LEE YUN SAU v. D.H. SHUTTLECOCKS LTD.

HCA 1459/1991

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1459 OF 1991

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D E C I S I O N

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1. This is an application for the following preliminary issue to be decided,

"Whether the Plaintiff, having entered into the Deed of Compromise dated 13th February 1991 with, inter alia, Mr Chau Hau Tung ("Mr Chau"), is estopped, or is otherwise not entitled to, reopen, raise, or make the allegation in the present action that the various loans alleged or pleaded in paragraph 6(3) of the Re-Amended Reply and Defence to Counterclaim were made by Mr Chau as an unlicensed money lender."

2. That issue arises by virtue of a plea in Paragraph 6(3) of the Re-Amended Reply and Defence to Counterclaim. Before I refer to that paragraph, I should say something about the respective case of the parties in this action. The Plaintiff claimed to be the purchaser of two pieces of land in Demarcation District No. 257, viz. the Remaining Portion of Lot No. 376 and Lot No. 645 ["the Properties"]. Despite payment of the purchase price by the Plaintiff, the Properties were assigned by the vendors to the Defendant on 15th March 1990. The Plaintiff also pleaded that he had entered into possession of the Properties and incurred substantial monies on the Properties by constructing buildings thereon. The Plaintiff said that the Defendant held the Properties on trust for the Plaintiff. The Defendant admitted that the Plaintiff had been the equitable owner of the Properties up to 1990 whilst the vendors held the legal title. Its case was that the Plaintiff had owed substantial amounts to one Chau Hau Tung ['Chau"] in respect of a number of advances made by Chau to the Plaintiff between 1988 and 1989. In about February 1990, Chau agreed with the Plaintiff to settle their mutual dealings with each other. One of the term of settlement was that the Plaintiff would cause and direct the vendors to assign the Properties to Chau or his nominee in full and final settlement of the loans. It was pursuant to that agreement that the vendors assigned the Properties to the Defendant, which was a company owned and controlled by Chau.

3. In response, the Plaintiff pleaded in Paragraph 6(3) of the Re-Amended Reply and Defence to Counterclaim that the alleged agreement and the alleged transfer were all tainted with illegality in that the Defendant was an unlicensed money-lender and the said loans were all unlicensed loans. I think the reference to the Defendant as the money-lender was intended to be a reference to Mr Chau. Two other points were raised in that paragraph: lack of privity on the part of the Defendant to the alleged agreement and absence of memorandum in writing. However, Mr Choi, who appeared on behalf of the Plaintiff, had indicated to me on 31 October 2001 that the Plaintiff abandoned those other points.

4. The basis on which the Defendant made the present application is that the Plaintiff is estopped by a Deed of Compromise of 13 February 1991 made between the Plaintiff and Chau from asserting that Chau was an unlicensed money-lender. This is pleaded in Paragraphs 9 and 9A of the Amended Rejoinder. In answer, the Plaintiff averred in the Surrejoinder filed on 31 October 2001 that apart from the loan in the sum of $17,000,000, the Deed of Compromise had nothing to do with the other loans referred to in the pleadings. Hence, the Plaintiff argued that it was entitled to raise the plea of illegality regarding those other loans. I should mention that the $17,000,000 loan was also referred to in the pleadings in the present action.

5. The Deed of Compromise came into existence in the context of, inter alia, two actions between Chau and the Plaintiff. Both actions concerned a mortgage dated 2 September 1988 under which the Plaintiff assigned to Chau Lot No. 1780 in Demarcation District No. 221 to secure all sums from time to time advanced by Chau to the Plaintiff. In HCMP No. 3010 of 1990, Chau claimed against the Plaintiff payment of monies due ($27,279,567 as at 24 August 1990) and possession of the mortgaged property. In HCA No. A6864 of 1990, the Plaintiff claimed against Chau for a declaration that the mortgage was void for illegality by reason of breach of the Money-lenders Ordinance. Under the Deed of Compromise, the Plaintiff agreed to settle the actions with Chau by paying a sum of $23,000,000 to Chau. It was further agreed that HCA No. A6864 of 1990 be dismissed with no order as to costs whilst HCMP No. 3010 of 1990 was to be withdrawn. Although the Consent order was not included in the bundle, parties accepted before me that HCA No. A6864 of 1990 was dismissed subsequently.

