RICHLY BRIGHT INTERNATIONAL LTD v. DE MONSA INVESTMENTS LTD

HCA 548/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 548 OF 2012

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J U D G M E N T

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INTRODUCTION

1. This is an application by Richly Bright Ltd (“the plaintiff”) for summary judgment against De Monsa Investments Ltd (“the defendant”) for the defendant’s breach of a sub‑sale agreement dated 8 May 2008 made between the plaintiff as confirmor and the defendant as sub‑purchaser of a commercial property on the 8^th floor of Tower A, New Mandarin Plaza (“the property”) for $135,864,000.  At the conclusion of the hearing, judgment was reserved which I now give.

BACKGROUND FACTS

2.  The sub‑sale referred to above was part of a chain of transactions all due to be completed on 17 September 2008.  The sub‑sale in question was the third in that series summarised by the following diagram:

3. Each of the sub‑purchasers in the chain duly paid their deposits but the defendant failed to complete the third sub‑sale in which the plaintiff was vendor.  In turn, the plaintiff was unable to complete the second sub‑sale it had with 823 Investment Ltd (“823”), the vendor under the second sub-sale.  In turn, that resulted in 823 being unable to complete the first sub‑sale which was with World Orient.

4. The chain reaction led to the following actions:

(1)  HCA 24/2009 between World Orient and 823;

(2)  HCA 1452/2010 between 823 and the plaintiff; and

(3)  HCA 548/2012 between the plaintiff and the defendant.

5. In HCA 24/2009, judgment was entered against 823 on 25 February 2010:

(1)  823’s deposit of $18,561,919.50 was forfeited by World Orient; and

(2)  823 was ordered to pay World Orient $8,704,210.50 for loss of profit and to indemnify World Orient.

6. In HCA 1452/2010, judgment was entered against the plaintiff on 1 April 2011.  The plaintiff was ordered to pay 823:

(1)  $8,092,399.50 for loss of profit; and

(2)  $8,704,210.50 by way of indemnity to 823 in respect of the latter’s payment of that amount to World Orient.

7. While there was no declaration to the effect that 823 was entitled to forfeit the deposit of $19,989,990 paid by the plaintiff, equally, there was no order for 823 to refund the deposit to the plaintiff.

8. The loss the plaintiff seeks to recover from the defendant consists of:

(1)  loss of profit represented by the difference in price between the second and third sub‑sales of ($135,864,000 - $133,266,600) $2,597,400;

(2)  the deposit forfeited by 823 less the deposit paid by the defendant of ($19,989,990 - $13,586,400) $6,403,590;

(3)  the indemnity to 823 in the sum of $8,704,210.50; and

(4)  commission payable to agents under the second sub‑sale of $1,399,298.

THE DEFENCE

9. Mr Strachan who appeared for the defendant raised several grounds for resisting summary judgment.

(A)  The defendant’s mental capacity

10. It is common ground that Mr Lauw Siang Liong (“Mr Lauw Senior”) and his son own the defendant.  Mr Lauw Senior who was born in May 1924 is a well‑known and seasoned real estate investor who, having first made his fortune in Indonesia in steel, banking and real estate, has been investing in property in Hong Kong for more than 20 years through various companies including the defendant.  At the material time, he was based in Hong Kong and was the directing mind of the defendant.  He made all its investment decisions.  Mr Lauw Senior had apparently entered into no fewer than 151 transactions between 9 March 2007 and 8 September 2008 at a cost of some $7 billion, the most active months peaking at 15 transactions: see Probus Ltd v Treble & Triple Ltd and Ano., unreported, 15 February 2012, CACV 270‑272/2010 at §30.

11. Mr Strachan submitted that the defendant should be allowed to defend on the basis that Mr Lauw Senior who signed the provisional agreement for the third sub‑sale on behalf of the defendant on 8 May 2008 did not have the requisite mental capacity at that time.

