BALRAM CHAINRAI v. KUSHNIR FAMILY (HOLDINGS) LTD AND OTHERS

HCA 1462/2014

[2018] HKCFI 17

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1462 OF 2014

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D E C I S I O N

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Applications

1.  On 12 September 2016, I heard the application by the 3^rd defendant Mr Israel Sorin Shochat (“Shochat”) by summons dated 3 May 2016 to strike out this action against him (“Striking Out Application”).  I reserved my decision.

2.  Before I handed down my decision on the Striking Out Application, by a letter dated 15 September 2016, Shochat’s solicitors wrote to the court enclosing, and seeking leave to rely on, pages 292 to 297 of the transcript of the testimony of the plaintiff Mr Balram Chainrai (“Chainrai”) on 29 August 2012 at the hearing of the arbitration proceedings in Israel between Chainrai and Shochat (“Transcript”), in support of the Striking Out Application.

3.  On 23 September 2016, I directed Shochat to issue a summons, and file and serve a supporting affidavit, for leave to adduce the Transcript.

4.  By a summons dated 5 October 2016, Shochat formally applied for leave to adduce the whole of the Transcript in support of the Striking Out Application (“Additional Evidence Application”).  I heard the application on 22 February 2017.  I shall deal with the admission or otherwise of the Transcript for the purposes of the Striking Out Application when I come to the issue to which such evidence relates.

Relevant background

5.  Chainrai is a Hong Kong businessman.  Shochat is an ethnic Hebrew businessman resident in Israel.  They were business partners since the 1990’s.  Since 2004, Shochat started to introduce to Chainrai business ventures in Israel that were transacted in Hebrew.  It is Chainrai’s case that since he does not know Hebrew, he relied on the local business knowledge and investment advice given by Shochat in deciding whether to enter into those business ventures, and if so, upon what terms.  He reposed trust and confidence in Shochat in his investment advice and the business ventures referred by him.

6.  In 2005 and 2006, upon Shochat’s introduction and investment advice, Chainrai extended a loan of NIS 29,500,000 (“Loan”) to the 1^st defendant Kushnir Family (Holdings) Limited (“Kushnir Company”), a company owned and controlled by the 2^nd defendant Mr Levi Kushnir (“Kushnir”), to finance its purchase of 35% of the shareholding (“Shares”) in Nachushtan Investment Company Limited (“Nachushtan”), a company registered under the laws of Israel and then listed on the Tel Aviv Stock Exchange.  The transaction was negotiated, and the loan documentation executed, for Chainrai by Shochat as Chainrai’s authorised agent.

7.  The Loan was advanced in 3 tranches (i.e. NIS 25,000,000 on 20 June 2005; NIS 3,000,000 on 20 December 2005 and NIS 1,500,000 on 22 February 2006).  It was repayable with interest (agreed in the sum of NIS 3,000,000) on 20 June 2008.  It was secured by a pledge of the Shares by the Kushnir Company to Chainrai (“Share Pledge”).  It is Chainrai’s case that, according to the financial advice given to him by Shochat, the Share Pledge would minimise any risks associated with the provision of the Loan.

8.  The relationship between Chainrai and Shochat broke down in about mid 2007 over another transaction in which they were involved.  The 2 gentlemen ceased to have any direct communication with each other from November 2007.

9.  In December 2007, Shochat commenced an action in the Tel Aviv-Jaffa District Court against (1) Chainrai; (2) Chainrai’s brother-in-law (who was assigned,[i] and later reneged,[ii] the Shares); (3) the Kushnir Company; and (4) Kushnir for various relief premised upon Shochat being entitled to half of the creditor’s interest in the repayment of the principal and interest of the Loan and in the security of the Shares under the Share Pledge (“Israeli Action”). 

10.  Shochat’s claims in the Israeli Action were derived from his payment of NIS 14,648,779 (which was just a little short of half of the total amount of the Loan) into a joint exchequer account maintained by Chainrai and Shochat at around the same time when the Loan was made.  It was Shochat’s case that such payment was his contribution to a half share of the Loan, which gave him a half share in the principal and interest to be repaid by the Kushnir Company and in the security of the Shares under the Share Pledge.

11.  During the pendency of the Israeli Action, the Loan matured on 20 June 2008.  Upon Kushnir’s requests, Chainrai twice extended the term of the Loan without requiring further interest, initially to 20 June 2009 and then to an indefinite date which was linked to the conclusion of certain legal proceedings in which Kushnir was involved, one set of which was brought by inter alia Kushnir against Shochat.

