GLOBAL BRIDGE ASSETS LTD AND ANOTHER v. SUN HUNG KAI FINANCIAL LTD

HCA 1701/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1701 OF 2014

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D E C I S I O N

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1.  The issue before the court is highly unusual, if not also exceptional.

2.  There are two summonses: the first is a summons dated 1 April 2015 for striking out the plaintiffs’ claim, for security for costs and joining Mr Chin Kam Chiu (“Mr Chin”) as a party for the purpose of costs only (“the Strike Out Summons”); the second is a summons dated 28 August 2015 for a trial of preliminary issues arising from the Strike Out Summons, the adjournment of the Strike Out Summons to be heard together with the trial of the preliminary issues, and for ancillary directions (“the Preliminary Issues Summons”). 

RELEVANT BACKGROUND AND PROCEDURAL HISTORY

3.  The procedural history dates back to February 2008 while the claims themselves stem from events that occurred as long ago as July/August 2001.  To understand how the two summonses have come before the court it is necessary to summarise the relevant background and procedural history.

4.  A very brief summary is set out below.  For a detailed account of the dispute and procedural history up to 25 July 2012 reference should be made to the judgment of Kwan JA in Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd [2012] 4 HKLRD 474 at §§1‑13.

5.  The plaintiffs (respectively a BVI and a Seychelles company) and another BVI Company (“Walton”) brought an action in February 2008 against the defendant (HCA 317/2008) for damages for breach of an oral guarantee and an oral collateral contract and collateral warranty alleged to have been given in 2001 in respect of the transfer of the defendant shareholding of 40% in a joint venture company in the PRC (“the JVC”) and in purported performance of which the defendant entered into a contract with the 2^nd plaintiff (as nominee of the 1^st plaintiff) (“the CTC”).

6.  The Court of Appeal struck out the plaintiffs’ claims in February 2010 on the basis that they were barred by the terms of the CTC and those of the deed executed contemporaneously with the CTC in 2001 (“the Deed”) and ordered costs against the plaintiffs.  The plaintiffs were granted leave to apply to the Court of First Instance to file an amended statement of claim.

7.  The plaintiffs obtained leave in May 2011 from DHCJ Carlson.  The amended statement of claim sought an order to set aside the CTC and the Deed on the ground of fraud or deceit and claimed damages for fraud, alternatively for damages for breach of the CTC.

8.  On 3 August 2012 the Court of Appeal struck out the plaintiffs’ claim on limitation grounds but stated (at §29) that in respect of the new claim of fraud put forward in March 2010, the plaintiffs would be well within time if they were to issue a fresh writ in 2012.  It therefore refused leave to amend on that basis.

9.  The Court of Appeal also allowed the defendant’s appeal in respect of Walton’s (the 3^rd plaintiff’s) claim for damages based on an alleged right to enforce the obligation of the defendant to contribute the outstanding US$3 million to the capital of the JVC because of the reflective loss rule.  Accordingly, the judge’s order granting leave to Walton to amend the statement of claim was set aside and its action against the defendant dismissed.

10.  The defendant’s bills of costs in respect of the various proceedings were scheduled for a taxation hearing over four days in November 2013.  Shortly prior to that date the parties reached agreement on the amounts payable and on 29 October 2013 Master Chow made four orders by consent that the plaintiffs and Walton pay the defendant’s costs totalling in the aggregate in excess of HK$5.3 million within 21 days, ie by 19 November 2013.  To date, no payment in respect of the ordered costs and interest has been made to the defendant.

11.  Instead, on 19 November 2013, the plaintiffs’ solicitors wrote to the defendant’s former solicitors alleging (without providing particulars) that the plaintiffs and Walton had paid US$3 million to the JVC on the defendant’s behalf and invited the defendant to agree to the outstanding costs being deducted or set off from the US$3 million.

12.  The defendant rejected the plaintiffs’ set‑off proposal on various grounds as set out in its solicitor’s second letter to the plaintiffs’ solicitors dated 26 November 2013.

