CHAN CHUN CHUEN v. KAO, LEE & YIP

HCA 597/2015

[2021] HKCFI 716

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 597 OF 2015

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REASONS FOR DECISION

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A. Introduction

1.  The plaintiff is no stranger to litigation.  In this action, he brings a claim against the defendant firm of solicitors, essentially on the basis that he has been put to greater exposure to tax liabilities and penalties than would otherwise have been the case had the firm acted properly by forwarding to him the tax returns and other relevant correspondence addressed to him at or care of the firm’s address.

2.  On 18 March 2021, I heard the plaintiff’s appeal – brought by Notice of Appeal dated 27 May 2020 – from the decision of Master Cruden dated 13 May 2020, by which she permitted the defendant to amend its Defence.

3.  At the hearing, the plaintiff was represented by Ms Po Wing Kay and Mr Acorn Lau, and the defendant was represented by Mr Jenkin Suen SC leading Mr Justin Lam.  Both sides had filed relatively full written submissions in advance of the hearing, and the hearing itself was therefore conducted with some efficiency.

4.  At the end of the argument, I dismissed the appeal, and indicated that I would give later the reasons for my decision. These are my ‘Reasons for Decision’.

B.  Procedural History

5.  It is necessary to put the present appeal in the proper context of the procedural history of these proceedings.  But, when I have done so, I agree with Ms Po that the particular point at issue in this appeal can be dealt with quite shortly.

6.  The proceedings were begun by Writ dated 23 March 2015, and a Statement of Claim was filed on 16 July 2015.  Following the filing of the Defence on 11 September 2015 and the Reply on 9 October 2015, the pleadings were closed.

7.  By summons dated 29 April 2016, the defendant sought specific discovery from the plaintiff of all documents filed in, and records of hearings, orders and judgments and written submissions in, various court actions (together, “Tax Proceedings”) brought by the plaintiff seeking to challenge the relevant tax assessments imposed on him.  The discovery application was resisted, but was eventually dealt with partly by of an undertaking and partly by an order.  The plaintiff undertook to provide the updated court file indices of the Tax Proceedings and to furnish the defendant with copies of documents referred to in those inices as may then be requested. A Master ordered the plaintiff to provide the defendant with copies of the transcripts of the substantive hearings in each of the Tax Proceedings.

8.  With the benefit of the materials disclosed, the defendant then applied to strike out the Statement of Claim (“SOC”).  The application was by summons dated 8 May 2017, which put forward two grounds for striking out, namely that (a) the claim disclosed no reasonable cause of action against the defendant, and (b) the claim was vexatious or an abuse of process of the court.  As will become apparent, and as seems to me to be for reasons obvious in the circumstances where evidence was necessarily deployed, the ‘no reasonable cause of action’ ground was not actually pursued at the hearing.

9.  The thrust of the strike out application was that, in the Tax Proceedings, the plaintiff had made statements and averments and submissions which were “diametrically opposed” to the pleaded case against the defendant in this action.

10.  The strike out application was heard by DHCJ Anson Wong SC, who ruled in a Decision dated 12 October 2017 (“1^st Decision”). Whilst he struck out that part of the plaintiff’s claim based upon an alleged oral agreement, he declined to strike out the remainder of the claim.  I will deal with the detail of the Decision below.

11.  The defendant sought leave to appeal from the 1^st Decision, first from the Deputy Judge.  He refused leave to appeal by his Decision dated 27 August 2018 (“2^nd Decision”).  The defendant renewed the application for leave to appeal to the Court of Appeal, which refused leave by its Judgment dated 15 February 2019 (“CA Judgment”).  Again, I can deal with the detail of the 2^nd Decision and the CA Judgment below.

12.  By summons dated 30 September 2019, the defendant applied to amend the Defence in the form of the draft attached to the summons.  Some relatively minor amendments were not controversial, but the more substantive amendments – found in §§8, 8A and 9(aa) – were opposed by the plaintiff.  The broad basis of the opposition (but, for the detail, see below) was that the proposed amendments sought to ‘re-run’ arguments already dealt with on the strike out application, so that it was an abusive ‘second bite at the cherry’.