12. In Probus, at first instance, unreported, 17 November 2010, HCA 2723/2008, Reyes J had to determine the very same issue in relation to agreements Mr Lauw Senior had signed on behalf of several of his companies (including the defendant) to purchase various properties during the period between 18 October 2007 and 2 July 2008.  In a 5‑day trial in November 2010, Reyes J found that Mr Lauw Senior was not suffering from any mental incapacity or dementia during that period.  See §§49–106 of the judgment.

13. The Court of Appeal upheld Reyes J in January 2012, Tang V‑P (at §52) expressed his conclusion emphatically:

“... the evidence that Lauw Senior was not suffering from dementia and that more relevantly, he had the mental capacity to enter into the transaction is overwhelming.” (emphasis added)

Particularly instructive are §§31‑37 of his judgment where Tang V‑P set out extracts from newspaper and magazine articles and reports relating to Mr Lauw Senior reporting what he had said in various interviews concerning the property market and his art of speculation.  Tang V‑P found that those extracts “give no indication that Mr Lauw Senior was suffering from dementia or that he lacked the mental capacity to understand the transactions that he had entered into”.

14. Further, from the table of profitable sub‑sales and re‑sales Mr Lauw Senior negotiated between September 2007 and January 2008 set out in §28, Tang V‑P considered that Mr Lauw Senior was “selective in his default”.

  New evidence?

15. Mr Strachan submitted that the present action if allowed to proceed will not be a re‑run because there is new evidence and there is no abuse.  The defendant intends to rely on the evidence of Mr Law Wai, its general manager and also on the expert evidence of two psychiatrists (Dr Chiu and Dr Jenny Tsang), a clinical psychologist (Ms Emma Wong), a neurologist (Professor Raymond Cheung) and an endocrinologist (Dr Norman Chan).

16. In Probus, factual witnesses included Mr Law whose evidence Reyes J found (at §§81‑86) to be “contradictory, speculative and unreliable”.  The Court of Appeal (at §47) agreed with that conclusion.

17. Mr Law has filed affirmations on the defendant’s behalf in the present case which, on a quick comparison, appears largely to reflect his evidence filed in the earlier case.  So if there is to be a trial, a different court will have to hear essentially the same evidence again.

18. As regards expert evidence, the defendant relies on the very same expert evidence adduced in the earlier case.  Reyes J had before him the expert reports of Dr Jenny Tsang, Dr Chui and Ms Emma Wong as well as the medical reports of Dr Norman Chan who had treated Mr Lauw Senior on 28 occasions between May 2007 and March 2009.  Indeed, Tang V‑P considered it “highly significant” that Dr Chan gave “no indication that he had noticed Mr Lauw Senior’s supposed dementia”: see §55.

19. Mr Strachan complained that at the trial of Probus, each party was permitted to call only one medical expert.  Thus, only Dr Jenny Tsang had given oral evidence on behalf of the defendants.  Pausing there, I do not consider the complaint legitimate.  If the defendants were dissatisfied with a case management decision for good reason, they should have done something about it at the time. Moreover, which of its experts to call was a matter for the defendant.  The fact that the witness did not meet expectations or whose evidence did not impress the judge has nothing to do with the case management decision.

20. In the present case, the new or ‘fresh’ evidence takes the form of (1) the expert evidence of Professor Raymond Cheung who has provided a report dated 19 June 2012, and (2) a letter report dated 27 June 2012 obtained from Dr Norman Chan who now opines that Mr Lauw Senior showed signs of dementia.

21. It is to be observed that while Professor Cheung’s report is dated 2012, it is based on his assessment of Mr Lauw Senior in July 2010, several months  before the trial since that did not commence until November 2010.  As there is no explanation as to why Professor Cheung’s report was not obtained until almost two years after his assessment of Mr Lauw Senior, there is every reason to think had the defendants wanted to have the report adduced in evidence, they could have done so. 

22. The same may be said regarding Dr Norman Chan’s 2012 report which carries the hallmarks of a belated attempt to address the criticisms the Court of Appeal made of his evidence.  I note that the defendant’s solicitors first spoke to Dr Chan on the telephone on 27 June 2012 and their letter putting the dementia questions to him is dated 27 June 2012. His report was ready the very same day.