13.  It was not until 30 August 2014 (almost six years from date of discovery of the alleged fraud and two years after the Court of Appeal’s 2012 judgment) that the plaintiffs issued the ‘fresh’ writ in the present proceedings against the defendant.  The statement of claim was served on 3 January 2015.

14.  The 2015 statement of claim repeated allegations made in the previous proceedings and sought an order for rescission of the CTC and the Deed and for damages for fraudulent misrepresentation.

15.  The defendant issued the Strike Out Summons on 1 April 2015 supported by an affidavit of Peter Anthony Curry of even date on the basis that it is an abuse of process to start the present proceedings to seek essentially the same relief as in the previous proceedings without paying the costs of the previous proceedings. 

16.  On 16 April 2015, Master Lai gave directions for the filing of evidence and the hearing of the Strike Out Summons.  Shortly thereafter, by agreement, the hearing date was fixed for 10 September 2015. 

17.  After several extensions of time, on 25 June 2015, the plaintiffs eventually filed an affirmation of Fu Chiu Wa (“Mr Fu”), the sole director of the 2^nd plaintiff, inter alia, in opposition to the Strike Out Summons.  It raised for the very first time a new allegation of fact that had never featured in the earlier proceedings or, for that matter, in the statement of claim underlying the present applications.

18.  The new factual allegation relates to events alleged to have occurred in the first quarter of 2009 that involve the following components (collectively “the new allegation”):

(a) In February 2009, the JVC was indebted to the 2^nd plaintiff in the sum of RMB16.3 million.

(b) On 20 March 2009, in consideration of the 2^nd plaintiff waiving the debt owed by the JVC to the 2^nd plaintiff, the JVC agreed to assign RMB16.3 million (approximately US$2.4 million) out of the sum of US$3 million owed to the JVC.

(c) The 2^nd plaintiff gave written notice of the assignment to the defendant on 3 April 2009.

19.  Metaphorically speaking, the new allegation threw ‘a spanner in the works’ as regards the defendant’s Strike Out Summons having regard to the established principles applicable to a strike out.  The defendant considered that the Strike Out Summons could not properly be argued without first having the veracity of the new allegation resolved.  The very curious feature of the new allegation is that it has nothing to do with the issues of the proceedings against the defendant.  It is a feature that takes the present case out of the ordinary.

20.  The defendant’s stance is that the new allegation is a fabrication.  It was said that the new allegation involved putting up a fake assignment to set up a fake set‑off.  Accordingly, the defendant issued the Preliminary Issues Summons on 28 August 2015. 

21.  The questions or issues of fact to be tried as preliminary questions or issues are set out in the Annex to the Preliminary Issues Summons as follows:

“1. Whether there was an assignment to the 2^nd Plaintiff of a debt of RMB16.3 million allegedly owed by the Defendant to the Joint Venture Company referred to in paragraph 4(i) of the Statement of Claim herein on 20 March 2009 as alleged by Mr Fu Chiu Wa in paragraph 12 of his affirmation herein dated 24 June 2015?

2. Whether notice of such assignment (if any) was given to the Defendant as alleged by Mr Fu Chiu Wa in paragraph 13 of his affirmation herein dated 24 June 2015?”

22.  While the hearing was originally meant for the substantive hearing of the Strike Out Summons, there is now an additional summons as a result of the new allegation.  Plainly it would be wrong for the court to conduct this hearing on the basis that it is a strike out hearing only.  What needs to be addressed and resolved first at this hearing must be the Preliminary Issues Summons.  

23.  At first glance, the Preliminary Issues Summons could be said to be singular and out of the ordinary.  I venture to suggest that the problem the Preliminary Issues Summons seeks to address must be of very rare, if not unique, occurrence.

24.  The questions that arise are whether this court has jurisdiction to grant the relief sought in the Preliminary Issues Summons; and, if so, whether this is an appropriate case for the relief sought to be granted.