13.  The Master allowed the proposed amendments.  She also made a consequent costs order.  As is typical on an amendment application, the costs order separated (a) the costs of and occasioned by the amendments from (b) the costs of the argument.  As to the latter, the Master made the usual order that the costs follow the event, namely that the plaintiff should pay the defendant’s costs (which she later summarily assessed, and which have been paid).  However, as to the former, the Master made a less usual order that the costs of and occasioned by the amendments should be the defendant’s costs in the cause (as opposed to the more usual order that those costs be to the non-amending party).

14.  As already stated, the Master’s order was made on 13 May 2020, and the matter was brought before me on the Notice of Appeal dated 27 May 2020.

C.  The Proposed Amendments

15.  Following the striking out of the plaintiff’s claim in so far as it was based upon an alleged oral agreement, the essential basis of the plaintiff’s SOC at §4 is that:

By an agreement between the Plaintiff and the Defendant to be inferred from conduct between the Plaintiff and the defendant (in particular via Mr. Yip Wan Tak) since around mid-1993, the parties agreed on the following terms (“Agency Agreement”): - [terms set out]

16.  The plaintiff’s SOC at §§5 and 6 pleads that the defendant voluntarily assumed to act for the plaintiff, that the plaintiff had foreseeably placed trust and confidence in and relied on the defendant, and that the defendant is now estopped to deny the existence of an agency relationship.

17.  The proposed amendments found in §§8, 8A and 9(aa) are as follows (as the paragraphs now read, ignoring any striking out and underlining to show the original and amendment):

8.  Further, the Plaintiff is estopped and it is contrary to the due administration of justice for the Plaintiff to rely on any alleged Agency Agreement in the light of his counsel’s submissions in the tax-related proceedings (i.e. HCAL 76/2010, CACV 113/2011 and the DCTC Action (collectively “the Tax Proceedings”)).

(a)  The Plaintiff’s Amended Notice of Application for Leave to Apply for Judicial Review in HCAL 76/2010 dated 3 May 2011 at paragraphs 56(d)(iii)-(iv) stated that “KLY had never been appointed as the Applicant’s taxation representative or agent for the purposes of the Ordinance” and “[t]here was no evidence whatsoever of a retainer subsisting between KLY and the Applicant for the service of important legal documents such as notices of tax assessment (and in fact there was no such retainer)”.

(b)  The Plaintiff’s Skeleton Argument dated 17 May 2011 in HCAL 76/2010 at paragraph 30.3 stated that “CIR had no knowledge of, or any basis whatsoever for suspecting that, any retainer subsisted between the Applicant and KLY for the service of important legal document (and indeed there was no such retainer)”.

(c)  The Plaintiff’s Senior Counsel made oral submissions to the Court at the hearing of HCAL 76/2010 that “from 2007 the professional connection with Kao, Lee & Yip had ceased, they ceased to be solicitors” and “[t]here was an informal arrangement and it did not result in the assessments that are the subject of this application being forwarded”.

(d)  The Plaintiff’s Skeleton Argument of Applicant dated 23 February 2012 in CACV 113/2011 at paragraph 26.2 stated that “CIR had no knowledge of, or any basis whatsoever for suspecting that, any retainer subsisted between the Applicant and KLY for the service of important legal document (and indeed there was no such retainer)”.

(e)  The Plaintiff’s Skeleton Argument dated 17 May 2011 in HCAL 76/2010 at paragraph 30.2 stated that “the KLY Address had obviously gone stale”.

(f)  The Addendum to the Plaintiff’s Skeleton Argument dated 24 May 2011 in HCAL 76/2010 at paragraphs 7,8 and 11 stated that “[t]here was an obvious indication that the KLY Address was stale”, “assessments sent to this were not being received by the Applicant because the address was stale” and “[b]y 2 December 2009 CIR were faced with clear evidence the KLY Address was a dud (which in fact it was)”.