23. I also note that there was no attempt by the defendants to obtain this ‘new’ evidence in time for the appeal which was heard in January 2012.  Very possibly, appreciating the obstacles posed by Ladd v Marshall, it might have been thought that dressing it up as ‘new’ evidence in a different case would be the easier option.  But in my view Ladd v Marshall cannot be circumvented in that manner.

  Abuse of Process

24. The real issue here whether the defence based on mental incapacity is an abuse of process.

25. The doctrine against an abuse of process was founded on the extension to the doctrine of res judicata.  Hunter v Chief Constable of the West Midlands Police [1982] AC 529 established that the courts have a power to strike out attempts to relitigate issues between different parties as an abuse of the process of the court.  As Lord Diplock explained in his speech, it concerns:

“… the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people. The circumstances in which abuse of process can arise are very varied … It would, in my view, be most unwise if this House were to use this occasion to say anything that might be taken as limiting to fixed categories the kinds of circumstances in which the court has a duty (I disavow the word discretion) to exercise this salutary power.”

That passage was cited with approval by Lord Hoffmannn who endorsed the principles upon which the power should be exercised.  See Arthur JS Hall & Co v Simons [2002] 1 AC 615 at 702F‑703A.  This doctrine and its underlying principles have been accepted and applied by the Court of Appeal.  See China North Industries Investment Ltd v Chum [2010] 5 HKLRD 1.

26. Mr Lam who appeared for the plaintiff submitted that the extended doctrine applies to the present case.  The fundamental issue decided in Probus is Mr Lauw Senior’s mental capacity between 18 October 2007 and 2 July 2008.  The very same issue arises in the present case.  The third sub‑sale agreement having been entered into on 8 May 2008 falls squarely within that period.

27. Mr Strachan accepts the principles set out in North China but sought to distinguish it on the basis that in that case, it was the plaintiff who had initiated proceedings in court for the purpose of mounting a collateral attack upon an adverse final decision made against it by a competent tribunal in previous proceedings, relying heavily on Bragg v Oceanus Mutual Underwriting Association (Bermuda) Ltd [1982] 2 Lloyds Rep 132, a pre‑CPR decision of the English Court of Appeal.

28. Bragg has to be understood in the context of its rather special and complicated facts which are stated at length in the report to which reference should be made.  For present purposes, it remains necessary to outline the salient facts in some detail.  Otherwise, the passages Mr Strachan emphasised can easily be misunderstood.  That case arose out of insurance cover for CTI, engaged in the business of leasing out containers to shipping lines on a very large scale.  CTI wished to insure itself against liability for the first slice of damage for which it was responsible.

29. CTI through Heath obtained cover from Lloyd’s, Bragg being a representative Lloyd’s underwriter. “F” acting on Heath’s behalf conducted the negotiations with Lloyd’s.  In due course Lloyd’s not only refused to renew cover, they intimated that they would avoid cover for non‑disclosure and misrepresentation unless they were relieved from liability for the “run‑off” of the CTI insurance through re‑insurance.  Those allegations followed an investigation carried out by an adjuster.  

30. Heath (through F) approached and negotiated with Oceanus about taking over the CTI cover and about premium rates.  The claims experience of Lloyd’s inevitably figured.  Oceanus eventually agreed to take over the CTI cover and was further persuaded by F to re‑insure the run‑off of the Lloyd’s policy.

31. Subsequently, Oceanus also sought to avoid the policies because of non‑disclosure and misrepresentation.  That led to (1) the CTI action against Oceanus and (2) a Lloyd’s action against Oceanus and, alternatively, against Heath.

32. Oceanus applied for consolidation of the two actions but its application was refused.  Oceanus then applied to amend their defence to the CTI action at a late stage in two respects, including allegations of non‑disclosure and misrepresentation.

