WING SUI CO. LTD. v. GOLDQUEST INTERNATIONAL LTD.

HCA3183/2001 and
HCA4145/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS.3183 AND 4145 OF 2001

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REASONS FOR DECISION

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Background : the two Actions

1. The plaintiff is the owner of the premises situate at Suites 2101-05A, 21/F, Dah Sing Financial Centre, 108 Gloucester Road, Wanchai, Hong Kong ("the Premises"). By a lease dated 11 October 1999, the plaintiff let the Premises to the defendant for a period of three years from 11 October 1999 to 10 October 2002 ("the Lease").

2. The Lease contained, inter alia, the following terms :

(1) Apart from the rent, the defendant was obliged to pay office rates, management fees and electrical charges for air conditioning;

(2) Clause 5 thereof contained a standard re-entry clause whereby upon non-payment of the rent or other charges payable by the defendant, the plaintiff would be at liberty to re-enter the Premises.

3. Following defaults on the part of the tenant in the payment of rent and the other charges referred to above, the plaintiff commenced proceedings in the District Court on 19 January 2002 (in DCCJ 1297/2001), claiming the outstanding amounts owed by the defendant in relation to arrears of rent, office rates, management fees and electrical charges. In addition, the plaintiff claimed damages being its legal costs payable on an indemnity basis (pursuant to contract) and interest on the outstanding amounts. This action, commenced as I have said in the District Court, was, for reasons unnecessary to go into, transferred to the High Court on 4 September 2001 by order of H H Judge Li. This action became HCA 4145/2001 ("the First Action").

4. By a letter dated 22 January 2001, after the Writ had been issued in the First Action, the defendant sought unilaterally to terminate the Lease and return the keys to the Premises to the plaintiff. The plaintiff regarded this as a repudiation of the Lease and by a letter dated 6 February 2001 through its solicitors, accepted this alleged repudiation.

5. The plaintiff served the Statement of Claim in the First Action on 14 February 2001. Reference was made to the acceptance of the alleged repudiation in the following terms :

"5. By letter to the Plaintiff of 22nd January 2001 enclosing keys to the Premises, the Defendant unilaterally abandoned the Premises in breach of the terms of the Lease whereby the Lease is due to expire only on 10th October 2002 and thereby wrongfully repudiated the Lease. By letter from Herbert Smith, solicitors for the Plaintiff, to the Defendant of 6th February 2001, the Plaintiff confirmed its acceptance of the Defendant's wrongful repudiation of the Lease with effect from 6th February 2001. Accordingly whilst the office rates for the quarter 1st January 2001 to 31st March 2001 is HK$15,150.00 the claim for office rates is now limited to the pro-rata payment for the period until 6th February 2001."

6. In its Defence and Counterclaim, the defendant denied that it had repudiated the Lease, instead claiming that it was actually the plaintiff which had repudiated the Lease, which repudiation the defendant accepted by the said letter dated 22 January 2001. The plaintiff was alleged to have been in breach of Clause 5(12)(c) of the Lease. The defendant counterclaimed for the return of the rental deposit on the basis of determination of the Lease. The plaintiff served a Reply and Defence to Counterclaim on 24 May 2001.

7. By a Summons dated 6 April 2001, the plaintiff applied under RDC Order 14 for summary judgment for the amounts claimed in the Statement of Claim together with interest and costs. The hearing of this application took place before Master S. Kwang on 7 May 2001, who ordered, inter alia, that :

(1) There be judgment to the plaintiff in the sum of HK$354,252.00 together with interest thereon. This sum reflected the amounts claimed by the plaintiff for arrears of rent, office rates, management fees and electrical charges.

(2) Execution on this judgment be stayed pending the determination of the Counterclaim.

(3) Costs of the application to be in the cause.

8. Master Kwang did not determine the plaintiff's claim for its legal costs to be paid on an indemnity basis. It is obvious why he did not do this : the action had not yet finally been determined.