25.  Nevertheless as the jurisdiction to strike out for abuse of process and its rationale remain relevant it would be convenient to deal with those matters first.

JURISDICTION TO STRIKE OUT FOR ABUSE OF PROCESS

26.  That the jurisdiction exists cannot be gainsaid.  The judgment of Moore‑Bick LJ in Investment Invoice Financing Ltd v Limehouse Board Mills Ltd (CA) [2006] 1 WLR 985 at §25‑33 traces its history starting with Martin v Earl Beauchamp (1883) 25 Ch D 12 where the principle that where a plaintiff having failed in one action commences a second action for the same matter, the second action must be stayed until the costs of the first action had been paid was applied.  There followed a line of authority showing its development.

27.  At §39 Moore‑Bick LJ explained the considerations underlying the court’s approach as follows:

“In all the cases the court was moved to act by a sense that it would be unjust to allow a claimant whose action had failed for one reason or another in circumstances in which he had been ordered to pay the defendant’s costs to put the defendant to the further expense of a second action until those costs had been paid. To pursue a second action in those circumstances can properly be regarded as an abuse of the court’s process. In my view what matters is not the precise nature of the former proceedings but whether, having regard to the nature of those proceedings, their outcome and the claimant’s failure to satisfy an order for costs against him, the second proceedings can be regarded as abusive.”

28.  In Investment Financing, the judge stayed an action commenced by the plaintiff unless two costs orders made against the plaintiff were satisfied by a specified date failing which the claim should be struck out without further order.  The order was upheld on appeal.  Although Moore‑Bick LJ remarked (at §44) such an order to be highly unusual, he observed (at §34) that it “is concerned with preventing an abuse of the court’s process” and “the purpose of making such an order is to do substantial justice between the parties”.

29.  As Briggs J explained in Ghouse Abdul Wahab v Mohammed Jamal and Others [2011] EWHC 908 at §19, where the first claim has neither been adjudicated upon nor compromised, but merely struck out for specific procedural default, the potential for abuse lies in the unfairness of putting the defendant to the expense of fresh proceedings while his costs of the previous proceedings remain unpaid.

30.  It is clear from the decided cases that the court does have jurisdiction not only to stay proceedings until liability for earlier costs orders have been discharged but also, for example, to direct that the claims be struck out if the costs were not paid by a certain date.  It is also clear that in exercising that discretion, the court formulates the appropriate order taking into account all the circumstances of the case and the previous history of the litigation between the parties (Investment Financing,at §48).

31.  Given the underlying rationale of the jurisdiction to strike out for abuse of process and having regard to the history of the litigation between the parties since 2008 and the unpaid costs orders, it is hardly surprising that the defendant took out the Strike Out Summons when it did.  As I understand it, it is accepted that no legitimate criticism can be levied at the defendant for taking out the Strike Out Summons.

PRELIMINARY ISSUES SUMMONS

A.  Jurisdiction

32.  Mr McCoy SC, leading counsel for the defendant, submitted that the court has a wide discretion under Order 33, rules 3 and 4(2) to order any question or issue of fact arising in a cause or matter, even if not raised by the pleadings, to be tried as preliminary issue.  The wording of rule 3 is indeed wide, expressly providing that the court’s power extends to an issue of fact or law “whether raised by the pleadings or otherwise” (emphasis added).

33.  Mr McCoy also referred to Steele v Steele [2001] CP Rep 106 where Neuberger J listed 10 questions to be asked when considering whether or not to order a trial of preliminary issues.  I propose to deal with those questions later should they become relevant.

