YEUNG MAN FUNG (t/a YIP HING DESIGN DECORATION & ENGINEERING) v. HUNG FAN KEUNG , HENRY

IN THE COURT OF APPEAL

1995 No. 230
(Civil)

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J U D G M E N T

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Keith, J.(giving the first judgment at the invitation of Nazareth V.-P.):

INTRODUCTION

1. This appeal is the latest skirmish in a long-running dispute over minor building works in respect of two premises in Tuen Mun. The litigation is being fought with a tenacity which suggests that more is at stake than the relatively small amount of money involved.

THE ORIGINAL ACTION

2. The Plaintiff, Hung Fan Keung Henry, engaged the Defendant, Yeung Man Fung, to carry out the works. Mr. Hung was dissatisfied with the work which Mr. Yeung did, and Mr. Yeung was compelled to sue Mr. Hung for what Mr. Yeung claimed was due to him. That action was commenced in the District Court on 19th September 1991. Mr. Hung filed a Defence and Counterclaim, in which he counterclaimed damages for, amongst other things, the costs of putting right the alleged defects in Mr. Yeung's work.

3. In due course, an "unless" order was made for the service by Mr. Hung of Further and Better Particulars of the Defence and Counterclaim. However, on the advice of counsel, instead of complying with that order, Mr. Hung sought leave to amend his Defence. When that application failed, his Defence and Counterclaim was struck out for failure to comply with the "unless" order. In consequence, judgment in default was entered for Mr. Yeung on his claim.

4. Mr. Hung appealed to the Court of Appeal, but on 17th February 1995 the appeal was dismissed. All three members of the Court took the view that the judge had exercised her discretion in a manner which could not be overturned. However, Godfrey J.A. went further. At one stage in his judgment, he said:

"[Mr. Hung's] decision to rely on the success of his application for leave to amend the defence, and to change tack on the matter of particulars after passing by two or three opportunities to do so, was, in my judgment, 'contumelious' in the sense in which that word is used in the cases cited to us in this context [i.e. that it was deliberate and without excuse]."

Bokhary J.A. did not address that question at all, and although Nazareth V.-P. agreed that the appeal had to be dismissed for the reasons given by both Godfrey and Bokhary JJ.A., when he came to give his own reasons, he did not refer to Mr. Hung's conduct as being contumelious.

THE CURRENT ACTION

5. The dismissal of Mr. Hung's appeal, however, was not the end of the story. The twist in the tale is that Mr. Hung has himself commenced an action in the District Court. He did so on 23rd March 1995. He claims damages (up to the sum of $120,000.00, being the limit of the District Court's jurisdiction) for the cost of putting right the alleged defects in the work which Mr. Yeung did. Although there is some overlap between the defects which Mr. Yeung alleged in his Defence and Counterclaim in the original action and the defects which he alleges in his Particulars of Claim in the new action, there are a number of defects which are alleged for the first time.

6. Mr. Yeung's response to the commencement of these new proceedings was not unpredictable. He applied by summons for the Particulars of Claim to be struck out as an abuse of the process of the Court pursuant to the Court's inherent jurisdiction and under Ord. 18 r. 19(1)(d). By her judgment which she handed down on 22nd August 1995, Judge Chan dismissed that summons. Mr. Yeung now appeals against Judge Chan's refusal to strike out the Particulars of Claim, leave to appeal having been granted by Bokhary J.A. on 14th November 1995.

THE ISSUES ON THE APPEAL

7. Two principles are said to be undermined by Judge Chan's refusal to strike out the Particulars of Claim:

(i) the doctrine of issue estoppel, under which it is an abuse of process to raise in subsequent proceedings matters which could, and should, have been litigated in earlier proceedings;

(ii) the principle that peremptory orders of the Court are meant to be complied with, and that unexplained non-compliance with such orders will justify the striking out of subsequent proceedings.

ISSUE ESTOPPEL

8. Issue estoppel is a particular aspect of the doctrine of res judicata. The leading authority on the doctrine in modern times is the decision of the Privy Council in Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd. [1975] AC 581. The judgment of the Board was delivered by Lord Kilbrandon. At p. 590B, he described the following statement of principle by Wigram V.-C. in Henderson v. Henderson (1843) 3 Hare 100 at p.115 as the classic exposition of this aspect of res judicata:

" ... 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."