9. By a summons dated 20 June 2001, the plaintiff applied to amend its Statement of Claim by adding a claim for damages for the wrongful repudiation of the Lease on the defendant's part. It will be recalled that in the original Statement of Claim, reference was made to the acceptance of the repudiation only for the purpose of explaining why the plaintiff's claim for office rates was limited to the period up to 6 February 2001.

10. The summons for leave to amend came before Master Au-Yeung on 29 June 2001 on a three-minute hearing. From an Attendance Note dated 29 June 2001 made by the defendant's solicitors, it is apparent that the defendant did not object to the amendments and may even have consented to them. Despite this, Master Au-Yeung refused the amendments on the basis that the plaintiff's cause of action based on wrongful repudiation had accrued only after the date of the issue of the Writ. That this was the reason for the refusal of leave to amend is apparent not only from the said Attendance Note but also from an affidavit made by the plaintiff's solicitor who was present at that hearing.

11. Following Master Au-Yeung's refusal to allow the plaintiff to advance a case for damages for wrongful repudiation in the First Action, the plaintiff commenced another set of proceedings in the High Court on 16 July 2001 (in HCA 3183/2001) ("the Second Action"). The Writ in that action particularizes the claim for damages for wrongful repudiation by reference to claims for lost rental, lost service charges, lost office rates and the costs of reinstatement, restoration and making good of the Premises on an indemnity basis. Interest and costs on an indemnity basis (again pursuant to contract) are also claimed. The Statement of Claim in the Second Action was served on 3 August 2001.

12. By a Summons dated 3 August 2001 in the Second Action, the plaintiff applied for summary judgment. This was met by an application by the defendant for the Writ and Statement of Claim in the Second Action to be struck out under RHC Order 18, rule 19. The defendant accordingly asked that the action be dismissed.

13. On 17 January 2002, Master H.C. Wong acceded to the defendant's application and dismissed the Second Action with costs. Mr K.M. Chong (for the defendant) says this was on the basis that the plaintiff was seeking to rely on a cause of action that was or should have been raised in the First Action and therefore the principle of res judicata came into play. I have looked at the Master's notes and although in her Ruling she does refer to res judicata, she also said that the plaintiff "should pursue [these claims] further in the [First Action] rather than starting a new action".

14. The plaintiff appealed Master Wong's decision by a Notice of Appeal dated 31 January 2002. Further, in case this appeal failed, the plaintiff also applied by a summons dated 5 February 2001 seeking leave to appeal out of time Master Au-Yeung's decision dated 29 June 2001.

The Orders made on 15 April 2002

15. Both the appeal from Master Wong's decision and the summons for an extension of time for leave to appeal from Master Au-Yeung's decision came before me on 15 April 2002. The plaintiff was represented by Mr John Bleach SC, the defendant, as I have said, by Mr K.M. Chong.

16. At the conclusion of argument, I made the following orders :

(1) On the appeal, I allowed the appeal and set aside Master Wong's Order dated 17 January 2002 with an order that the costs on appeal and below be to the plaintiff in any event.

(2) On the Summons dated 5 February 2002, I made no order either as to the relief sought in the summons or as to costs.

17. I now give my reasons for these decisions.

The issues before the court

18. The summons dated 5 February 2002 was otiose if the plaintiff succeeded on the appeal. This summons was, as I have already remarked, only brought by the plaintiff in case the appeal failed. Accordingly, in view of my decision on the appeal, it is necessary only to identify the issues arising on the appeal.

19. Here, the following issues arise :

(1) The plaintiff's position is simple. Master Au-Yeung had determined that the cause of action based on wrongful repudiation could not be brought in the First Action since it accrued after the issue of the Writ. Thus, the only way in which it could be brought was by way of another action and this was precisely what the plaintiff had done by instituting the Second Action. Was this the effect of Master Au-Yeung's decision? (Issue 1 : Effect of Master Au-Yeung's decision)

(2) The defendant's position is to rely on the doctrine of res judicata both in its "narrow" and "wider" senses. (Issue 2 : res judicata)

Issue 1 : Effect of Master Au-Yeung's decision

20. As stated above it is clear that Master Au-Yeung disallowed the amendments introducing the claim for damages for wrongful repudiation on the basis that the cause of action (i.e. wrongful repudiation) accrued only after the issue of the Writ in the First Action.