(g)  The Plaintiff’s Skeleton Argument of Applicant dated 23 February 2012 in CACV 113/2011 at paragraph 31.2 stated that “a given address has been conclusively shown to be ineffective for the service of legal documents”.

8A.  There could not have been any alleged Agency Agreement:

(a)  As evidenced by the matters pleaded above, the Plaintiff in fact never had any intention to create any contractual or legal relations with the Defendant in relation to any alleged Agency Agreement.

(b)  The Defendant had no intention to create any contractual or legal relations with the Plaintiff in relation to any alleged Agency Agreement.

(c)  No consideration was given by either the Plaintiff or Defendant in relation to any alleged Agency Agreement.

(d)  No alleged Agency Agreement should be implied (or inferred) as it was not necessary and/or reasonable in the circumstances to do so.

9.  (aa)  It is specifically denied that the Plaintiff had placed trust and confidence and relied on the Defendant by reason of inter alia the Plaintiff’s own stance in the Tax Proceedings as pleaded in paragraph 8 above.

D.  The 1^st Decision, 2^nd Decision and CA Judgment

18.  In §3 of the 1^st Decision, the Deputy Judge noted that the only basis of the application to strike out was on the ground of abuse of process, and that the particular complaint of abuse of process was that the plaintiff in this action had adopted a position which is “fundamentally inconsistent with and diametrically opposite to” the position adopted by him in previous judicial review proceedings (“JR Application”).  The JR Application was, of course, one of the Tax Proceedings.  Reference can also be made to §13.

19.  In §§14-16, the Deputy Judge noted that in correspondence referenced in the JR Application, the defendant confirmed that there was an “informal arrangement” whereby the defendant’s staff would contact the plaintiff’s agents when any letter was sent to the defendant’s agent for the plaintiff’s attention (“Informal Arrangement”).  Hence, the position taken by the plaintiff in the JR Application was that whilst there was no retainer between the plaintiff and the defendant for the service of documents, there was the Informal Arrangement in place which unfortunately did not result in the tax assessments in question being brought to the plaintiff’s attention.

20.  In §§21-40, the Deputy Judge dealt with the applicable legal principles.  In §30, he specifically noted that a party who seeks to strike out a claim based on an abuse of process bears a heavy burden, and that the court will only strike out in a plain and obvious case, and that the doctrine of abuse of process is essentially a ‘fairness doctrine’.  In §39, the Deputy Judge held that the ultimate question is whether, having assessed various factors and balanced competing interests, it is plain and obvious to the court that the bringing or defending of a claim is an abuse of process.  He also held, at §40, that it does not matter how the abuse is described, and approved the dictum that abuse of process ‘means what it says’, being difficult to describe although ‘you know when you see it’.

21.  Turning to the question of whether there was any diametric inconsistency, at §43, the Deputy Judge specifically noted that then Counsel for the defendant did not suggest that the plea in §4 of the SOC that an agreement should be inferred from conduct runs contrary to the plaintiff’s case in the JR Application.  Further, the Deputy Judge thought that plainly right, as reference was in fact made to the existence of the Informal Arrangement in the JR Application.  (This point was revisited in the 2^nd Decision, see below).

22.  The core of the reasoning for acceding to the striking out of the plea of an oral agreement is to be found in §51.  There, the Deputy Judge thought it plain that the Informal Arrangement is very different from what was alleged to be the oral agreement, and that instead of supporting the alleged oral agreement the reference to the Informal Arrangement, coupled with the positive assertion of there having been no retainer, flatly contradicted the existence of the alleged oral agreement.