34.  Ms Eu SC, leading counsel for the plaintiffs, challenged the course taken by the defendant in issuing the Preliminary Issues Summons.  She submitted that one cannot build a preliminary issue out of a strike out summons, that the court has to consider the affidavit evidence filed in the Strike Out Summons, decide what weight to attach to the evidence and reach a conclusion by either allowing, dismissing or even attaching conditions to its order determining the Strike Out Summons.  Pausing there, the approach suggested is tantamount to ignoring the Preliminary Issues Summons altogether.  Unless there is clear authority to the effect that the court has no jurisdiction to order a preliminary issue of fact to be tried in the context of a strike out summons, it is not an attractive approach.

35.  Citing the first paragraph on p 436 of Hong Kong Civil Procedure 2015, Ms Eu submitted that in a strike out, if one has to go to a preliminary issue, it is really when it is a point of law and the facts are not in dispute.  When pressed further, Ms Eu stopped short of submitting that preliminary issues in such situations are limited to questions of law only.  What her submission really amounted to is this: that there are no examples of a case where one would go to a preliminary issue to decide facts in the context of a strike out application.

36.  The absence of authority is neither here nor there if the jurisdiction exists. Looked at in isolation Order 33, rule 3 plainly authorises a trial of preliminary issues of fact in an appropriate case.  The question is whether the fact that it arises in the context of an application under Order 18, rule 19 makes any difference.

37.  In Lam Kee On v Lam Hing [1992] 2 HKC 317 Godfrey J appeared to have doubts about the court’s power to order the trial of a preliminary issue at a hearing of a strike out (at 320E).  In that case in the course of a strikeout hearing based on a limitation point it transpired that there was room for argument whether or not the limitation point was a good one.  Godfrey J considered (at 320D‑E) that the choice facing the court was this:

“… is the court bound to dismiss the application and to let the whole action go to trial, or can the court go on and decide the point as if it had come before the court as a preliminary issue set down for hearing under the provisions in that behalf contained in O 33 r 3?”

It was in that context that Godfrey J stated obiter that he had doubts about the court’s power to take the latter course in the absence of agreement between the parties.  Those remarks are understandable given the circumstances in which the dilemma arose, ie in the course of the hearing itself.

38.  It is interesting to note that Godfrey J went on (at 320F‑G) to recommend any practitioner wishing to take a similar point and “minded in that connection to make an application to strike out his opponent’s pleading, to apply in the alternative to have the point in question set down for trial as a preliminary issue under O 33 r 3”.  That recommendation would not have been made had the judge considered that the two applications could not be combined or were somehow intrinsically incompatible.  While in that case the court was concerned with a question of law, as a matter of principle, whether the dispute is one of law or of fact cannot make any difference to the court’s jurisdiction.

39.  I am satisfied that the court does have jurisdiction to order a trial of preliminary issues of fact.  Whether it should exercise that jurisdiction is another matter. I do not consider it a valid or legitimate reason for refusing to exercise a jurisdiction that exists if its exercise is warranted by the circumstances of the particular case simply because there is no precedent for it.  However I would accept that the circumstances have to be highly exceptional to warrant an order for the trial of preliminary issue pursuant to Order 33, rule 3 made in the context of a strike out application.

40.  Ms Eu referred to a number of authorities.  I was reminded that in Mai Gou v Mak Chik Lun [2001] 3 HKLRD 248 I had stated (at 251J‑252A) that:

“It is sometimes said that trials of preliminary issues should only be ordered if, whichever way they are decided, they would be determinative of the case or at least part of the case. The good sense of that rule of thumb is apparent and it is a rule which I would readily endorse.”

41.  It was submitted that in the present case the preliminary issue will not be determinative of the action.  But that is not quite correct since the determination of the preliminary issues would provide the answer to whether the present proceedings constitute an abuse of process and, depending on the outcome, could potentially dispose of the present proceedings.  In any event, the opening phrase of the passage cited makes it quite clear that what followed did not purport to be a statement of an invariable rule, incapable of exceptions.