9. However, the present case was not one in which Mr. Yeung failed to raise in the original action the issues which he wants litigated in the current action. He raised them in his Defence and Counterclaim, but he was prevented from having them adjudicated upon by his failure to comply with orders made by the Court for the fair, speedy and efficient disposal of the action. There was no adjudication on the issues which Mr. Yeung wanted to raise at all. That is an important consideration, because it has been accepted as axiomatic ever since the decision of the House of Lords in Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) [1967] 1 AC 853 that the doctrine of issue estoppel does not apply to proceedings which have concluded with a judgment which was not on the merits. A judgment on the merits was described by Lord Brandon in The Sennar (No. 2) [1985] 1 WLR 490 at p.499F-G as one

"which establishes certain facts as proved or not in dispute; states what are the relevant principles of law applicable to such facts; and expresses a conclusion with regard to the effect of applying those principles to the factual situation concerned."

A judgment in default does not, of course, come within this definition of a judgment on the merits, and that, no doubt, was the reason why Hunter J.A. recently confirmed in Gridway Knitters Ltd. v. Tak Lam Hong [1989] 1 HKLR 363 at p.370B that the doctrine of issue estoppel does not apply to default judgments at all.

10. That is not to say that the doctrine of issue estoppel can never apply to a decision which was not on the merits. As Ralph Gibson L.J. said in S.C.F Finance Co. Ltd. v. Masri (No. 2) [1987] 1 QB 1028 at pp.1047F-G and 1049C:

"The decision in Khan v. Golechha International Ltd. [1980] 1 WLR 1482 makes it clear that an order dismissing proceedings is capable of giving rise to issue estoppel even though the court making such order has not heard argument or evidence directed to the merits... [Thus], a litigant who has had an opportunity of proving a fact in support of his claim or defence and has chosen not to rely on it is not permitted afterwards to put it before another tribunal."

Mr. Philip Dykes for Mr. Hung relied heavily on these propositions. But they are a far cry, in my view, from this case. This was not a case of Mr. Yeung choosing not to rely on the issues which he wanted to raise. This was a case of Mr. Yeung being prevented from relying on those issues because of his failure to comply with the "unless" order. It is not possible, in my judgment, to equate the voluntary abandonment of an issue with the decision to flout orders of the Court regulating the conduct of an action.

11. In the interests of completeness, I should add that Mr. Dykes sought to rely on the decision of the High Court in Sanyo Electric Trading Co. Ltd. v. Leung Kwok Hing [1993] 1 HKLR 253. That case was concerned, amongst other things, with the extent of the doctrine that it is not permissible to relitigate in the same proceedings an interlocutory issue which has already been determined in those proceedings. It was held that the doctrine is not limited to those cases in which the previous interlocutory order has been made after a consideration of the merits. I do not comment on whether what was held in that case is correct, but the principle which the case established has little bearing on a party's right to relitigate the issue in different proceedings.

12. For these reasons, I cannot accept Mr. Dykes' submission that the doctrine of issue estoppel was undermined by Judge Chan's refusal to strike out the Particulars of Claim.

NON-COMPLIANCE WITH A PEREMPTORY ORDER

13. It is asserted on Mr. Yeung's behalf that unexplained non-compliance with a peremptory order of the Court which causes a Defence and Counterclaim to be struck out and judgment to be entered for the Plaintiff on his claim should result in the striking out of a similar claim subsequently brought by the Defendant. The source of that assertion is said to be the decision of the Court of Appeal in Janov v. Morris [1981] 1 WLR 1389.

14. In that case, the Defendant had applied to strike out the Plaintiff's action for want of prosecution. The master ordered that the action would be struck out unless the Plaintiff issued a summons for directions by a specified date. The Plaintiff did not do so, and gave no explanation for not doing so or for the delay in prosecuting his claim. Not surprisingly, the master entered judgment for the Defendant. Two months later, the Plaintiff issued a second writ in which he relied on precisely the same cause of action which had effectively been struck out. The Defendant applied to strike out the new writ on the ground that it was an abuse of the process of the Court. The master struck out the writ. His decision was reversed on appeal to the judge-in-chambers, but his decision was restored on a further appeal to the Court of Appeal.