12.  Chainrai did so without reference to Shochat.  Shochat alleged in the Israeli Action that Chainrai agreed to these extensions for a personal motive only because he needed Kushnir’s assistance in the collection of a debt due to both of them from a third party.  Shochat argued that as the extensions granted by Chainrai to the Kushnir Company were not agreeable to him, the Kushnir Company was obliged to repay the Loan with the agreed interest on the first maturity date (i.e. 20 June 2008).

13.  As Shochat was not a registered party to the Loan, his claims against Chainrai’s brother-in-law, the Kushnir Company and Kushnir were struck out for want of a cause of action, leaving Chainrai the only defendant to the Israeli Action.

14.  As between Shochat and Chainrai, while it is tolerably clear from paragraph 20 of the statement of claim herein (“SOC”), as confirmed by paragraphs 7 and 27 of the skeleton argument of counsel for Chainrai, that Chainrai now accepts that Shochat had contributed half of the Loan, that had not always been Chainrai’s position.  In the Israeli Action, Chainrai denied that Shochat had financed half of the Loan out of his own pocket; that Shochat was an equal partner to the rights arising from the Loan; or that Shochat was entitled to repayment of half of the principal and interest of the Loan.  It was Chainrai’s defence therein that Shochat paid into their joint exchequer account on account of other transactions between them.  In addition to defending Shochat’s claims to the Loan, Chainrai also counterclaimed over NIS 32,000,000 against Shochat for breach of fiduciary duties as a trustee of Chainrai’s funds and investments regarding other joint ventures between them.

15.  On 17 May 2011, upon Chainrai and Shochat’ joint application, the Israeli Action was converted into an arbitration (“Israeli Arbitration”).  It was agreed inter alia that:

(1) The pleadings and affidavits filed in the Israeli Action would be the parties’ pleadings and affidavits in the Israeli Arbitration.

(2) The parties would not request to amend the pleadings they had filed in a manner that increased the amounts claimed by each other from the other and the causes of action of the parties would remain unchanged.

16.  The hearing of the Israeli Arbitration took place before a sole arbitrator (“Arbitrator”) in August and December 2012.  On 31 October 2013, the Arbitrator delivered a 48-page award (“Award”), upholding Shochat’s claims against Chainrai and dismissing Chainrai’s counterclaims against Shochat.

17.  Insofar as Shochat’s claims and Chainrai’s defence in respect of the Loan are concerned, the Arbitrator made the following findings and rulings:

(1) The Loan was a joint investment by Chainrai and Shochat. Although Chainrai was registered as the sole lender of the Loan, he was Shochat’s trustee in respect of one half of the Loan. See paragraph 66 of the Award.

(2) Chainrai twice extended the date of repayment of the Loan by the Kushnir Company as aforesaid without Shochat’s knowledge or consent.  See paragraphs 72 and 81 of the Award.

(3) By reason of such extensions, repayment of the Loan was deferred for long years without any additional interest and no real steps whatsoever for the repayment of the Loan had been taken by Chainrai.  See paragraph 74 of the Award.

(4) Not only did Chainrai fail to preserve the trust property in the sense of striving to enforce the repayment of the Loan, he used the rights of the Loan as he wished, unrecognizably modified them and severely harmed Shochat’s rights in the Loan. Chainrai therefore breached the duty of good faith he owed to Shochat.  See paragraph 88 of the Award.

(5) Shochat could not have demanded repayment of one half of the Loan directly from the Kushnir Company for want of privity as a result of Chainrai’s denial of his half interest in the Loan.  See paragraph 87 of the Award.

(6) “In light of the fact that [Chainrai] treated the Loan as if it were his own and gave many extensions for years, without interest, in light of the fact that throughout the whole time he denied [Shochat]’s rights in the Loan, and in light of the long period of time that elapsed from the maturity date without any steps being taken for repayment of the Loan, there is a basis for the claim that in such accumulative circumstances, [Shochat] is entitled to receive from [Chainrai] his share of the Loan, together with interest.”  See paragraph 89 of the Award.

(7) Shochat having proved that he contributed NIS 14,648,779 of the Loan, Chainrai was liable to pay Shochat this sum plus one half of the agreed interest in the amount of NIS 1,500,000. Chainrai must therefore pay Shochat the total sum of NIS 16,148,779, plus interest and indexation differentials as from 20 June 2008, which was the original maturity date of the Loan, until the date of actual payment.  See paragraphs 96 to 98 of the Award.