21. A cause of action has been defined as meaning "simply a factual situation the existence of which entitles one person to obtain from the Court a remedy against another person" : see Letang v. Cooper [1965] 1 QB 232 at 242. As pleaded by the plaintiff, the cause of action based on wrongful repudiation consisted essentially of the said letter dated 22 January 2001 in which the defendant unilaterally determined the Lease and returned the keys to the Premises to the plaintiff. This repudiation was then accepted by the plaintiff by the said letter dated 6 February 2001 from its solicitors to the defendant. The letter makes express reference to the 22 January 2001 letter and the return of the keys as constituting the repudiatory conduct.

22. I would here observe, although it is ultimately not strictly speaking relevant, that the learned master was correct to hold as she did. She was bound by the decision of the Court of Appeal in Lark International Finance Ltd v. Lam Kim Marisa [2000] 4 HKC 688, where at page 699I, it was observed by Keith JA :

"It is well established that a statement of claim, whether indorsed on the writ or not, cannot be amended, without the defendant's consent, whether with the leave of the court or not, where the effect of the amendment is to add cause of action which accrued since the issue of the writ. ..."

23. Mr Chong sought to argue that this did not represent the law. Even if causes of action accrued only after the issue of a Writ, they can be pleaded by way of amendment. Reliance is placed on Vax Appliances Ltd v. Hoover Plc. [1990] RPC 656 (English High Court) and Woo Suk King v. Lam Lee Yuet Ha Lilian [1995] 3 HKC 701 (Waung J, Court of First Instance). I accepted that these cases provide authority for the proposition advanced by Mr Chong but in my view, it is for a higher court to overrule the clear effect of Lark International Finance Ltd. Both Master Au-Yeung and this court are bound by that Court of Appeal authority.

24. Next, Mr Chong argued that even if Lark International Finance Ltd represented good law, the bar to amending to plead a cause of action accruing since the issue of a Writ, is inapplicable where the parties consent : see page 669I. In this case, Mr Chong submitted that, as shown by the said Attendance Note dated 29 June 2001, the defendant consented. I am not persuaded by this submission. The defendant's solicitor did not insist on the amendments going through when the learned master disallowed them. Moreover, the defendant's position now in resisting any leave to appeal from Master Au-Yeung's decision, surely negates any consent that may at one time have been given.

25. In the end, these points are not relevant. The fact remains that Master Au-Yeung's decision stands as neither party has appealed from it. Even assuming it to be wrong (and I stress that I am not of this view), it is nevertheless still binding on the parties in terms of the issues decided.

26. I would add here that among the issues decided by Master Au-Yeung is that implicit in the learned master's decision on the basis as stated above is an acceptance that the cause of action based on wrongful repudiation was not and could not be brought in the First Action. The importance of this will presently be seen.

Issue 2 : res judicata

27. Mr Chong submits that this principle applies both in its "narrow" and "wider" senses.

28. By "narrow" sense is meant that the relevant issue has already previously been finally decided between the same parties by a court of competent jurisdiction. This is properly called res judicata in the strict sense and may consist of cause of action estoppel or issue estoppel. It provides an absolute bar to re-litigation save in "special cases" or "special circumstances" : see Bradford & Bingley Building Society v. Seddon Hancock [1999] 1 WLR 1482, at 1490F-G.

29. The so-called res judicata in its "wider" sense originates from the classic statement of Wigram V-C in Henderson v. Henderson (1843) 3 HARE 100, at 115. This was summarized in the decision of the Judicial Committee of the Privy Council in Yat Tung Investment Co. Ltd v. Dao Heng Bank Ltd [1975] AC 581, where at 590A-B, Lord Kilbrandon said :

"But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings."

30. This has been described as being not strictly speaking res judicata at all but merely an abuse of process not qualifying as res judicata, in which the task of the court is "to draw the balance between the competing claims of one party to put his case before the court and of the other not to be unjustly hounded given the earlier history of the matter" : see Bradford & Bingley Building Society at 1490F-H.