33. The central issue in the CTI action was whether F had been guilty of mis‑representation and non‑disclosure in his negotiations with Oceanus.  Oceanus also relied on allegations to the effect that F had been guilty of that conduct when he had previously placed the CTI cover with Lloyd’s.  Importantly, Oceanus had to sub‑poena Lloyd’s underwriters as its own witnesses to obtain disclosure of documents in the possession of various Lloyd’s syndicates and was unable to cross‑examine them as they were Oceanus’ own witnesses.  While the amendments were allowed, the judge decided all the issues in favour of CTI.

34. Oceanus sought to raise those amendments in the Lloyd’s action and obtained leave from the judge.  The plaintiffs (ie Bragg on behalf of his and other Lloyd’s syndicates) appealed to the Court of Appeal.

35. Mr Strachan placed heavy reliance on the following passage in Kerr LJ’s judgment (at 137, col 2) in dismissing the appeal:

“The present case is clearly not one of a collateral attack on a previous decision; indeed, in both actions Oceanus are not the plaintiffs but defendants. Any analogy with [Reichel v Magrath (1889) 14 App Cas 665 and Hunter v Chief Constable of the West Midlands Police [1981] 3 WLR 906] breaks down.”

36. Those observations have to be understood in the context of the facts particular to that case.  I do not consider that Kerr LJ was laying down any rule or statement of principle that there can never be a collateral attack if the same party happens to be the defendant, (or, for that matter, the plaintiff) in both actions.  There would not appear to be any rational basis to underpin such a rule or principle.

37. Oceanus’ unsuccessful application for consolidation did not go unnoticed: it was a relevant factor when considering the question whether the purpose of Oceanus’ amendment was merely to mount a collateral attack on the prior decision.  Indeed, Kerr LJ recognised this when he stated (at 138, col 1):

“But where, as here, consolidation was in fact sought by the party in question, I cannot begin to see how any question of abuse of the process of the Court could be said to arise.”

38. Moreover, it is apparent from §33 above that, in the CTI trial, Oceanus was disadvantaged in the conduct of its defence in two important respects: discovery and its inability to cross‑examine the witnesses it had to sub‑poena.  No doubt, those matters (together with the unsuccessful consolidation application) weighed with the Court of Appeal and, in my view, are features that render that case readily distinguishable.

39. Those matters aside, the issue in Reichel (mentioned in the passage quoted in §35 above) involved a question of status which had been determined finally in the first action.  In the present case, the issue involves Mr Lauw Senior’s mental capacity at a particular period of time to enter into a particular type of transaction that had been determined finally in the first action.  In my view, if the former constitutes a collateral attack on a previous decision, so would the latter.  It is:

“… an attempt to overturn a final determination in previous proceedings on the very issue, identical and fundamental question, determined in those proceedings.”

See per Stock V‑P in China North at §70.

40. In Bragg, Kerr LJ derived assistance from the decision of Megarry V‑P in Gleeson v Wippell & Co Ltd [1977] 1 WLR 510 where re‑litigation of a central issue in a former action was permitted.  In that case (at 510F‑G), it is stated that the rule against allowing re‑litigation of issues that have already been decided between a party and the other party to the litigation does not provide any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him. But, importantly, there is an exception, viz:

“… unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party.” (emphasis added)

Where the exception applies, the issue may not be re‑litigated.

41. That passage is crucial to a proper understanding of the seemingly broad statements of Kerr LJ in Bragg.  Bragg does not assist the defendant because ‘a sufficient degree of identification’ does exist in that the defendant in the present proceedings was itself a party in two of the consolidated actions heard in Probus.

42. Moreover, it has to be borne in mind that Bragg was a pre‑CPR decision where the efficacy in using judicial resources was not considered.  A collateral attack that is manifestly unfair or an affront to the administration of justice in the minds of right‑thinking people will be sufficient to establish an abuse: see Arthur JS Hall at 702F and China North at §61.

43. On the facts of this case, I have no hesitation in coming to the conclusion that the defence based on Mr Lauw Senior’s mental incapacity is an abuse of process and falls within the extended res judicata doctrine.  It will certainly bring the administration of justice into disrepute if the defendant were allowed to re‑litigate Mr Lauw Senior’s mental state given the clear findings in Probus which must bind the defendant.