6. Mr Wong (who appeared on behalf of the Defendant) submitted that by the Deed of Compromise, the dispute as to whether Chau was an unlicensed money-lender had been settled once and for all. He referred me specifically to Paragraphs 22 to 23 of the Affirmation of the Plaintiff filed in HCA No. A6864 of 1990 on 10 October 1990. Those paragraphs set out clearly the allegations of the Plaintiff in that case that Chau was an unlicensed money-lender. He also pointed out that that affirmation was made when all the loans referred to in the present action had been advanced and there were in fact reference to those "other loans" in Paragraph 13 of the same affirmation. Mr Wong submitted that it does not matter that the settlement was only made in the context of the two actions. The pertinent question is, he submitted, what was the dispute that was settled. By reference to the relevant material, the issue was whether Chau was an unlicensed money-lender which was a question of fact. He said that was the issue settled by the Deed of Compromise and once that had been settled, it was not open to the Plaintiff to reopen the same in the context of the present action. He also emphasized that the Deed was executed by the Plaintiff with the benefit of legal advice and the settlement was a bona fide one. He also submitted that no material distinction can be drawn regarding the $17,000,000 loan and the other loans. Either Chau was an unlicensed money-lender or he was not and on the Plaintiff's case, that was an allegation applied equally with regard to the $17,000,000 loan and the other loans.

7. Mr Wong relied principally on Binder v. Alachouzos [1972] 2 QB 151. It was held by the English Court of Appeal that once there was a bona fide compromise of question of fact as to whether the loans were unlawful moneylending transactions, it was not open to the defendant to reopen the issue in a subsequent action brought by the plaintiff on that agreement. Lord Denning MR in that case cited with approval the dicta of Kennedy LJ in In re Campbell, Ex parte Seal [1911] 2 KB 992 at 998-9,

"The defendant, in order to make good a plea of illegality, would have to show by evidence that the lender was a 'moneylender' within the Act. ... If the borrower in such an action as the present does not choose to fight the disputable point, he cannot be entitled afterwards to reopen the judgment against him by alleging that he might successfully have relied upon a defence of illegality if he had adduced certain evidence to prove ... the case..."

Roskill LJ also inclined to accept that dicta (at p.160 F) although he did not find it necessary to decide the case on that basis. The rationale of Roskill LJ can be found at p.160B to C,

"In my judgment it is the law of this country, as Lord Denning MR has said, where there is a bona fide compromise of an existing dispute and that compromise includes a compromise of what ... is basically an issue of fact, namely, whether or not there had in fact been unlawful moneylending, especially where the compromise has been reached under the advice of counsel and solicitors, that that compromise is enforceable against the party seeking subsequently to repudiate it. Any other course would cause very great difficulty in the administration of justice."

On the facts of Binder, the plaintiff was enforcing the terms of the compromise by seeking payment thereunder, the defendant having defaulted in making instalment payments in accordance with the terms of the compromise.

8. Binder has subsequently been applied in Colchester Borough Council v. Smith [1992] Ch 421. In that case, the plaintiff's cause of action was not based on the compromise. Rather the plaintiff relied on the term of the compromise to defeat a defence of adverse possession raised by the defendant to resist the proceedings for possession. At first instance, Ferris J. decided the point on the basis of estoppel by contract or estoppel by convention by reference to the terms of the compromise. In the Court of Appeal, Binder was applied by analogy and Dillon LJ said, at p.435B,

"In my judgment this was a bona fide compromise of a dispute and Mr Tillson, who had the advice of his solicitors and signed the agreement through them, is estopped by the terms of the agreement he made from going behind it and litigating the antecedent dispute. That is as the judge held, and whether it be labelled estoppel by agreement or estoppel by convention is a matter of indifference." (my emphasis)

Butler-Sloss LJ said at p.435 D to F,

"Where parties to a dispute reach a compromise which brings that dispute to an end and avoids the need for litigation or further litigation, such a compromise is a valuable part of the resolution of disputes within the machinery of the administration of justice. The compromise has to be genuine, entered into freely by all parties to it without concealment or essential information or undue advantage taken by one party of another party, and preferably with the assistance of lawyers. Consequently, an agreement to compromise an action or a dispute which may lead to litigation is binding and is enforceable against the party seeking subsequently to repudiate it."

9. The principle was applied by the Court of Appeal in ING Bank NV v. Tsui Tsin Tong [2000] HKCU 170 (see in particular the judgment of Keith JA at p.25).