23.  In §§58-59, the Deputy Judge observed that, unlike his position on the existence of a retainer, the plaintiff in the JR Application did not state or assert that he placed no trust and confidence in the defendant in bringing to his attention legal or tax documents sent to the defendant’s address.  Further, descriptions of the Defendant’s address as “stale” or “a dud” for the service of documents on the plaintiff were not inconsistent – I think in context he meant not necessarily inconsistent – with a case that the defendant was negligent in its handling of the plaintiff’s legal/tax documents sent to its address under the Informal Arrangement.

24.  In §§60-65, the Deputy Judge rejected the argument that the underlying assumption in the JR Application was that the Informal Arrangement did not give rise to any legal relationship or legal consequences.  He pointed out that the focus of the JR application was on whether the provisions of the Inland Revenue Ordinance (“IRO”) require “actual notice” of assessments to be given, where the plaintiff’s case was that he had no “actual notice” until much later, because the Informal Arrangement was ineffective in bringing the tax assessment to his “actual notice”.  He said that case is not inconsistent with the plaintiff’s case that the defendant owed a common law or fiduciary duty to him under the Informal Arrangement.  The issue about the statutory requirements of the IRO was very different from whether, and if so, what common law or fiduciary duties were owed by the defendant in the circumstances.  So that there was no clear inconsistency.  Specifically, and importantly for present purposes, at §65, the Deputy Judge left open the question whether the Informal Arrangement gave rise to any legal relationship and legal consequences as between the plaintiff and defendant.

25.  In the 2^nd Decision, at §12, the Deputy Judge pointed out that even assuming a “diametrically inconsistent” case is run by the plaintiff in this action, the court had to assess various factors and balance competing interests in order to determine whether it was an abuse of process in the circumstances.  He also went on to hold, at §14, that it was not then open to the defendant to strike out on the basis that the plaintiff’s case concerning the agreement inferred from conduct is “diametrically inconsistent” with his case in the JR Application so as to constitute an abuse of process.

26.  In the CA Judgment, at §12, entire agreement with that last point was expressed.  Further, at §15, Kwan JA (giving the judgment of the court) stated that the court did not think it is plain and obvious, as a matter of law, an assertion that there was no retainer must mean that there was no agreement of any kind, notwithstanding the reference to the Informal Arrangement in the JR Application.  On the evidence from the transcript of the JR Application, Kwan JA accepted that it was not argued by the plaintiff in the JR Application that the Informal Arrangement did not amount to any agreement.

27.  At §16, Kwan JA stated that whether the effect of the Informal Arrangement did or did not constitute a legally binding agreement would depend on a number of factual matters, and that could only be resolved properly after trial.

E.  Applicable Principles

28.  The principles applicable on applications to amend pleadings are well-settled, and need no particular reference to authority.  Generally speaking, all such amendments ought to be made for the purposes of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings.  Leave is readily granted to amend before trial, unless it can be demonstrated that the new claim based on the proposed amendment is bound to fail.  Resistance to an amendment application constitutes, in effect, the mirror image of a strike out application.

29.  Thus, as Ms Po accepts, the amendment will be permitted unless it can be demonstrated that it is bound to fail, has no real prospect of success, or raises a claim which is unsustainable in law.

30.  Ms Po also refers to the well-known principles relating to res judicata and abuse of process. Ordinarily, a court will not permit a party to take a second bite at the cherry by re-litigating an issue that has already been previously decided by the court.  This applies to each point or matter which properly or clearly belonged to or was part of the subject of litigation.  Further, a party is ordinarily not permitted to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings.

31.  In that regard, and in particular in her oral submissions, Ms Po referred to the case of Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72 at §§84-85, which state:

84.  The jurisdiction to prevent claims being litigated in proceedings is almost invariably exercisable by an application to strike out.  It is true that an application to strike out can be made at any time: see RSC O.18 r.19(1). However, where an application is made to strike out proceedings or any part thereof on the basis that they should not be permitted to go to trial, it is obvious that such an application should be made at the earliest possible opportunity, before the parties and the court’s resources are potentially wasted.  Obviously, where a claim or defence is unsustainable as a matter of law, the timing of the application to strike out is less critical, but where a discretion (or something akin to it) exists as to whether or not a set of proceedings or any part thereof should be permitted to continue, time is important.  In this latter situation, where proceedings may constitute an abuse on the basis that it would be vexatious for a court to try the case, the sooner this is dealt with the better; otherwise, the very evils sought to be avoided (the wastage of time and resources causing vexation or harassment of the other party) would continue to accumulate.  The present case provides a glaring example of this.

