GLOBAL BRIDGE ASSETS LTD AND ANOTHER v. SUN HUNG KAI FINANCIAL LTD (FORMERLY KNOWN AS SUN HUNG KAI SECURITIES LTD)

HCMP 172/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 172 OF 2016

(ON AN INTENDED APPEAL FROM HCA 1701 OF 2014)

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J U D G M E N T
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Hon Barma JA (giving the Judgment of the Court):

1.  This is an application for leave to appeal against the Decision of Deputy High Court Judge Le Pichon dated 29 September 2015.  It concerns a situation which the Deputy Judge rightly described as “highly unusual”, which resulted in the making of an order, on the application of the defendant, for the trial of two issues of fact as preliminary questions or issues, and for the trial of those issues to take place at the same time as the hearing of a striking out summons taken out by the defendant.

2.  The background to the application is set out in paragraphs 3 to 25 of the Decision.  For present purposes, it is possible to briefly summarise them as follows:-

(1) In February 2008, the plaintiffs (together with another company called Walton) brought proceedings against the defendant for damages for alleged breach of an oral guarantee, an oral collateral contract and collateral warranty said to have been given in connection with a transaction involving the transfer of an interest in a PRC joint venture company.

(2) The plaintiffs’ pleaded claims were struck out by the Court of Appeal in February 2010, but they were permitted to apply to the Court of First Instance for leave to file an amended statement of claim disclosing a viable cause of action.  The plaintiffs attempted to do so, but were unsuccessful – the Court of Appeal, in a later judgment dated 3 August 2012, refused leave to amend on the basis of the claims put forward by the plaintiff in a reformulated statement of claim, as the Court of Appeal was of the view that certain of those claims were time barred, while the one claim (in respect of alleged fraud and deceit in connection with the transaction referred to above) that was not time barred could and should be put forward in fresh proceedings, which the plaintiff would be at liberty to commence if it wished to do so.

(3) The consequence was that the 2008 action was struck out.  The plaintiffs (and Walton) were ordered to pay the defendant its costs of that action.  The costs were eventually agreed in an amount of over HK$5.3 million, with consent orders being made that required such costs to be paid by 19 November 2013.  Notwithstanding such orders, the costs have not been paid by the plaintiffs (or Walton) to the defendant.

(4) On 30 August 2014, just before the expiry of six years from the date on which the plaintiffs discovered the alleged fraud (and two years after the Court of Appeal’s 3 August 2012 judgment), the plaintiffs commenced the proceedings below against the defendant.  The statement of claim repeated allegations which had been made in the previous proceedings, and sought various remedies, including rescission of the agreements which were the subject of the first proceedings, and damages.

(5) On 1 April 2015, the defendant applied to strike out the new action on the basis that it was an abuse of process for the plaintiffs to start the present proceedings seeking essentially the same relief as in the previous proceedings when they had not paid the costs which had been awarded against them in the previous proceedings.  In evidence filed in opposition to that application, the 2^nd plaintiff alleged that in March 2009, it had had assigned to it by the joint venture company (for good consideration) part of a debt owed by the defendant to the joint venture company, to the value of RMB 16.3 million, and had given notice of the assignment to the defendant the following month.

(6) The defendant contends that the new allegation is a fabrication.  As it has a direct impact on the striking out summons, the defendant applied for two questions to be tried as preliminary issues.  These can be summarized as follows, namely:-

(a) Whether there was in fact an assignment to the 2^nd plaintiff of the alleged debt owed by the defendant to the joint venture company, as alleged in the plaintiffs’ evidence in opposition to the striking out application.

(b) If so, whether the 2^nd plaintiff had given notice of such assignment to the defendant, as alleged.

3.  As the Deputy Judge observed, the alleged assignment and notice have a fundamental impact on the striking out application. If such an assignment had taken place, the effect would be that the defendant would owe the 2^nd plaintiff RMB 16.3 million, an amount comfortably exceeding the amount of the costs owed by the plaintiffs to the defendant.  This would remove the basis for the suggested abuse of process, as rather than there being unpaid costs owed by the plaintiffs to the defendant, it would be the defendant that was indebted to the 2^nd plaintiff, even after the appropriate set off in respect of the outstanding costs orders.

4.  As the Deputy Judge further observed, the assignment and notice of it are wholly irrelevant to any of the issues in the proceedings, if they are permitted to go forward.  They bear only on an issue that arises solely in the context of the striking out application – whether the plaintiffs are indeed indebted to the defendant in respect of the unpaid costs of the earlier proceedings.  Without the resolution of these questions in the context of the striking out application, it would be difficult, if not impossible, for that application to be resolved.  Essentially for that reason, the Deputy Judge concluded that if there was jurisdiction to do so, it was clearly appropriate for the two questions to be tried as preliminary issues, at the same time as the striking out application was heard.  Having concluded that there was jurisdiction under RHC Order 33 rule 3 so to deal with the questions, the Deputy Judge directed the trial of the questions as preliminary issues, and gave directions for the filing of further evidence by the defendant, for adjournment of the striking out summons to be heard with the trial of the preliminary issues, and for cross-examination at the eventual hearing, to enable this to be done.

