CHU HUNG CHING v. CHAN KAM MING AND OTHERS

CACV 46/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 46 OF 2001

(ON APPEAL FROM HCA 10040/2000)

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J U D G M E N T

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Hon Mayo VP:

1. This is an appeal from an order made by Suffiad J when he ordered that the interim injunction granted by Lugar-Mawson J on 18 November 2000 and continued by Chu J on 24 November 2000 should be set aside.

2. This litigation has been somewhat convoluted. At its inception D3 was P2. Initially he supported the claim being made by P1 a mainland Chinese national. His claim was for money received by D1 as an agent or employee of his which he had retained and converted to his own use.

3. In his affirmation in support of the injunction P1 gave an explanation as to why Ming Lee (International) Trading Co. ("Ming Lee") had been registered in D3's name. He claimed that as he was not resident in Hong Kong he could not register a business in his own name. He said that D1 had been known to him for a considerable period of time and that he had undertaken various business transactions with him. Initially he had requested him to be his agent in Hong Kong. He had not agreed to this as he was in the process of divorcing his wife who was D2 in the action. D1 had suggested using D3 as the front for his firm and he had agreed to this.

4. On 16 November 2000 D1 became an additional signatory of Ming Lee's bank accounts and the plaintiff caused funds totalling US$802,000 to be transferred to Ming Lee's account by telephonic transfer.

5. D1 withdrew HK$450,000 on 17 November 2000 and obtained a cashier draft for HK$5.8 million in favour of D2.

6. The injunction granted by Lugar-Mawson J restrained D1 and D2 from presenting the cashier order for payment or in any way negotiating it or otherwise disposing of it.

7. The case being run by the defendants is that Ming Lee is a partnership between D1 and D3. The US$802,000 represented the purchase price of goods which had been sold to Yubofei and Double Win two Chinese mainland companies. The plaintiff who had some sort of a connection with these companies had alleged that the goods which had been supplied had been defective and was demanding the return of the purchase moneys.

8. Mr Warren Chan SC who represented the plaintiff submitted that the issue to be determined in the litigation was the ownership of Ming Lee.

9. This may ultimately be the case. However, what we are concerned with in this appeal is whether Suffiad J had been right in ordering that the injunction should be discharged.

10. The Judge gave short written reasons for his decision. It was apparent from these reasons that he discharged the injunction on the grounds of material non-disclosure on the part of the plaintiff.

11. It transpired that in September 2000 the plaintiff registered a business in Hong Kong under the name "Wui Tung" at a time when his status as a PRC national and a non-holder of a Hong Kong Identity Card had not changed. This business had a current and savings account with the Standard Chartered Bank. This has not been denied. Nor has any plausible reason been forthcoming for the explanation on affirmation for the plaintiff to have asked D3 to be his agent in relation to Ming Lee. This was a matter of crucial importance in determining the question as to whether the plaintiff did indeed have an interest in the firm.

12. The other question of non-disclosure related to the plaintiff's claim to have remitted US$802,000 to Ming Lee's account on 16 November 2000.

13. The documentation which was eventually produced disclosed that three separate payments were effected on 16 November 2000:

1. US$350,000;

2. US$349,000;

3. US$85,000.

14. The judge had this to say about these payments:

"Moreover, the documents show that these sums were collected by the Bank of China, Hong Kong for Ming Lee as trading amounts as it is clearly stated on the certified true copies of the bank documents the words 'D/P Sight' suggesting that payment was made against document at sight. Nowhere in the bank documents exhibited does it even indicate that these payments were made by telegraphic transfer.

At the hearing of this matter before me on Friday, 29 December 2000, as Mr Pedruco indicated that the plaintiff had documents to show that these payments were made by telegraphic transfer. I allowed the plaintiff an adjournment over the weekend to obtain these documents which, as I understood, had been handed over to the police by the plaintiff when he reported this matter to the police before the ex parte injunction was applied for.

As a result of the adjournment, a further affidavit, being the second affidavit of the plaintiff, was filed on Saturday, 30 December 2000, exhibiting the bank documents which the plaintiff had handed over to the police. Nothing in these bank documents suggest the monies to have been paid to Ming Lee's account by telegraphic transfer. In fact, those documents exhibited by the plaintiff tend to support the defendants' case, if at all. If these matters referred to above had been made known to Lugar-Mawson J and/or to Chu J on 18 November and 24 November 2000 respectively, I am of the view that the injunction would not have been granted or continued by either of them."

15. What is perhaps of even greater significance is the difficulty in reconciling these payments with para. 1 of the endorsement of claim which was the foundation upon which the injunction was granted. The paragraph reads:

"Money received by the 1st defendant as agent or employee of the 1st plaintiff and retained by him and converted to his own use."

16. Mr Chan's answer to this is that on 18 November 2000 when the ex parte application was made the question of the ownership was not a material issue as D3 supported his claim to be the owner of Ming Lee. Accordingly he had no means of knowing that his ownership of the firm was a material issue.

17. While this may be true it does not excuse the fact that the reasons given why he did not register the firm in his name appear to be deliberately misleading. However more important than this the plaintiff would have known on 18 November 2000 that the statement in his affirmation that he was simply transferring the moneys to Ming Lee was more than being economical with the truth in relation to a matter that went to the heart of the dispute. As can be seen from the papers and from the observations made by the Judge it was almost certainly the case that the moneys in question represented the purchase moneys in some commercial transaction and that the plaintiff did not condescend to give adequate particulars of the dealings which had taken place between the parties.