85.  In the speeches of Lord Bingham of Cornhill and Lord Millett in Johnson v Gore Wood & Co, references were made to the importance of expedition in such a situation: pp.34C-D and 61C-E.  A delay in raising this point of abuse gives rise to a reasonable inference either that the relevant defendant is not really vexed at all by the second set of proceedings or has acquiesced in it.  It is certainly not acceptable from the point of view of the administration of justice.

32.  Reference was also made by Ms Po to the passage from Johnson v Gore Wood & Co [2002] 2 AC 1 at 30, relating to the test to be applied in determining whether an action amounts to an abuse of process:

The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.  I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party.  It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive.  That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.

33.  Those passages identify that the test being put forward is applicable in the context of an allegation that there is an abuse of process by bringing a claim or raising a defence in later proceedings which were (or could have been) raised in earlier proceedings.  This is also clear from the Ko Hon Yue case at §83(3).  In such a scenario, I agree with Ms Po that the reason why such applications should be made early is because otherwise the whole purpose of making the application (if successful) would be lost: see the references to “irony” in the Ko Hon Yue case at §87.

34.  But what is said to amount to an abuse of process comes in many shapes and sizes.  For example, it is settled that there is a distinct overlap between the terms “frivolous”, “vexatious” and “abuse of process”.  A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed.  A proceeding is vexatious when it is oppressive and/or lacks bona fides.  The expression “frivolous or vexatious” includes, or may amount to, proceedings which are an abuse of the process.

F.  Challenge to Proposed Amendments

35.  Ms Po acknowledges that the effect of the Deputy Judge’s strike out ruling in the 1^st Decision was only to strike out the claim on an express oral agreement, but to leave to trial the plaintiff’s remaining causes of action pleaded in the SOC, including the plea that there was an agreement inferred by conduct of the parties.  But, she submits that the plea put forward by the defendant that the plaintiff is estopped from relying on any such agreement is in substance seeking to shut out the pleas which have been left at trial, invoking in reverse the court’s strike out powers to an amendment exercise and having a second bite of the cherry. That, she says constitutes the proposed amendments themselves an abuse of process.

36.  Ms Po submits that any arguments on estoppel were dealt with by the Deputy Judge and the Court of Appeal, and those points are res judicata.  She submits that the abuse point, arising from what had been said by the plaintiff in the JR Application/Tax Proceedings, was raised at an appropriate time (though not exactly early), and was dealt with head-on.  This is not a case of a factual dispute turning on the burden of standard of proof, and the attempt to re-run the point also creates a ‘fishing expedition’.

37.  She also submits that the proper way to view the applicable principles is to see that it is the plaintiff which is the party being ‘vexed’ twice.  As she puts it, all the facts are there, and the court had everything it needed for the Deputy Judge to make a decision to determine the abuse point.  It would, therefore, be wrong to permit it to be repeated at trial.

38.  Mr Suen submits that both the Deputy Judge and the Court of Appeal held that the basis of the strike out application did not cover the plea of an agreement inferred from conduct.  That was why it was regarded as unfair for the defendant to have sought to open that argument when seeking leave to appeal.

39.  In any event, Mr Suen submits that it is simply wrong to suggest that, simply because the defendant was partly unsuccessful in striking out other pleas in the SOC on the stringent ‘plain and obvious’ threshold test, with facts assumed in favour of the plaintiff, the defendant is now barred from pleading such facts and arguments and running them at trial.  Indeed, the Court of Appeal expressly held that the issues relating to an agreement said to be inferred from conduct involved factual questions which could only be properly resolved after trial.