18.  Chainrai lodged successive challenges to the Award in the Israeli courts.  The Tel Aviv-Jaffa District Court dismissed his application for leave to appeal against, and to set aside, the Award on 18 May 2014.  The Supreme Court of Israel dismissed his application for leave to appeal against the judgment of the Tel Aviv-Jaffa District Court on 13 July 2015.  The Supreme Court further dismissed Chainrai’s application to hold a further hearing on its decision dated 13 July 2015 on 26 August 2015.  The Tel Aviv-Jaffa District Court finally made a decree approving the Award on 20 September 2015.

Chainrai’s claim against Shochat in this action

19.  This action was commenced by Chainrai by a generally indorsed writ of summons on 31 July 2014, i.e. during the pendency of Chainrai’s application to the Supreme Court of Israel for leave to appeal against the Tel Aviv-Jaffa District Court’s dismissal of his application for leave to appeal against, and to set aside, the Award. 

20.  The writ was not served within 12 months.  Its validity was renewed for another 12 months on 24 July 2015.  After serving Kushnir in Hong Kong on 2 November 2015, on 16 November 2015, Chainrai obtained leave to issue a concurrent writ against the other defendants including Shochat and to serve the same on them out of the jurisdiction in Israel under Order 11 rule 1(1)(c) of the Rules of the High Court (Cap 4A).  The SOC was filed and served out of time on 11 February 2016.

21.  As to what prompted this action, it is Chainrai’s case that in November 2013, he instructed his Israeli lawyers to make arrangements for the sale of the Shares to satisfy the Award in case his attempts to challenge the Award in the Israeli courts should fail.  And it was during this process that he discovered through his Israeli lawyers that the Shares were already valueless because, unbeknownst to him, Nachushtan:

(1) had already been in trading and financial difficulties before Shochat introduced the transaction to him;

(2) suffered losses as a result of the temporary liquidation proceedings and receivership of its principal subsidiary, Ampa Consumer Products Ltd (“Ampa”);

(3) was itself put under receivership by reason of insolvency on 8 March 2009, delisted from the Tel Aviv Stock Exchange and became a private company later in 2009; and

(4) was subject to liquidation proceedings on 7 January 2013.

22.  Insofar as it is material, Chainrai claims against Shochat in negligence and/or breach of fiduciary duties, in that Shochat inter alia withheld or concealed from Chainrai the fact that the Nachushtan group of companies were having financial difficulties, which Shochat knew or should have known, both when the Loan was originally made and when the extensions were granted, thereby preventing Chainrai from minimising his damage or exposure.  Such information would have put in doubt the wisdom of the Loan to enable the Kushnir Company to purchase a substantial shareholding in Nachushtan as well as the adequacy of the Share Pledge alone as security for the repayment of the Loan.

23.  Chainrai seeks NIS 29,500,000 (i.e. the amount of the Loan) plus interest, in addition to any damages, costs or other relief that the court deems fit in these proceedings.

Shochat’s ground for striking out

24.  The summons for the Striking Out Application, taken out pursuant to Order 18 rule 19 and the inherent jurisdiction of the court, identified the following specific grounds:

“(a) It is an abuse of process of the Court, or res judicata, for the Plaintiff to re-litigate the same issues and subject matter which has been adjudicated in an arbitration between the parties in Israel, and the ensued appeals to the Israeli courts;

(b) It is scandalous, frivolous or vexatious; or

(c) It may prejudice, embarrass or delay the fair trial of the action”.

25.  Shochat’s ground for striking out as stated in his summons was based on an abuse of process arising from the re-litigation of the “same issues and subject matter” in the Israeli Arbitration, which would be understood as a reference to the doctrine of res judicata in the narrower sense.[iii]

26.  However, it is clear that the issues raised by Chainrai against Shochat in this action were not litigated or adjudicated in the Israeli Arbitration.  Shochat expressly conceded as much in paragraph 9 of his 2^nd affirmation dated 31 August 2016.

27.  The submissions before me on behalf of Shochat were grounded primarily on the doctrine of res judicata in the wider sense, i.e. that Chainrai’s claims against Shochat in this action could and should have been raised in the earlier proceedings between the parties in Israel.  While Mr Eugene Fung SC (leading Miss Kay Seto) for Chainrai drew my attention to the discrepancy between Shochat’s summons and submissions for striking out, leading counsel proceeded to deal with Shochat’s case as advanced in submissions.