31. Mr Chong first submits that res judicata, in its strict or narrow sense, applies because Master Kwang gave summary judgment on the basis that the defendant had repudiated the Lease, which repudiation had been accepted by the plaintiff. I disagree with this. The issue of damages for wrongful repudiation was not before Master Kwang. There is no evidence before me to suggest that it was. On the contrary, I have already referred to the Statement of Claim in the First Action (the contents of which were verified on oath) in which the acceptance of the defendant's repudiation was pleaded only for the purpose of limiting the period for which office rates was claimed in the action. It is to be noted that the claim for rent, management fees and electrical charges did not go beyond 6 February 2001 either. Nowhere in the Writ or Statement of Claim was there a claim for damages for wrongful repudiation. It is simply fallacious to suggest that Master Kwang decided this issue. All that the learned master dealt with was the defendant's breach of the Lease in failing to pay the said rent and other charges. This claim existed whether or not the Lease had been repudiated by the defendant.

32. I would also repeat what has already been said above about the effect of Master Au-Yeung's decision. It was central to her decision that the cause of action based on wrongful repudiation was not one that was before the court in the First Action.

33. Next, Mr Chong relies on res judicata in its "wider sense". He submits that the issue of wrongful repudiation and the plaintiff's claim for damages arising therefrom could and therefore should have been before the court in the application for summary judgment in the First Action :

(1) First, it is said that the cause of action had already accrued prior to the issue of the Writ in the First Action. Mr Chong submits here that the plaintiff had already pleaded the defendant's repudiation by the failure to pay the rent and the other charges. The acceptance of the repudiation was also pleaded in the Statement of Claim. The fact that this acceptance accrued after the issue of the Writ was not a bar to pleading it. The acceptance of a repudiation was not an essential element in the cause of action based on wrongful repudiation : see Tilcon Ltd v. Land & Real Estate Investments Ltd [1987] 1 WLR 46, at 53B-D. In these circumstances, if the plaintiff chose therefore not to raise the question of damages for wrongful repudiation (as it seeks now to do in the Second Action) when it could have and therefore should have, res judicata in its wider sense prevents this issue being raised now.

(2) Secondly, it is argued that even if the cause of action had not accrued by the time the Writ was issued in the First Action, it could still be pleaded and was so pleaded : see Vax Appliances Ltd and Woo Suk King. Therefore, again, if the plaintiff failed to advance a case based on damages for wrongful repudiation at the summary judgment stage when it could have, it was not now permitted to do so by a reason of the application of the "wider" doctrine of res judicata.

(3) Fundamental to Mr Chong's submissions regarding the said two arguments was the contention that the summary judgment determination by Master Kwang finally determined the plaintiff's claim against the defendant in the First Action. As Mr Chong put it, the plaintiff's action had come to an end at the latest by 7 May 2001.

34. In my judgment, these arguments are simply misconceived and cannot justify an order striking out the Writ and Statement of Claim in the Second Action :

(1) It is of course only in plain and obvious cases that proceedings should be struck out. In the present case, if anything, it is plain and obvious that the proceedings should not be struck out.

(2) It is quite wrong to suggest that the cause of action based on wrongful repudiation had already accrued prior to the issue of the Writ in the First Action. The plaintiff's case on repudiation is founded on the 22 January 2001 letter and the return of the keys. It is not based on the defendant's failure to pay the rent and the other charges. The defendant, in its pleading, denies the repudiation alleged by the plaintiff. No issue arises in the First Action as to whether the failure to pay rent and the other charges amounted to repudiatory conduct on the part of the defendant. The plaintiff's case on repudiation did not accrue until after the issue of the Writ. It is quite bizarre in my view for Mr Chong to assert that the plaintiff's case on repudiation is or should be based on the non-payment of rent and the other charges and Clause 5 of the Lease, when clearly it is not.