10. Mr Choi submitted that these cases did not apply to the facts of the present case. He drew my attention to specific provisions in compromise in those cases where parties agreed specifically that it would not be open to the defendants to raise the same defence in the future. (see Binder at p.157 E; Colchester Council at p.426 D to E and ING Bank at p.7) Mr Wong however submitted that the principle is not confined to cases where there was specific provision for waiver of defence in the compromise. In this connection, he cited the case of Norfolk Finance v. Newton, English Court of Appeal, unreported, 15 October 1998. In that case, the compromise was not embodied in a written agreement. Rather, the compromise was established by a payment made by one of the party subsequent to a series of correspondence. The payment was made by a cheque as demanded but it was sent without any covering letter. The English Court of Appeal held that the principle set out in Binder and Colchester Council is equally applicable. The court held that the dispute as disclosed in the correspondence was subsequently compromised when payment was made without any reservation of right or protest. The compromise was binding.

11. In principle, I see no reason why the doctrine is only applicable when there is specific waiver of defence in the compromise. The rationale of the rule is to achieve finality in settlement of dispute. That rationale applies equally no matter how the compromise is established. Once the court is satisfied that there was a settlement of the dispute, the principle comes into play. I therefore hold against Mr Choi on this point.

12. Mr Choi further submitted that the subject matters of the compromise were the subject matters of the two High Court actions referred to in the Deed of Compromise. They did not cover the loans other than the $17 million loan. I do not agree that one should confine the effect of the estoppel in this manner. Bearing in mind the rationale behind the principle, I agree with the submission of Mr Wong that one should examine what was the dispute that had been settled under the Deed of Compromise. I agree that the proper test was set out by Diplock LJ (as he then was) in the case of Mills v. Cooper [1967] 2 QB 459 at p.468F,

"a party to civil proceedings is not entitled to make, as against the other party, an assertion, whether of fact or of the legal consequences of facts, the correctness of which is an essential element of his cause of action or defence, if the same assertion was an essential element in his previous cause of action or defence in previous civil proceedings between the same parties or their predecessors in title and was found by a court of competent jurisdiction in such previous civil proceedings to be incorrect."

I see no material distinction as to whether the conclusion of the previous proceedings were achieved by way of a compromise or by way of a judgment of the court obtained after trial (see Johnson v. Gore Wood [2001] 2 WLR 72 at p.91 H to 92A, cited below).

13. Applying that test, for the reasons given in Paragraph 6 above, I am of the view that the issue as to whether Chau was a money-lender was one of the issue settled. This conclusion is reinforced by the fact that the claim for declaration by the Plaintiff in HCA No. A6864 of 1990 was dismissed.

14. The only point which caused me some concern at the hearing is whether the Defendant can rely on this principle given the fact that it was not a party to the Deed of Compromise nor a party to the two previous High Court actions. If the principle is regarded as estoppel by agreement, it may be circumscribed by the doctrine of privity. In Colchester Council, it was also put on the alternative basis of estoppel by convention. Even so, the estoppel could not be relied upon by a party which is not privy to the previous transaction. However, I am of the view that the principle can be founded on a wider base. In my judgment, the principle has a close affinity with the principle of Henderson v. Henderson (1843) 3 Hare 100 which has recently been subject to a comprehensive review by the House of Lords in Johnson v. Gore Wood [2001] 2 WLR 72. The rationale of both doctrines is to serve the objective of finality in litigation. After reviewing the relevant authorities, Lord Bingham (who delivered the leading judgment and Lord Goff, Lord Cooke and Lord Hutton expressed their full agreement with Lord Bingham regarding Henderson v. Henderson abuse of process) identified the principle at p.90 as follows,

"But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. 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. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."

Lord Millett also adverted to the common objectives of the various related principles at p.118A to B,

"But these various defences are all designed to serve the same purpose: to bring finality to litigation and avoid the oppression of subjecting a defendant unnecessarily to successive actions. While the exact relationship between the principle expounded by Sir James Wigram V-C and the defences of res judicata and cause of action and issue estoppel may be obscure, I am inclined to regard it as primarily an ancillary and salutary principle necessary to protect the integrity of those defences and prevent them from being deliberately or inadvertently circumvented."