  King’s City

44. There is one further matter that should be mentioned.  In the course of Mr Strachan’s oral submissions on Bragg, the court remarked that, given the rate at which Mr Lauw Senior made property investments, if Mr Lauw Senior’s companies did not complete on, say, 12 transactions, it would be highly unsatisfactory if it were open to him to have the same defence tried on 12 occasions based on essentially the same evidence.

45. After the hearing had concluded and before receiving Mr Strachan’s Note dated 28 September 2012, the court became aware of a recent decision of Reyes J in King’s City Holdings Limited v De Monsa Investments Limited, unreported, 20 July 2012, HCA 1714/2011, granting summary judgment against the defendant in a similar case.

46. One of the defences raised was Mr Lauw Senior’s mental incapacity when he entered into the provisional agreement dated 25 March 2008.  Reyes J considered that defence to be identical to that determined in Probus and almost exactly the same evidence was adduced (albeit topped up with an additional report from a neurologist).  He held that it would be an abuse of process for the defendant to re‑litigate the same defence.  It was issue estoppel in the wider sense, citing his earlier decision in Parakou Shipping v Jinhui Shipping and others, [2011] 2 HKLRD 1.  The judge also considered that his earlier findings about Mr Lauw Senior’s mental state concerned “the existence of a state of things” mentioned by Lord Goddard in Hollington v Hewthorn [1943] KB 587 and as such is conclusive against the whole world.

47. The purpose of Mr Strachan’s Note was to invite the court’s attention (somewhat belatedly) to King’s City.  Suffice it to say that I find it surprising, if not also inexplicable, that King’s City did not feature in the defendant’s list of authorities.  Its relevance is obvious.  It did not have to be unearthed through legal research since the same firm of solicitors acted for the defendant(s) in Probus, King’s City and the present case.  It is most regrettable that King’s City was not brought to the court’s attention at the hearing.

48. Be that as it may, Mr Strachan made written submissions on that case to the effect, inter alia, that Reyes J failed to address Bragg although it apparently featured in the defendant’s skeleton submissions and that the judge was wrong in equating his finding that Mr Lauw Senior was not suffering from dementia as a decision about a ‘state of things’.  Mr Lam did not make any written submissions in response.

49. As already explained, Mr Strachan’s reliance on Bragg is wholly misconceived.  There is nothing in the point as regards the ‘failure’ to address Bragg.  The judge obviously considered the point a bad one and, in my view, rightly so.

(B)  Undue influence

50. In the alternative, the defendant asserts that two of the agents, namely, Zoe Hui and/or Kanee Fung exercised undue influence over Mr Lauw Senior.  The assertion is based on nothing more than the Law Wai’s affirmations.

51. I have already mentioned that Reyes J found him to be an unsatisfactory and unreliable witness.  It seems that in Probus, Law Wai had made similar assertions against other agents who were involved in the transactions in issue in those proceedings.  Mr Strachan informed the court that although undue influence was pleaded in Probus, it was not dealt with in the judgment.  But when the court asked whether that defence was advanced at the hearing, it seems that it was not taken any further.  In any event, Mr Strachan was unable to assist in that regard.  In those circumstances, the fact that no mention was made of that defence in the Probus judgment is hardly surprising.

52. Further, the forcefulness of Mr Lauw Senior’s views recorded in the extracts from newspaper and magazine interviews replicated in Tang V‑P’s judgment earlier referred to, is necessarily relevant when considering the likelihood of undue influence being exercised.  Absent some credible evidence of coercion and evidence of domination or control, the allegation remains but a bare allegation.  As no credible evidence has been proffered, this defence does not get off the ground.

(C)  Good title

53. The defendant takes issue with the plaintiff’s ability to give good title in that it is contended that the plaintiff executed the second sub‑sale (between 823 and the plaintiff) without authority.  Mr Wan Pak Kuen signed the second sub‑sale on behalf of the plaintiff on 6 November 2007 and, according to company filings, became the sole shareholder of the plaintiff no later than 7 November 2007.