42.  The next authority was Goldon Investment Ltd v NPH International Holdings Ltd, unrep, HCA 5457/1999, 7 June 2002.  In that case the defendant wanted certain legal issues determined as preliminary issues or under Order 14A procedure.  Ma J (as he then was) refused to so order since factual disputes existed between the parties underlying the legal issues: at §27(4).  That is not the present case.  In any event Goldon Investment did not decide that an issue of fact cannot be tried as a preliminary issue under Order 33, rule 3.

43.  Winnitex Investment Co Ltd v Oxford Products (International) Ltd [2004] 4 HKC 660 was also cited.  The principles stated therein applicable to Order 18, rule 19 applications and relied on are well established.  Their correctness is accepted but the real question is whether they are applicable at all when what is being considered is whether a trial of preliminary issues should be ordered given the highly unusual circumstances in which those issues arose in the present case.

44.  As earlier noted and deserves re‑iteration, I consider the circumstances precipitating the preliminary issues to be determined and the issue now confronting the court to be unique and exceptional.

B.  Exercise of the court’s discretion

45.  The factual issues raised by the new allegation (see §18 above) are not issues in the current action and as such will go and remain untested and unresolved.  Seemingly, their purpose was to meet, if not thwart, the Strike Out Summons as those factual issues are not at all relevant to the underlying claim of the plaintiffs for fraudulent misrepresentation.  Their belated introduction through Mr Fu’s affirmation would nevertheless secure a considerable (if unfair) forensic advantage for the plaintiffs if the defendant is to be denied the opportunity of challenging the veracity of the factual issues before the Strike Out Summons is determined.

46.  In my view, the need for a forum to determine the truth or otherwise of the new allegation is overwhelming if the new allegation is to be taken into account in determining the Strike Out Summons.  That is required to level the playing field and do substantial justice between the parties.  It is the same rationale that underpins the jurisdiction to strike out for abuse of process.

47.  This is neither the time nor occasion to delve into the intriguing question why the factual issues raised by the new allegation have not surfaced earlier in view of the long running dispute between the parties and Mr Fu’s apparent knowledge of the affairs of the JVC relevant to the plaintiffs’ and Walton’s claims.  On the basis of the new allegation, the 2^nd plaintiff could have asserted a claim to RMB16.3 million since early April 2009.  Instead, it required the Strike Out Summons to break the silence in that regard notwithstanding the various rounds of litigation between the parties.

48.  Be that as it may, seemingly, the plaintiffs’ resistance to the Preliminary Issues Summons is a little odd.  As Mr McCoy pointed out, if at the end of the day the plaintiffs were to succeed on the Preliminary Issues, not only would it mean that (in very approximate terms) HK$10 million would be due to the 2^nd plaintiff from the defendant, the Strike Out Summons implodes because the defendant will not be able to make out any abuse of process.

49.  Admittedly, if the defendant were to succeed, it will (a) confirm that the outstanding costs have not been paid; (b) confirm the appropriateness of the Strike Out Summons; and (c) affect the plaintiffs’ credibility in the event of a trial of the underlying action.

50.  Returning to the questions posed in Steele v Steele alluded to in §33 above, seven are relevant to preliminary issue issues of fact.  Not surprisingly, counsel differed as to the appropriate responses.  The relevant questions (as set out in §29 of the defendant’s written submissions) and my answers are as follows:

(1) Would the determination of the preliminary issue dispose of the case or at least one aspect of it?

The answer has to be in the affirmative since it would provide the answer as to whether the current proceedings constitute an abuse of process and potentially dispose of the whole case.

(2) Would the determination of the preliminary issue significantly cut down the cost and time in pre‑trial preparation or in connection with the trial itself?

The potential to dispose of the whole case must lead to an affirmative answer.

(3) Would the determination of the preliminary issue unreasonably fetter the parties or the Court in achieving a just result?

The answer must be in the negative. Determination of the preliminary issue would be determinative of whether the present proceedings are an abuse of process, an issue that the defendant legitimately raised and is entitled to have determined.

The plaintiffs’ objections of unfairness, for example, in not having an opportunity to answer the 2^nd affidavit of Mr Curry can easily be addressed in ancillary directions for a preliminary issue hearing.