Principles for striking out based on res judicata in wider sense

28.  The burden is on the party seeking to strike out to demonstrate that it is plain and obvious that the other party’s claim is bound to fail.  There should be no trial upon affidavit.  Disputed facts are to be taken in favour of the party sought to be struck out.  If the court does not think the matter to be clear beyond doubt, there should be no striking out.  One must be careful not to drive a plaintiff from the judgment seat.  See Hong Kong Civil Procedure 2018, Volume 1, paragraph 18/19/4.

29.  The expression “frivolous or vexatious” includes proceedings that are an abuse of the process of the court: Hong Kong Civil Procedure 2018, Volume 1, paragraph 18/19/8.  The process of the court must be used bona fide and properly and must not be abused.  The court will prevent the improper use of its machinery and will, in a proper case, summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation: Hong Kong Civil Procedure 2018, Volume 1, paragraph 18/19/10.

30.  It may be an abuse of the process of the court to raise a claim (or a defence or an issue) in later proceedings that could and should have been raised in earlier proceedings.  This is sometimes called the Henderson v Henderson abuse[iv] or res judicata in the wider sense.

31.  It is unnecessary for present purposes to conduct a full review of the principles.  It is sufficient to restate the following which are not controversial:

(1) The doctrine of res judicata in the wider sense is founded on an abuse of process.  See Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72 at [83(1)] (Ma CJ).

(2) It is thus essential when striking out a claim on this basis that the bringing of the claim is in all the circumstances an abuse sufficiently serious to justify preventing the plaintiff from proceeding.  This abuse will usually take the form of the other party being “vexed” (or in some cases, the terms “oppressed”, “unjustly harassed” or “unjustly hounded” are used), or the administration of justice being put into disrepute, by the subsequent set of proceedings.  See Ko Hon Yue, supra at [83(3)]-[83(4)] (Ma CJ).

(3) In deciding whether there is an abuse of process, it is wrong to adopt a dogmatic approach and hold that because a matter could have been raised in earlier proceedings it should have been, so that raising it in later proceedings is necessarily abusive.  The question whether an action is an abuse of process as offending against the public interest in the finality of litigation and in a defendant not being vexed twice in the same matter should be judged broadly on the merits taking account of all the public and private interests involved and all the facts of the case.  The crucial question is whether the plaintiff is in all the circumstances misusing or abusing the process of the court.  Otherwise there is a danger of a party being shut out from bringing forward a genuine subject of litigation.  See Johnson v Gore Wood & Co [2002] 2 AC 1 (HL) at 31C-E (Lord Bingham), followed by the Hong Kong Court of Appeal in Total Lubricants HK Ltd v De Chanterac (No 2) [2013] 2 HKLRD 838 at [30] (Kwan JA).

Whether abuse of process by Chainrai on existing evidence

32.  In support of the Striking Out Application, it was argued by Mr Russell Coleman SC (leading Mr Lawrence Cheung) for Shochat that:

(1) The issues raised by Chainrai’s claims against Shochat in this action could, and should, have been raised in the Israeli Arbitration because they arise out of the same factual matrix or the same factual “root” that was the subject of the Israeli Arbitration namely, the Loan to the Kushnir Company to purchase the Shares in Nachushtan. 

(2) Chainrai should have made enquiries in relation to the value of the Shares earlier (i.e. before November 2013).  Nachushtan was a publicly listed company.  There was no reason why Chainrai could not have discovered its receivership in March 2009 and liquidation in January 2013, which was still before the making of the Award on 31 October 2013.

(3) He also had ample opportunity to conduct discovery in the Israeli Arbitration.  

(4) Chainrai could have amended his pleadings in the Israeli Arbitration before its hearing was concluded or the Award was made.

(5) Indeed, Chainrai filed a notice of revised causes and amounts of his counterclaim in the Israeli Arbitration as late as December 2012.

(6) Chainrai’s present action against Shochat and its late pursuit only after the doors were finally closed on him in Israel is merely an attempt to avoid the consequences of the Award, which is impermissible.

33.  I am not sure the last-mentioned point would take the Striking Out Application any further for Shochat if he fails to prove that it is plain and obvious that Chainrai’s present action against him constitutes an abuse of process in the wider sense of the res judicata doctrine because Chainrai could and should have raised his claims against Shochat herein in the Israeli Arbitration.

34.  With regard to whether Chainrai’s pleadings in the Israeli Arbitration could have been amended to add his present claims against Shochat, Chainrai placed reliance on the agreed directions mentioned in paragraph 15 above and further clarified that the amendments in December 2012 was to give effect to the abandonment of part of his counterclaim in the Israeli Arbitration.  This side issue is a red herring and need not be ruled on.  It is not Chainrai’s case that he did not advance his present claims against Shochat in the Israeli Arbitration because he was prevented, or thought he would be prevented, from doing so by the said agreed directions.