54. The defendant’s case is that Mr Wan may not have been properly appointed director of the plaintiff on 6 November 2007 when he signed the second sub‑sale.  Under the plaintiff’s articles of association, the first directors must be determined by the subscriber to the memorandum of association.  It was said that there is no evidence of such determination.  Nor is there evidence of subsequent ratification.

55. The defendant did not raise any requisition of title on this issue and has missed the deadline for raising such requisitions.  In those circumstances, this defence has the trappings of a desperate last‑minute attempt to stave off the inevitable and is devoid of merit.

(D)  Whether the claimed losses are recoverable

56. The amounts claimed are those set out in §8 above.  Shortly put, the defence advanced is that at the trial between Win Profit and World Orient (HCA 1427/2009), the parties to the Head Agreement, it was accepted that the market value of the property on 17 September 2008 was $127,150,000.  It was submitted that the appropriate measure of damages is the difference between the contract price of the third sub‑sale of $135,864,000 and $127,150,000, namely, $8,714,000.

57. The parties knew from the terms of the provisional agreement for the third sub-sale that the plaintiff was selling as confirmor.  In those circumstances, I agree with Mr Lam that the heads of loss itemized would have been within the reasonable contemplation of the parties at the time of the provisional agreement for the third sub‑sale as the likely consequences of the breach and, thus, are recoverable.  See Chen v Lord Energy Ltd [2002] 1 HKLRD 495 at §21.

(E)  Maintenance and champerty

58. Mr Strachan submitted that the sequence of events outlined in §§59–74 of his skeleton submissions smacks of champerty.

59. In essence, World Orient, the vendor in the first sub‑sale, having obtained judgment for $8,704,210.50, was unable to obtain satisfaction from the purchaser, 823, it being said that 823 and the plaintiff were shell companies with no assets.  “T”, a director and shareholder of World Orient, subsequently acquired 823.  Then on 27 January 2011, 823’s solicitors wrote to the plaintiff’s solicitors stating that:

“… our client is of the view that it is for the benefit of our respective clients to join force against De Monsa”.

The letter outlined a proposal for 823 and the plaintiff to join in funding the action against the defendant and sharing the proceeds.

60. Notwithstanding this letter, HCA 1452/2010 (between 823 and the plaintiff) proceeded, with the plaintiff contesting Order 14 proceedings and obtaining unconditional leave to defend.

61. Shortly thereafter, 823 proposed a more attractive arrangement by providing all the funding and taking only 65% of damages recovered.  The plaintiff rejected that offer but put forward terms involving its agreement to 823 entering judgment against it (the plaintiff).  Accordingly, judgment was entered against the plaintiff on 1 April 2011.  Within a few weeks, Mr Wan stepped down as director and transferred his shareholding in the plaintiff to a BVI company.

62. Mr Strachan’s submission is premised on someone improperly funding the plaintiff in this action.  The premise is questionable.  Both 823 and the plaintiff have legitimate causes of action arising from the second and third sub‑sales.  They share a ‘common interest’ in the litigation. In my view, no impropriety has been established.  In those circumstances, there is no question of the defendant having a claim in tort against the ‘improper’ funder and against the plaintiff as co‑tortfeasor, such as would entitle the defendant to counterclaim in tort in this action.

63. Mr Lam submitted that, in any event, maintenance and champerty are simply irrelevant to summary judgment proceedings in that it would not make the plaintiff’ case less good or improve the defence. He drew attention to Unruh v Seeberger [2007] 2 HKLRD 414 at §104 for the proposition that should such elements exist, the proper approach is to resort to other doctrines and remedies more suited to granting relief to the exploited party or to confronting professional misconduct.  It was said “reliance on the law of maintenance and champerty may be to use too blunt an instrument”.  On the facts of this case, I am inclined to agree.

CONCLUSION

64. None of the grounds advanced has any merit. The plaintiff is entitled to summary judgment for the relief it seeks.  There is to be an order in terms of the summons.

65.  I also make an order nisi of costs in favour of the plaintiff with certificate for counsel.