40.  Mr Suen also submits that just because it is not plain and obvious that something is an abuse does not mean that the abuse might not be proved at trial, on the then applicable test of the balance of probabilities.  To say otherwise would confuse the relevant standards of proof, differently applicable to an application to strike out and the decision at trial.  I agree.

41.  Though she does not quite put it this way, I think Ms Po’s submission amounts to saying that either something is an abuse or it is not, and the Deputy Judge (upheld by the Court of Appeal in refusing leave to appeal) has held that it was not.  But, as I have indicated above, that may depend upon what is said to be the abuse, and when the question is being asked.  Bringing a second set of proceedings on matters already decided in the first set of proceedings may well be something which can be identified at once (or, at least, early on) as abusive or not.  But there will be other alleged forms of abuse, which may not be seen to be so strong as to require the claim or action to be struck out, leaving the matter to be determined at trial.

42.  In my view, this is such a case.  Properly understood, what the Deputy Judge decided was that whilst the plaintiff’s previous statements in the JR Application should preclude running a claim based on an oral agreement, those statements do not preclude running a claim on the alternate basis of the Informal Arrangement.  Though addressed under the broad heading of ‘abuse of process’, the Deputy Judge was actually deciding that the claim based on the oral agreement could not possibly succeed or was unsustainable. This was because, instead of supporting the alleged oral agreement, the reference to the Informal Arrangement in the JR Application, coupled with the positive assertion of there having been no retainer, flatly contradicted the existence of the alleged oral agreement.  But the question of whether, to what extent, and how the plaintiff’s previous statements in the JR Application would affect his claim based upon an inferred agreement or one reached by conduct was something that must be left to trial.  This is what the Court of Appeal recognised to be fact sensitive.

43.  The plaintiff is not being precluded from running his claim based upon the Informal Arrangement, inferred agreement or agreement by conduct.  He can run that to and at the trial.  But it seems to me that the defendant can seek to meet that claim at trial, including by raising the factual matters which have now been pleaded in the proposed amendments. One of the points raised is to plead that the plaintiff ought not to be permitted to assert the existence of some form of implied Agency Agreement or one reached by conduct, in light of the statements which he has made elsewhere.  That is a point which is almost simply an evidential point, but in any event is one which properly falls to be determined at the trial.  It is not precluded by the strike out ruling.

44.  I also agree with Mr Suen that the proposed amendments in §§8A and 9(aa) relating to the validity of the implied Agency Agreement, and the trust and reliance point, must in any event be permissible, as they were clearly not the subject matter of the strike out application, and are themselves factually sensitive requiring exploration at a trial.

G.  Result

45.  For those reasons, I dismissed the appeal.  In my view, the Master’s order was correct.

46.  As to costs, I ordered the costs of the appeal to follow the event, namely for the plaintiff to pay the costs of the defendant, to be summarily assessed with certificate for two Counsel.

47.  I gave directions for the summary assessment of costs to be dealt with by me on the papers, following the defendant producing its Statement of Costs for Summary Assessment within seven days, and the plaintiff producing its Objections within seven days thereafter.

48.  For the avoidance of doubt, I did not disturb the costs order made by the Master.  That was notwithstanding that an appeal from a Master to a Judge leads to a hearing ‘afresh’, and where Ms Po clarified that even were the substantive appeal to be dismissed, she would like to challenge the Master’s costs order.

49.  As I understand it, the Master made her slightly unusual order relating to the costs of the amendments themselves because she was persuaded that the amendments were effectively only able to have been put forward after the plaintiff was forced to disclose the materials relating to the Tax Proceedings.  This took the situation out of the more normal one where an amendment is initiated as a result of materials the amending party has, or its own alteration of its case.  By reference to the Note 58/1/6 in the Hong Kong Civil Procedure 2021, I accepted that in those circumstances I would not allow the plaintiff’s (separate) appeal from the Master possibly as costs order, as I did not think it to be unreasonable or in error of law.