35.  Chainrai’s explanation for not making his current claims against Shochat in the earlier proceedings in Israel was, as summarised in paragraph 21 above, that he only discovered the inadequacy of the Share Pledge as security for the repayment of the Loan due to Nachushstan’s receivership and liquidation in November 2013. By then, the Israeli Arbitration had already concluded.

36.  On this, there was some suggestion by Shochat in paragraph 3 of his 3^rd affirmation that paragraph 26 of the SOC was to the effect that Chainrai knew about the share value of Nachushtan in January 2013.  Paragraph 26 of the SOC pleaded: “It was not until after the liquidation of Nachushtan in about January 2013, to the surprise of [Chainrai], Nachushtan was already in both trading and financial difficulties …”.  I agree with Mr Fung that, on a proper reading of this averment, the reference to January 2013 was plainly to the date of liquidation of Nachushtan, and not to the date when Chainrai acquired knowledge of such event.

37.  The exact time at which Chainrai made the relevant discovery was not pleaded in the SOC but deposed to in paragraphs 19, 21 and 24 of Chainrai’s 2^nd affirmation dated 5 August 2016.  Mr Coleman invited me to examine only the averments in the SOC and not “the expanded version of Chainrai’s case contained in his 2^nd affirmation” that he only came to know about the financial difficulties of Nachushtan, and hence Shochat’s alleged breach of fiduciary duties and negligence, in November 2013. 

38.  I cannot do so.  Although the margin of the summons for the Striking Out Application cited Order 18 rule 19, reliance was obviously not placed on rule 19(1)(a) (no reasonable cause of action).  Evidence is admissible. 

39.  And given that the question whether this action against Shochat is an abuse of process is one to be answered after taking into account all the facts of the case, I cannot see how the court could ignore Chainrai’s evidence that he discovered the fact pivotal to such action only after the conclusion of the earlier Israeli Arbitration.

40.  This is so because if a party can show that at the time of the former proceedings he was excusably ignorant of some matter, which would have altered the whole aspect of the case, he is entitled to claim that no issue estoppel (whether in the narrower or wider sense) shall take effect against him.  However, the estoppel stands if, inter alia, the party had actual knowledge of the fact or might with reasonable diligence have acquired such knowledge.  See China North Industries Investment Ltd v Chum [2010] 5 HKLRD 1 at [68]-[69] (Stock JA), citing Spencer Bower, Turner and Handley, The Doctrine of Res Judicata (3^rd ed, 1996), paragraph 196.

41.  Leaving aside whether Chainrai did in fact discover the financial predicament of Nachushstan only in November 2013 as he claimed (which is the issue to which the Additional Evidence Application relates), it is not plain or obvious to me that Chainrai should have made enquiries about the financial position of Nachushstan before November 2013.

42.  First, Chainrai was (and still is) based in Hong Kong.  He does not know Hebrew. Apart from the business ventures in Israel in which he was involved, the evidence before me does not point to his having any or any other connection with Israel.  Nachushstan was registered and listed in Israel.  It was put under receivership, delisted and liquidated in Israel.  The public records relevant to these processes would be available in Israel.  Chainrai was a pledgee of shares in Nachushstan.  Shochat did not point to any matter, other than the litigation on foot between him and Chainrai in Israel, that should and would put Chainrai on enquiries in relation to the value of shares in Nachushstan.

43.  The mere fact that Shochat had instituted proceedings against Chainrai in respect of the Loan would not in my view, without more, prompt Chainrai to look into the value of the Shares.  In this regard, in the Israeli Action and Arbitration:

(1) The issues in Shochat’s claims were the nature, purpose and consequence of the payment of NIS 14,648,779 by Shochat into his and Chainrai’s joint exchequer account; whether such payment gave Shochat a 50% interest in the repayment of the principal and interest of the Loan and in the Shares under the Share Pledge; and how Shochat should be compensated for being denied such interest by Chainrai.

(2) The issues in Chainrai’s counterclaims were whether Shochat was in breach of fiduciary duties as a trustee of Chainrain’s funds and investments regarding other joint ventures between them. 

There was no issue in the proceedings in Israel as to the value of the Shares at any material time. 

44.  For this reason, I also imagine there would not have been any discovery pertaining to the value of the Shares in the Israeli Arbitration.