5.  The plaintiffs now seek leave to appeal against this decision and those orders.  In their draft notice of appeal, they contend as follows:-

(1) That the court had no jurisdiction to order the trial of preliminary questions or issues of fact which were irrelevant to any of the issues in the underlying proceedings (Ground 1).

(2) Even if there was such jurisdiction, the Deputy Judge erred in her exercise of discretion because:-

(a) There were serious factual disputes relating to alleged fabrication of documents.

(b) The plaintiffs’ allegations were supported by documentation, whereas the defendant’s were not, and the defendant had taken no action to have the documents relied upon by the plaintiffs to be forged, unauthentic or void.

(c) It was inappropriate and unfair to the plaintiffs to order a trial of preliminary issues without providing for pleadings, discovery or expert evidence.

(d) The trial of the preliminary issues could lead to inconsistent factual findings or pre-empt proper consideration of the evidence at the main trial, and might adversely affect the credibility of the plaintiffs

(e) The trial of the preliminary issues would involve unnecessary satellite litigation and cause delay.

Having regard to these matters, it would be inappropriate to have a trial on affidavit rather than having all issues tried at a single hearing (Grounds 2(a)-(f)).

(3) The issues to be tried would not be determinative of the action, or of the striking out proceedings, as there would remain questions as to whether or not the defendant was in fact indebted to the joint venture company, or the joint venture company indebted to the 2^nd plaintiff (Ground 2(g)).

(4) The present proceedings are different from the earlier proceedings, in that a different cause of action is advanced, which is new and based on different facts from those put forward in the first action (Ground 2(h)).

(5) The only question in the striking out application is whether the plaintiffs are abusing the process of the court or acting vexatiously, and this can and should be determined without a trial of preliminary issues (Ground 2(i)).

(6) There is no justification for dispensing with pleadings or discovery, or with the normal practice of simultaneous exchange of witness statements (Ground 3).

6.  In our view, none of these proposed grounds of appeal have any merit.

7.  It is important to bear in mind the unusual features with which the court is faced, to which we have alluded in paragraph 4 above.  The matters to be dealt with in the trial of the preliminary issues are relevant only to the striking out application.  If they are not dealt with in that context, it is difficult to see when (if ever) they should be dealt with.  Having regard to this, observations in the decided cases about the appropriateness of directing the hearing of preliminary issues, where the issues in question are issues in the proceedings themselves, the determination of which will directly impact on the outcome of the proceedings, must be applied to the present situation with some circumspection.

8.  It is also necessary to bear in mind that we are here concerned with what is a case management decision, with which (subject to the question of jurisdiction to make the order complained of) this court will interfere only if it can be shown to be plainly wrong.  It is therefore necessary for the plaintiffs to show that it is arguable that this is the case.

9.  Dealing first with the jurisdiction argument, Order 33 rule 3 is in the following terms:-

“The Court may order any question or issue arising in a cause or matter, whether of fact or law or partly of fact and partly of law, and whether raised by the pleadings or otherwise, to be tried before, at or after the trial of the cause or matter, and may give directions as to the manner in which the question or issue shall be stated.”

10.  The plaintiffs argue that the questions of the authenticity of the alleged assignment, and whether or not notice of it was given to the defendant, are not questions or issues arising in the cause or matter, as they are, as we have noted, not relevant to the underlying claim which is the subject matter of these proceedings.  It follows, it is said, that Order 33 rule 3 does not provide any basis on which the issues stated could be ordered to be tried as preliminary issues.  We do not agree.  The terms of the rule are extremely wide.  The reference to a “cause or matter” does not compel the conclusion that the only thing that can qualify as a cause or matter is the underlying claim in the proceedings.  It can quite sensibly be said that the striking out application is a “matter” in relation to which issues can arise, particularly where the basis of the striking out application is an alleged abuse of process.  In our view, the proper approach to the construction of the rule must be one which enables the controversy between the parties to be properly resolved.  Here, the striking out application can only be fairly resolved if the issues stated are dealt with.  That being the case, we see no justification for reading the rule in such a way as to prevent that from happening.  We therefore consider that there is nothing in the jurisdictional point encapsulated in Ground 1 of the draft notice of appeal.

11.  So far as the points raised in Grounds 2(a) to (f) of the draft notice of appeal are concerned, we do not regard them as providing any basis for contending that the Deputy Judge could be said to have erred in the exercise of her discretion, still less that her exercise of discretion was plainly wrong.

12.  The existence of factual disputes as to the authenticity of the assignment, or the giving of the notice of the assignment are clearly matters that need to be resolved for the purposes of the striking out application.  It is therefore eminently sensible for them to be dealt with in the course of that application, as the Deputy Judge directed.  The terms of Order 33 rule 3 make it perfectly plain that the rule permits the course to be taken of directing the trial of preliminary issues of fact where it is appropriate to do so.