(4) Was there a risk of the determination of the preliminary issue increasing costs and/or delaying the trial?

Prima facie, interlocutory proceedings entail additional costs and time were the trial to proceed thereafter but that possibility needs to be weighed against the real and not theoretical possibility of the interlocutory proceedings having the effect of disposing of the whole case.  

(5) To what extent the determination of the preliminary issue may be irrelevant?

As it will be determinative of the abuse of process issue, it cannot be irrelevant.

(6) Was there a risk that the determination of the preliminary issue could lead to an application for the pleadings to be amended so as to avoid the consequences of that determination?

No.

(7) Taking into account the previous points was it just to order a preliminary issue?

Yes.

CONCLUSION

51.  As earlier explained, the need for factual issues arising from the new allegation to be determined is overwhelming.  While the course the court is invited to take is highly unusual, the circumstances of this case (and, in particular, the circumstances in which the new allegation has arisen) are so exceptional that an equally exceptional (and perhaps unconventional) response is merited.

52.  I am conscious of the ‘satellite litigation’ and ‘floodgates’ argument but I do not consider that acceding to the Preliminary Issues Summons will remotely have that effect.  For an application for a trial of preliminary issues of fact to be made at all, the circumstances of the particular case must be highly exceptional. It must be rare for a new allegation that has nothing to do with the underlying action to surface out of the blue and feature in the evidence filed in opposition to a strike out application that would inevitably put paid to that application if allowed to go unchallenged without its veracity ever having to be tested.  

53.  The Preliminary Issues Summons sets out the proposed directions for the trial.  Ms Eu’s principal objections are the absence of pleadings, discovery and the fact that the plaintiffs are not given an opportunity to answer the 2^nd affidavit of Mr Curry.  It was also suggested that Mr Fu had no personal knowledge or was not then involved.

54.  As regards Mr Fu, Mr McCoy’s recollection from his involvement in the earlier proceedings was that Mr Fu had filed an affirmation as director on behalf of the 2^nd plaintiff in June 2009.  Ms Eu did not demur from that statement.  I have since checked the court file in HCA 317.  It appears that he is the same Mr Fu who, as a director of Walton, had filed affirmations in HCA 317 in June and October 2009 on its behalf and “insofar as may be necessary”, he was also authorised to do so on behalf of the plaintiffs.  He spoke to matters concerning the JVC and events that occurred from December 2007 to June 2009.

55.  The questions or issues of fact are clear and I cannot see the need of any pleadings.  The defendant has stated that it knew nothing about the factual matters alleged to have occurred.  Discovery in that regard would not advance matters.  As regards the opportunity to answer Mr Curry’s 2^nd affidavit, that can be addressed by allowing the plaintiffs the opportunity to file witness statements on their behalf from any person who is able to give material evidence on those issues (including Mr Fu), such persons to be called as witnesses at the trial.

56.  Accordingly, I make an order in terms of the Preliminary Issues Summons save that §§4 and 5 therein be replaced by the following:

“4. The Plaintiffs be at liberty to give evidence at the trial of preliminary questions or issues by the affirmation of Mr Fu Chiu Wa herein dated 24 June 2015 and by any person or persons (including Mr Fu) who within 14 days of this order files a witness statement on behalf of the Plaintiffs (‘the Plaintiffs’ witness statement(s)’), and the Defendant be at liberty to cross-examine him or them as the case may be on the same.

5. The Defendant be at liberty to give evidence at the trial of preliminary questions or issues by the affidavits of Mr Peter Anthony Curry herein dated 1 April 2015 and 20 August 2015, and by any person or persons who within 14 days of the filing of the Plaintiffs’ witness statement(s) files a witness statement on behalf of the Defendant in reply, and the Plaintiffs be at liberty to cross-examine him or them as the case may be on the same.”

57.  Costs of this hearing are reserved.