45.  In any event, whether Chainrai should have made enquiries about the value of the Shares earlier appears to me to be a dispute that I cannot and should not resolve on affidavit evidence in a striking out application.

The Additional Evidence Application

Point sought to be established by adducing Transcript

46.  It would be apparent from the above discussion that, at the hearing on 12 September 2016, Shochat dealt with the timing of Chainrai’s discovery of Nachushtan’s financial predicament along the line that “[Chainrai]’s failure to discover the inadequacy of his security was purely the result of his ignorance and carelessness”.

47.  The position that Shochat sought to advance by the Additional Evidence Application was that Chainrai did in fact have knowledge of the financial difficulties of Nachushtan well before November 2013. 

48.  Shochat felt able to advance such position in light of the following line of cross-examination of Chainrai at the hearing of the Arbitration on 29 August 2012, as recorded at pages 293 and 294 of the Transcript:

“Q: Do you know that Nehoushtan, the company that its shares were secure in this debenture, was under receivership?

  A: Excuse me?

  Q: Do you know that the company, Nehoushtan, was under receivership?

  A: Today?

  Q: Do you know that it was under receivership?

  A: Today if I know?  Yes.

  Q: Yes. When did you receive the first hint or I don’t know what, that put you under, that made you understand that this company is under receivership?

  A: I don’t recall the date.  I don’t recall the date but I was vey suspicious, not about the receivership, but about the company, a long time ago.

  Q: I see.  But the fact that the company was put under receivership, can you recall when you first understood that this is the situation?

  A: I learnt of this I think a couple of years ago.”

49.  Further, at the hearing on 22 February 2017, Mr Coleman directed my attention to Chainrai’s answers at 2 more places and made the following points:

(1) Chainrai accepted that his brother-in-law to whom he transferred the Shares on 30 October 2007 knew about the value of the Shares at the time of the transfer. The court was invited to infer the same knowledge on the part of Chainrai.

(2) Chainrai’s Israeli lawyer clearly knew about the receivership of Nachushtan at the time of the Israeli Arbitration.  The court was invited to infer that the lawyer must have been told by, or told this to, his client Chainrai.

50.  Mr Fung objected to these 2 further points.  I think he was right to do so.  The first time they were raised was in paragraphs 15(1) and (2) of the supplemental skeleton argument of counsel for Shochat which was filed and served on 17 February 2017.  Chainrai had simply not had the opportunity to deal with them in evidence.

51.  I will therefore only consider whether Shochat should have leave to adduce the cross-examination of Chainrai as set out in paragraph 48 above.

Principles governing admission of new evidence after hearing and before judgment

52.  The parties were divided as to the applicability to the current situation of the 3 conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 at 1491 (Denning LJ):

(1) that the evidence could not have been obtained with reasonable diligence for use at the trial;

(2) that the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(3) that the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.

53.  Mr Coleman took the stance that the Ladd v Marshall conditions do not apply to the Additional Evidence Application as it is not related to an appeal.

54.  Although Ladd v Marshall was concerned with an application for leave to adduce further evidence on appeal and the 3 conditions have become the established test for the admission of fresh evidence on appeal, they have also been applied where new evidence is sought to be introduced between judgment and the drawing up of the order.  See Charlesworth v Relay Roads Ltd [2000] 1 WLR 230, in which Neuberger J, after stating that it was germane to consider the approach to the admission of new evidence on appeal laid down in Ladd v Marshall, said at 237D-F:

“While I think that these three factors should be in the forefront of the mind of the court when considering an application to admit new evidence after judgment has been handed down, but before the order has been drawn up, I incline to the view that the court is entitled to be somewhat more flexible, and not to proceed on the strict basis that each of these three conditions always has to be fully satisfied before fresh evidence can be admitted before judgment. Of course, in many ways, an applicant seeking to persuade the judge to receive fresh evidence and/or argument on a new point is in a very similar position to an appellant seeking similar relief from the Court of Appeal. He has had a full opportunity to collect his evidence and to marshall his arguments, and there must be a strong presumption against letting him have a second chance, particularly after he has seen in detail from the judgment why he has lost.”