(3) As for Mr Chong's contention that even if the cause of action accrued subsequent to the issue of the Writ, an amendment could be made to plead this (based on Vax Appliances Ltd and Woo Suk King), I have already held that it is not open to me to share this view as this would be contrary to binding authority (see Lark International Finance Ltd).

(4) In any event, the impact of Master Au-Yeung's decision must not be overlooked. The effect of her order was as I have already stated in paragraphs 20 and 26 above. This was binding on the parties and effectively disposes of the res judicata argument. Paradoxically, the doctrine of res judicata here works against the defendant, for the overall effect is that the parties are bound to accept that the issue of wrongful repudiation was not and could not be raised in the First Action. I am conscious of the fact that it is rare for masters to give reasons for decisions and that therefore it may often be difficult to discern what issues have actually been decided for the purposes of res judicata. However, the decision of a master without reasons is technically as capable of giving rise to res judicata (whether issue estoppel or cause of action estoppel) as a reasoned decision can, providing that the reason for the decision is ascertainable with some degree of precision : see Spencer Bower, Turner & Handley : Res Judicata (3rd Edn) at paragraph 180. Here, I am satisfied that one is able to ascertain with precision just what Master Au-Yeung decided. I would also add that it matters not whether the decision was correct or not in order for the doctrine of res judicata to take effect (although I must say that Master Au-Yeung's decision was, in my judgment, with respect, correct) : see Spencer Bower, Turner & Handley : Res Judicata at paragraph 15.

(5) Even if I were wrong on paragraphs (2) to (4) above so that the issue of damages for wrongful repudiation could be pleaded and raised in the First Action, the defendant simply cannot demonstrate that the issue could and therefore should have been raised in the summary judgment application before Master Kwang. Mr Chong was careful to submit to me that the plaintiff's claims for damages for wrongful repudiation (as particularised in the Statement of Claim in the Second Action) were contested and that although some of the claims were apparently conceded to be unanswerable, this concession was, in his words, only "for the purposes of the present application". I took this to mean that Mr Chong was not really conceding that any of the plaintiff's claims were indefensible at all but that, at the very least, he was reserving his position to submit in the future that he had arguable defences to all these claims. In the circumstances, in view of the possibility that arguable defences exist, I am far from satisfied that the present claims for damages for wrongful repudiation could have properly been raised in the application for summary judgment in the first place.

(6) If it was critical for me to decide that the summary judgment application brought to an end the plaintiff's claim in the First Action, I would decide this issue against the defendant. The plaintiff's claim for costs on an indemnity basis remained after Master Kwang's decision and indeed, the rest of its claims (for which judgment was given) still existed in the sense that execution thereon was stayed pending the determination of the Counterclaim. Here, it is also pertinent to note that this was precisely the defendant's stated position at the hearing before Master Au-Yeung : see the said Attendance Note dated 29 June 2001.

35. Finally, I wish just to add this. I have applied the principles of Yat Tung Investment Co. Ltd in their full rigour. Probably, I am bound by them anyway. However, I do not wish it to be thought that they necessarily represented the full or precise extent of the law in this area. For example, the words "could and therefore should have been litigated in earlier proceedings" (emphasis added) have been the subject of much controversy : see Spencer Bower, Turner & Handley : Res Judicata at paragraph 446 note 45. Further, see also Bradford & Bingley Building Society, which in my view significantly undermines the effect of Yat Tung Investment Co. Ltd. It is, however, unnecessary for these controversies to be resolved in this appeal.

Costs

36. It follows from my decision on the two issues that the plaintiff's appeal must be allowed and Master Wong's order set aside. Costs should follow the event and Mr Chong did not resist this.

37. It then becomes unnecessary to decide on the plaintiff's summons dated 5 February 2002. It was therefore appropriate that no order be made on it. As to costs, the plaintiff wanted its costs and for its part, the defendant wanted its costs or at least an apportionment of costs. I decided that no order was again appropriate because it seemed to me that reasonably good arguments existed on both sides. While on the one hand I can well see that the plaintiff only issued the summons owing to the position taken by the defendant in the Second Action, on the other hand it by no means followed that the plaintiff would have succeeded on the summons in view of the lapse of time.