submits that in the overall interest of justice and/or to avoid multiplicity of proceedings and inconsistent findings, leave to appeal should be granted.

35.  I do not agree.  The need to avoid multiplicity of proceedings and inconsistent findings cannot constitute a sufficient reason for leave to appeal to be granted where (i) this court has concluded that the TP Claims are bound to fail and the intended appeal has no reasonable prospect of success; and (ii) in such circumstances, it cannot be in the interests of justice to allow the plaintiff to pursue proceedings against the Firm which are unarguable: §§37 and 44 of the Judgment.

E.  CONCLUSION

36.  For the reasons set out above, the plaintiff’s applications under the Summonses referred to at paragraph 1 above are dismissed with costs, with certificate for 2 counsel, to be taxed if not agreed and paid forthwith.

37.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

38.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.