And at 238E-H:

“… the following principles apply where a party is seeking to call fresh evidence on a new point after judgment has been given but before the order has been drawn up: (1) the court has jurisdiction to grant an application to amend the pleadings to raise new points and/or to call fresh evidence and/or to hear fresh argument; (2) the court must clearly exercise its discretion in relation to such an application in a way best designed to achieve justice; (3) the general rules relating to amendment apply so that: (a) while it is no doubt desirable in general that litigants should be permitted to take any reasonably arguable point, it should by no means be assumed that the court will accede to an application merely because the other party can, in financial terms, be compensated in costs; (b) as with any other application for leave to amend, consideration must be given to anxieties and legitimate expectations of the other party, the efficient conduct of litigation, and the inconvenience caused to other litigants; (4) quite apart from, and over and above, those principles, because it is inherently contrary to the public interest and unfair on the other side that an unsuccessful party should be able to raise new points or call fresh evidence after a full and final judgment has been given against him, it would generally require an exceptional case before the court was prepared to accede to an application where the applicant could not satisfy the three requirements in Ladd v Marshall; (5) almost inevitably, each case will have particular features which the court will think it right to take into account when deciding how to dispose of the application before it; (6) the court should be astute to discourage applications which involve parties seeking to put in late evidence, but cases when new evidence is found after judgment is given and before the order is drawn up will be comparatively rare.”

55.  The approach of applying Ladd v Marshall but with flexibility was extended to the introduction of new evidence after the close of the parties’ case but before judgment was handed down in Mak Kit Ching Kitty and Fu Mee Yuk Shirley, administratrices of the estate of Fu Kwok Kai, Daniel (deceased) v Tsang Yiu Wing, HCPI 811/1999, 18 October 2006.  In that case, Deputy High Court Judge Carlson held at [9] that the plaintiff needed to show “exceptional circumstances” to justify the calling of additional evidence at such a late stage.

56.  I agree.  It was not contended by Shochat that he did not require the court’s leave to adduce the Transcript after the hearing on 12 September 2016 while judgment was reserved.  The admission of new evidence at a late stage of proceedings is always a matter of discretion that must be justified, balancing the competing interests of the parties and the court.  To my mind, the 3 questions asked in Ladd v Marshall would always be relevant if such discretion is to be exercised in a principled manner.

First condition

57.  It appears to me, from reading paragraphs 11 and 12 of Shochat’s 3^rd affirmation dated 26 October 2016, that the Transcript was prepared and delivered to the respective Israeli legal teams for Shochat and Chainrai shortly after Chainrai’s testimony.  In any event, it would have come into the possession of Shochat’s lawyers in Israel long before the hearing of the Striking Out Application on 12 September 2016.

58.  According to Shochat, after the hearing on 12 September 2016, it was reported to him that I expressed concern or queried “whether the share value of [Nachushtan] was mentioned or known by Chainrai during the Israeli Arbitration hearing”.  He consulted his Israeli lawyers who found the relevant part of Chainrai’s testimony quoted in paragraph 48 above.

59.  However, Chainrai had made clear, in his 2^nd affirmation dated 5 August 2016, that he opposed the Striking Out Application on the premise that he could not have advanced his present claims against Shochat in the Israeli Arbitration because he did not know that the Shares had become valueless until November 2013 after those proceedings had concluded.

60.  The timing of Chainrai’s knowledge of Nachushtan’s receivership and liquidation was thus not a new question at all but had emerged as the crucial issue from the early dates of the Striking Out Application.

61.  I agree with Mr Fung that the Transcript could, with reasonable diligence, have been produced for use at the hearing on 12 September 2016.  Hence, the first condition of Ladd v Marshall is clearly not satisfied.

Second condition

62.  The cross-examination reproduced in paragraph 48 above, on its face, contained an admission by Chainrai that he learnt of the Nachushtan receivership “a couple of years ago” before Chainrai’s testimony at the arbitration hearing.

63.  Chainrai sought to explain such testimony as follows:

(1) In around May 2007, he was told by Shochat that Ampa, a subsidiary of Nachushtan, had been put under receivership.  When he was asked at the arbitration hearing if he knew that Nachushtan was under receivership, he confused the receivership of Nachushtan with that of Ampa.

(2) When he testified at the arbitration hearing, he was under the influence of medication for his heart condition and depression, which affected his memory and understanding of the questions asked of him.

64.  Mr Coleman retorted that:

(1) The line of cross-examination was clear, with no room for Chainran’s claim that he was referring to Ampa and not Nachushtan when he gave his answers.

(2) Chainrai was legally represented throughout the hearing of the Israeli Arbitration. Neither he nor his lawyers asked for an adjournment to accommodate his physical or mental condition in the middle of cross-examination.  Nor was he re-examined to clarify the confused answers.

(3) Chainrai’s explanation contradicted his own earlier allegations that he only discovered the Ampa receivership in November 2013.