18. The principles relating to an applicant's duty to make full and frank disclosure are set out at p. 465 and p. 466 of Hong Kong Civil Procedure 2001.

19. The two matters referred to by the Judge were undoubtedly highly material to the questions which had to be determined by Lugar-Mawson J and Chu J and having regard to the principles which should be adopted in this connection Suffiad J cannot be faulted in the manner in which he exercised the discretion reposed in him. He was also mindful of the fact that if the injunction was discharged it was highly probable that any moneys received by these defendants would be dissipated. This however may be the consequence of the plaintiff's failure to make full and frank disclosure when applying for the injunction.

20. There is nothing in the point made by Mr Chan that this issue should have been ventilated on the return of the inter partes summons relating to the injunction. This was an ongoing interlocutory matter and it is always open to the court to entertain an application to discharge an interlocutory injunction.

21. This approach is consistent with the approach adopted by Alberta Court of Appeal in Pocklington Foods Inc. v. R in right of Alberta (1995) 123 DLR 141 as can be seen from a passage at p. 144 of the report:

"... Res judicata and issue estoppel do not apply to procedural interlocutory motions. While in the judgment of Clement J.A. in Talbot, there is considerable discussion of the position where a decision is made on the adequacy of the material rather than on the merits of the application, when read as a whole the decision supports the position taken by McDonald J. in this case.

However, the court is not powerless to deal with attempts to re-litigate issues already decided by it. In Talbot, after refusing to apply res judicata to an interlocutory procedural application, Clement J.A. stated at p. 112:

... I am of the opinion that the principle does not apply to an interlocutory application of the nature now before us; rather, the second application is subject to control by the exercise of judicial discretion in determining whether it is frivolous or vexatious in all the circumstances then appearing.

McDonald J. went on to consider the reasoning which should apply in controlling abuse of process. He cited from the decision of Lord Maugham L.C. in New Brunswick Ry. Co. v. British & French Trust Corp., Ltd., [1939] A.C. 1 (H.L.) at p. 20 (cited with approval in Talbot) as follows [at p. 282]:

'If an issue has been distinctly raised and decided in an action, in which both parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them.'

He continued:

Thus the raison d'etre of the principle of res judicata or issue estoppel lies in what is just and reasonable. Applying that notion to an assertion that a ruling on an interlocutory application is res judicata when the same issue is raised in a subsequent interlocutory application in the same action, it will not be unjust or unreasonable to allow the second application to be heard, for what is involved is not relitigation of an identical issue of law or fact:

(a) if the ruling on the first application was not based on the merits of the issue but on a technical objection ...

(b) if upon the first application the applicant had failed to prove essential facts from mistake or inadvertence ...

(c) if there is new evidence that seriously justifies reconsideration of the issue;

(d) if there is a material change of circumstances of a non-evidentiary nature."

22. It is apparent from this that the rules relating to res judicata in interlocutory matters are less stringent than those generally applicable. Mr Reyes for the defendants drew our attention to the fact that the senior counsel who appeared in Brink's Mat Ltd v. Elcombe & Ors (1988) 1 WLR 1350 proceeded with an application of a similar nature and no one appears to have taken issue on the point.

23. Had the matter been ventilated at the return of the inter partes summons the position might well have been different. It is also significant to add that no issue was taken on this point before Suffiad J.

24. In my view the appeal should be dismissed.

Hon Le Pichon JA:

25. I agree with the Vice-President that this appeal should be dismissed. I only wish to add a few short observations.

26. The fact that P1 had the support of the evidence of P2 at the time of the ex parte application did not have the effect of relieving him of the burden to make full and frank disclosure. The fact that the ownership of Ming Lee was not in issue at the time of the ex parte application did not mean that P1 did not have to be truthful about the reasons for using P2 as nominee and the payments into Ming Lee's account.

27. In any event, the situation changed on 22 November when P2 filed an affirmation resiling from what he had set out in his earlier affirmation. When that material change in circumstance occurred, there is no question but that the plaintiff had an obligation to make full and frank disclosure as to those matters. That was not done. The fact that the hearing before Chu J on 24 November was inter partes made no difference: it did not absolve or relieve the plaintiff from making full disclosure since his duty was a continuing one and it arose before the inter partes hearing took place.

28. The plaintiff's alternative submission was that the application to Suffiad J was an abuse of process because of the inter partes hearing before Chu J a month or so earlier. Although D1 chose not to appear at that hearing, his estranged wife D2 in fact presented D1's case for him. The application to Suffiad J was a second bite at the cherry and thus an abuse of process.

29. That submission also lacks merit. Brink's Mat Ltd v. Elcombe [1988] 1 WLR 1350 is an example where a second application was made to discharge an injunction because of new evidence. In the present case, there was new evidence before Suffiad J. That new evidence certainly justified a reconsideration of the injunction. As Lord Maughan LC stated in New Brunswick Railway Company v. British & French Trust Corporation Ltd [1939] AC 1 at 20, one of the principles that govern the discretion to entertain a second application on a procedural matter is "if there is new evidence that seriously justifies recommendation of the issue."

30. I would therefore dismiss this appeal with an order nisi that costs be to the defendant.

Hon Mayo VP:

31. The appeal is accordingly dismissed. We make an order nisi that the defendants will have their costs.