15. The House of Lords held that the doctrine of Henderson v. Henderson (1843) 3 Hare 100 was applicable to a compromise. At p.91H to 92A, Lord Bingham said,

"The second subsidiary argument was that the rule in Henderson v Henderson 3 Hare 100 did not apply to Mr Johnson since the first action against GW had culminated in a compromise and not a judgment. This argument also was rightly rejected. An important purpose of the rule is to protect a defendant against the harassment necessarily involved in repeated actions concerning the same subject matter. A second action is not the less harassing because the defendant has been driven or thought it prudent to settle the first; often, indeed, that outcome would make a second action the more harassing."

16. It is clear from the judgment of the House of Lords that the rule is applicable to the privy of a party to an earlier proceedings. At p.91C to G, Lord Bingham said,

"Two subsidiary arguments were advanced by Mr ter Haar in the courts below and rejected by each. The first was that the rule in Henderson v Henderson 3 Hare 100 did not apply to Mr Johnson since he had not been the plaintiff in the first action against GW. In my judgment this argument was rightly rejected. A formulaic approach to application of the rule would be mistaken. WWH was the corporate embodiment of Mr Johnson. He made decisions and gave instructions on its behalf. If he had wished to include his personal claim in the company's action, or to issue proceedings in tandem with those of the company, he had power to do so. The correct approach is that formulated by Sir Robert Megarry V-C in Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510 where he said, at p 515:

"Second, it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides 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, 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 due 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. It is in that sense that I would regard the phrase 'privity of interest.'"

Lord Millett said at p.119C to D,

"Particular care, however, needs to be taken where the plaintiff in the second action is not the same as the plaintiff in the first, but his privy. Such situations are many and various, and it would be unwise to lay down any general rule. The principle is, no doubt, capable in theory of applying to a privy; but it is likely in practice to be easier for him to rebut the charge that his proceedings are oppressive or constitute an abuse of process than it would be for the original plaintiff to do so."

17. Coming back to the present case, given the fact that the Plaintiff's action for declaration that Chau was an unlicensed money-lender has been dismissed in HCA No. A6864 of 1990, it is more a case of issue estoppel than abuse of process. To permit the Plaintiff to re-litigate the matter in the present action would allow him to mount a collateral attack to the order for dismissal of the action in HCA No. A6864 of 1990. Although the Defendant was not a party to that action, I am of the view that the approach of Lord Bingham set out by me in Paragraph 16 above should be applied in the present context given the close affinity of the doctrines. I am satisfied that the Defendant was the corporate embodiment of Chau for the purpose of this aspect of the case and they have a privity of interest in relation to the dispute as to whether Chau was an unlicensed money-lender.

18. Hence, the Defendant was entitled to the benefit of the settlement of the dispute and it would not be right to allow the Plaintiff to re-open the same issue in the present action. As I said, this is not a Henderson v. Henderson type of situation because the very issue now sought to be raised by the Plaintiff had already been disposed of in the previous action. Hence, it would not be necessary for the Defendant to show any abuse other than it is a re-litigation of a settled dispute. However, if I am wrong on that, I also find that it is an unjust harrassment by the Plaintiff of Chau and his privy. The plea of illegal money-lending was first raised by the Plaintiff in the Amended Reply and Defence to Counterclaim dated 21 October 1997, more than 6 years after the issue had been settled under the Deed of Compromise. The Plaintiff had entered into that Deed with the benefit of legal advice. The Plaintiff is relying on the same allegations in HCA No. A6864 of 1990 to mount his attack (see Paragraph 15 of his witness statement of 4 September 1999 and Paragraph 19 of his supplemental witness statement of 10 February 2001). If the Plaintiff were allowed to pursue the money-lender defence, Chau would have to give evidence to answer a serious allegation (with possible criminal implications) regarding events which took place long ago and in respect of a dispute which he was justified in regarding as settled by the Deed. No explanation has been offered on behalf of the Plaintiff as to why the re-litigation of a settled issue against such circumstances should not be regarded as an abuse. In my judgment, Chau and the Defendant as his privy should not be harrassed by a second action on a dispute which had long been regarded as settled between them.

19. For these reasons, I hold that the Plaintiff is not entitled to, reopen, raise, or make the allegation in the present action that the various loans alleged or pleaded in paragraph 6(3) of the Re-Amended Reply and Defence to Counterclaim were made by Mr Chau as an unlicensed money lender. In view of that and the concession of Mr Choi as stated in Paragraph 3 above, I also order that Paragraph 6(3) of the re-Amended Reply and Defence to Counterclaim be struck out. I also make an order nisi that the Plaintiff should pay the Defendant's costs of this application, such costs to be taxed if not agreed.