65.  These points are not invalid or without merits.

66.  However, the date on which Chainrai became aware of the Nachushtan receivership goes to whether the present action against Shochat should be struck out as offending the doctrine of res judicata in the wider sense and therefore an abuse of process.  It would thus have to be plainly and obviously established by Shochat.  The benefit of any doubt would have to be given to Chainrai.

67.  In this regard, I do not regard Chainrai’s explanations for the testimony relied upon by Shochat to be inherently implausible.

68.  Indeed, the following may tend to lend credence to such explanations:

(1) First, Chainrai agreed to extend the Loan for a further term of an indefinite duration in June 2009, i.e. 3 months after Nachushtan had been put under receivership by reason of insolvency.  Had he known that the Share Pledge was no longer adequate as security for the Loan, it would have made no commercial sense for him to have held onto valueless security without taking any action to protect his interests as a creditor of the Loan, and a fortiori, agreed to extend the Loan term at the same time.

(2) Second, Chainrai was sued by Shochat for half of the principal and interest of the Loan.  Such claim was implicitly premised upon the Loan being recoverable.  Had Chainrai discovered the Nachushtan receivership a couple of years before he gave live evidence in the Israeli Arbitration hearing, one would have expected him to raise it against Shochat in the Israeli Arbitration to support the argument that the enforcement of the Loan through the realisation of the security of the Share Pledge had become impossible or at least questionable.

69.  Chainrai’s testimony under cross-examination in the Israeli Arbitration hearing, as reproduced in paragraph 48 above, is relevant to when exactly he became aware of the Nachushtan receivership.  However, given the high threshold facing Shochat, for the reasons mentioned in paragraphs 66 to 68 above, the introduction of such evidence in the Striking Out Application would, I fear, only serve to highlight the fact that it is impossible to resolve the dispute on this issue on affidavit evidence.  For this reason, the evidence, even if given, would probably not have an important influence on the outcome of the Striking Out Application.

Conclusion on Additional Evidence Application

70.  I do not need to go on to consider the third Ladd v Marshall condition.  With the non-fulfilment of the first and second conditions, even bearing in mind the need for flexibility, I am not inclined to exercise my discretion in favour of admission of the new evidence.

71.  In any event, as stated under the discussion on the second condition, the admission of the new evidence would not have altered the outcome of the Striking Out Application.

Other points raised by Shochat

72.  In paragraph 29 of his skeleton argument on the Striking Out Application, Mr Coleman gave specific reasons why the SOC in its present form should be struck off.  A number of them have nothing to do with res judicata in the wider sense.  For the sake of completeness, I shall briefly deal with these points.

73.  First, it was suggested in paragraph 29(1) (as well as paragraph 17) that Chainrai’s claim against Shochat for NIS 29,500,000 with interest clearly shows that he has not accepted and is unwilling to accept the findings by the Arbitrator that Shochat had contributed half of the Loan to the Kushnir Company.  Chainrai in fact acknowledges in paragraph 20 of the SOC that Shochat agreed to contribute half of the Loan.  Mr Fung also confirmed on behalf of Chainrai that if he succeeds in these proceedings against Shochat, Chainrai, in his capacity as the proprietor of the rights in the Loan, would be able to claim compensation for the entirety of the Loan, but subject to his giving credit for one-half of the amount contributed by Shochat.

74.  Second, it was suggested in paragraphs 29(4), (6) to (9) that Chainrai’s causes of action in negligence and breach of fiduciary duties are defective.  For example, Shochat argued that as Nachushtan and its subsidiaries became insolvent in 2009, Chainrai’s claim that he procured him to invest in Nachushtan whilst concealing its financial difficulties are bound to fail.  He also contended that the complete breakdown of their relationship of trust and confidence since November 2007 and/or the unauthorised extensions of the term of the Loan by Chainrai in June 2008 and June 2009 would have terminated any agency relationship between the parties or any fiduciary duty or duty of care owed by Shochat to Chainrai regarding the financial status of the Nachushtan group of companies. 

75.  I agree with Mr Fung that these criticisms are matters for Shochat’s defence in these proceedings, and do not support a striking out application.  They also raise disputes in fact and/or law of a nature that cannot and should not be resolved in a striking out application.

Orders

76.  For the reasons stated above, I dismiss both the Additional Evidence Application and the Striking Out Application.

77.  I also make an order nisi that Shochat should pay Chainrai’s costs of and occasioned by these applications, to be taxed on a party and party basis if not agreed, with certificate for two counsel for the hearings on 12 September 2016 and 22 February 2017.

78.  Last but not least, I am grateful to counsel for their able assistance.