15. The error into which the judge-in-chambers had fallen was in assuming that he had had no discretion in the matter. He had thought that the new writ could not be struck out since the Plaintiff was entitled to bring a second action at any time during the relevant limitation period. Since the judge had not exercised the discretion which in the view of the Court of Appeal he undoubtedly had, the Court of Appeal was entitled to exercise its own discretion. In the exercise of that discretion, the Court of Appeal regarded as significant the principle that peremptory orders are meant to be complied with and should not be ignored. Since the Plaintiff had offered no explanation for his conduct, had not sought to appeal the master's decision to give judgment for the Defendant in the original action, and had given no assurance as to his conduct of the new action, the new writ should be struck out.

16. What distinguishes the present case from Janov is that Judge Chan recognised that she had a discretion in the matter. The mere fact that the Court of Appeal exercised its discretion in Janov in a particular way did not mean that Judge Chan was bound to exercise her discretion in that way. In the circumstances of this case, we can only interfere with the exercise of her discretion if her conclusion was "outside the general ambit within which a reasonable disagreement is possible." Unlike Mr. Janov, Mr. Hung offered Judge Chan an explanation for his conduct in not complying with the "unless" order for the service of particulars, namely that he had acted on the advice of counsel. It is true that Judge Chan took the view that that explanation did not amount to a valid excuse, but there is no principle of law that mistakes by a litigant's lawyer must inevitably be laid at the litigant's door: see, for example, the recent case of Pereira v. Beanlands ,"The Times", 7th March 1996. Secondly, unlike Mr. Janov, Mr. Hung had appealed against the striking out of his Defence and Counterclaim, even though his appeal was ultimately unsuccessful. Thirdly, unlike Mr. Janov, although Mr. Hung had not given an assurance that he would furnish particulars of his new claim if they were requested, he had informed his solicitors that he was in a position to furnish them.

17. Like Judge Chan, I regard it as important to uphold the principle that peremptory orders should be complied with. But I am also conscious that the power to strike out proceedings as constituting an abuse of the process of the Court is one which should only be exercised sparingly and with extreme caution. Speaking for myself, I do not regard Judge Chan's decision to permit Mr. Hung to continue with his new claim as so outrageous in its defiance of logic or well-established principle as to justify intervention by an appellate court.

18. There is one final comment I should make. The Court of Appeal regarded Mr. Hung's explanation for not complying with the "unless" order as inexcusable. Mr. Dykes argues that Judge Chan should not in those circumstances have taken Mr. Hung's explanation for not serving the particulars ordered into account in deciding whether he should be permitted in effect to revive his counterclaim. I reject that argument. Judge Chan's acceptance that the explanation did not amount to a valid excuse for not complying with the "unless" order did not mean that she was not permitted to take into account the fact that an explanation had been offered.

CONCLUSION

19. For the reasons which I have endeavoured to give, I would accordingly dismiss this appeal.

Liu, J.A.:

20. The question before the Court of Appeal in the former action between the same parties involved the exercise of discretion as to whether further time was to be allowed after a peremptory order had been wilfully disobeyed. Where, as here, the allegation is abuse of process, the question before this Court is focused on, as it was before the judge, discretion exercisable in an application to strike out the action for the alleged abuse. Whatever this Court, differently constituted, decided in the former action, we are not bound by it.

21. But that is not to say that there would otherwise be room for the application of the Yat Tung principle in this case. There has been no abandonment of any issues which the Plaintiff in this case was desirous of litigating in the former action. It is not without interest to note that the Yat Tung doctrine was not invoked in Janov v. Morris, [1981] 1 WLR 1389. For the reasons given by Keith J., even without giving full weight to Pereira v. Beanlands The Times, 7th March 1996, there was clearly sufficient material for the judge to exercise her discretion in the way she did.

22. I, too, would dismiss this appeal.

Nazareth, V.-P.:

23. I agree with the reasons Keith, J. has given for his conclusion that the appeal should be dismissed, and for those reasons would also dismiss the appeal.

24. The appeal is accordingly dismissed.