13.  The fact that the plaintiffs’ version of events is supported by documentation (the authenticity of which is, of course, challenged) whereas the defendant’s is not, is no reason for the matter not to be tried at all.  The defendant may be able to point to matters, either in the documents themselves, or in the circumstances in which the documents have come to be relied on so long after the event, which may provide good reason to doubt their authenticity.

14.  The complaints about the absence of pleadings, discovery and expert evidence do not have any merit. The issues to be dealt with are within a narrow compass, and it does not seem to us that it can be said that in directing the trial of those issues on the basis of the directions made, the Deputy Judge was plainly wrong.  Having regard to the relative simplicity of the issues, it would seem to us that they could well be dealt with without the need for pleadings and discovery.  In this regard, it should also be borne in mind that we are dealing with an issue that arises in the context of a striking out application, and not the main proceedings themselves, so that the matter should be approached with a sense of procedural economy, as the Deputy Judge has clearly done.

15.  It is difficult to see how there could be a risk of inconsistent findings in relation to issues which, once disposed of in the context of the striking out application, will not arise at trial, since they are not relevant to the underlying proceedings.  While it is possible that the outcome of the trial of the preliminary issues might have an adverse impact on the credibility of the plaintiffs or their witnesses, this is scarcely a matter of which the plaintiffs can complain, as it is they who have brought about the situation in which the issues need to be determined.

16.  Similarly, we have great difficulty in seeing how the plaintiffs can complain of delay and cost arising as a result of the trial of the issues, when the issues arise as a result of their assertion of the alleged assignment, for the purpose of suggesting that there is no abuse of process on their part.

17.  Finally in relation to this group of grounds, the suggestion that the court should not depart from “the general rule that there should be no trial upon affidavit and that all the issues of the action are to be tried at one and the same time” is difficult to follow.  It is not suggested that the preliminary issues should be tried on the basis of affidavit evidence – on the contrary, provision has been made in the directions given for the relevant witnesses to attend for cross examination. Nor can there be any complaint that all the issues of the action are not being tried together, when the only issues that are to be hived off and dealt with in the context of the striking out application are issues which do not arise in the action, but only arise in connection with the application to strike out.

18.  We therefore see no merit in Grounds 2(a) to (f) of the draft notice of appeal.

19.  So far as Grounds 2(g) to (i) are concerned, these are, as the defendants submit, new points not raised in the hearing below.  As such, they should not be entertained in the absence of exceptional circumstances (see CCMJ v SSM, unreported, HCMP 2059/2015, 7 December 2015 at paragraph 8).  We are unable to see that there are any exceptional circumstances here that would justify them being permitted to be raised on appeal.

20.  Moreover, none of these grounds has any merit either, as we briefly explain below.

21.  Ground 2(g) suggests that determination of the preliminary issue will not determine the action – this is hardly surprising, since the issues do not arise in the action, but only in the striking out application.  More pertinently, it is suggested that they will not determine the striking out application either, but this suggestion is not correct.  If determined in the defendant’s favour, the alleged set off in respect of the costs orders would not exist, and there would be a possibility of the striking out application succeeding.  But more importantly to our mind, it does not seem to us to be possible to fairly dispose of that application without determining the issues which the Deputy Judge has directed to be tried.

22.  Ground 2(h) suggests that there is in fact no abuse of process, as the claim in these proceedings is a different claim based on different facts from the claims in the earlier action.  But this is a matter for argument in the striking out application itself.  It is quite separate from the question of whether or not there is an outstanding unsatisfied costs order, which is what the preliminary issues are directed at.  The argument is available to the defendants even if they fail on the preliminary issues, and cannot be a reason for declining to deal with them.

23.  Ground 2(i) appears to suggest that the striking out application can be dealt with without the necessity of determining the preliminary issues.  The short answer to this suggestion is that it clearly cannot.  The plaintiffs have chosen to put in issue the question of whether they are in fact indebted to the defendant in respect of the costs orders, and the issue having been raised, it must be dealt with.  The way in which the Deputy Judge has directed that it should be dealt with appears to us to be an entirely sensible way of dealing with the very unusual situation with which she was faced.

24.  Finally, so far as proposed Ground 3 is concerned, the complaints about the lack of pleadings and discovery have already been dealt with in paragraph 14 above.  The complaint that witness statements will not be simultaneous exchanged is similarly without merit – having regard to the way in which the matter arose, being first raised in the plaintiffs’ evidence in opposition to the striking out application, to which the defendant responded, with the plaintiffs being given the opportunity to reply, there can be no ground for complaint.

25.  For the foregoing reasons, we dismiss the application for leave to appeal.  We are also satisfied that the application is totally without merit, and therefore order pursuant to RHC Order 59 rule 2A(8) that no party may request a reconsideration of our determination at an oral hearing.  So far as costs of this application are concerned, these must be paid by the plaintiffs to the defendant.  Having considered the defendant’s statement of costs that has been lodged, we assess such costs on a gross sum basis in the amount of HK$130,000.