NGAI FEW FUNG v. CHEUNG KWAI HEUNG

HCMP 1186/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1186 OF 2006

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J U D G M E N T

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1.  The plaintiff and the defendant, who used to be his mistress, are the registered owners as joint tenants of a flat which they bought together and jointly mortgaged to a bank for part of the purchase price.  The plaintiff applies under the Partition Ordinance, Cap. 352, to have the flat sold, and the net proceeds divided between the parties in equal shares.

2.  Previously, the plaintiff sued the defendant in the District Court, claiming that the flat was bought by them in partnership.  He claimed dissolution of the partnership, sale of the flat, and the division of the proceeds of sale so as first to give him back his contributions, and then divide equally what was left.  The defendant denied that there had been a partnership; she claimed that the plaintiff had set her up in the flat, and made a gift of it to her; and that it is hers for life.

3.  The judge believed neither party and dismissed the action.

4.  The defendant applied to strike out the plaintiff’s Originating Summons as being frivolous, vexatious and an abuse of process of the court, on the ground of res judicata in the District Court action.  On 9 November 2006, Master Au Yeung dismissed the application.  The defendant now appeals against that order and again seeks to have the Originating Summons struck out.

5.  It is for the defendant to establish that the claim is obviously unsustainable, and the pleadings unarguably bad, and it must be impossible for the case to succeed.  See Ha Francesca v. Tsai Kut Kan (No. 1) [1982] HKC 382.

The District Court proceedings

6.  The plaintiff took out proceedings against the defendant in the District Court in Action No. DCCJ 2331 of 2004.  It was a partnership action; he claimed that the parties had, in 1998, started to carry on a partnership by acquiring the Property; and he claimed for a declaration that the partnership had been dissolved, or alternatively an order that it be dissolved, and an order that the Property be disposed of and the net proceeds after disposal distributed in accordance with the terms of the partnership.

7.  There was no dispute that the Property was bought for $2,380,000.00 and mortgaged to the American Express Bank Limited for a loan of $1,666,000.00, which was drawn down on 1 June 1998 and owed by the parties jointly. 

8.  The parties’ cases were succinctly set out in her judgment by Her Honour Judge C B Chan, in these terms:

“In short, the plaintiff’s case, related to the purchase of the Property, is that the plaintiff and the defendant purchased the Property as a partnership business venture subject to the terms pleaded by the plaintiff in his Statement of Claim.  The defendant denied that and said that the plaintiff purchased the Property for herself to reside in with her family; and further, that the plaintiff had promised to make a gift of the Property to her and to look after her for life. 

It is to be noted that the defendant did not make any counterclaim in respect of what is pleaded in her defence, either in relation to the Property or the alleged payments made by her to the plaintiff.”

As appears from her judgment, the learned judge roundly disbelieved both parties.  She found neither of them to be a credible witness.  She concluded her judgment in these terms:

“I therefore do not accept the defendant’s evidence and her case nor the plaintiff’s evidence related to his case. 

On the basis of the aforesaid, I come to my finding that the Property was not purchased by the plaintiff and the defendant as partners, nor was it a partnership business venture. 

The plaintiff had not pleaded an alternative case to apply for an order for sale of the Property under the Partition Ordinance. 

As I found there was no partnership between the plaintiff and the defendant, the plaintiff’s case must fail. 

I make the following order:  the plaintiff’s claim be dismissed.  Costs of the action be to the defendant to be taxed if not agreed.”

The evidence in this Action

9.  In his first affirmation, the plaintiff produces the land search and a bank statement to show an outstanding loan balance of $1,320,538.53.  He refers to the District Court action and says that he stands by his evidence but respects the decision of the court.  He says that the judgment contains a “very succinct summary” of his relationship and transactions with the defendant concerning the property.  He says that the evidence reveals that most of the contributions came from him, and he is still paying the instalments; and he refers to the fact that, before the trial in the District Court, a proposal was made in open court for a sale with division in equal shares, which the defendant did not accept.

10.  The defendant in her first affirmation refers to the learned judge’s adverse findings as to the plaintiff’s credibility, and reiterates her case pretty much as the learned judge outlined it.  She says that the plaintiff should not have 50%, because he gave her the property as a gift, and she has contributed more than he did.  She also says that she and her family would suffer hardship if they had to move out.

11.  In his second affirmation the plaintiff replies, referring to the learned judge’s adverse findings on the credibility of the defendant.  He denies that sale would cause hardship; he says that the defendant has been a working woman for many years.

12.  The defendant counters with a second affirmation referring to the fact that the amount of contributions was a live issue in the District Court action, and, no doubt on the advice of those representing her, who would be alive to the question of res judicata in the wider sense, she argues that these proceedings are an abuse of process.  She says that the plaintiff should have amended his Statement of Claim to include a claim for partition and sale, and says that the learned judge asked the plaintiff if he would amend, but the plaintiff did not.

13.  In a third affirmation the plaintiff denies that the learned judge asked if he would amend; he says that the point was not addressed at the trial, or before the judge’s mention of it in the judgment.  The rest of his affirmation really amounts to argument rather than evidence.

14.  The defendant’s third affirmation, in reply, is also primarily argument and there is no real factual matter in it.

The defendant’s case for striking out

15.  The defendant’s case is that the subject matter of this action is subject to res judicata both in the narrower sense, i.e. it seeks to re-litigate issues already adjudicated upon by the District Court, and in the wider sense, because it deals with an issue, i.e. partition, which could and should have been raised in the earlier action; see Yat Tung Investment Co. Ltd v. Dao Heng Bank Ltd [1975] AC 581.  Either way, these proceedings are an abuse of process.

The narrower sense – re-litigation

16.  The question here is whether these proceedings deal with issues which the court was asked to decide in the District Court action.

17.  In that action, the court had to decide whether or not the Property had been bought as a partnership venture.  It also heard evidence as to the contributions made by the parties to the initial payments and to the payment of the mortgage instalments.

18.  It is argued for the defendant that the most central issue in an application for order for sale under the Partition Ordinance is the extent of contribution by the parties.  In deciding on that, the court would need to decide the credibility of the parties as was done in the District Court action.

19.  In fact, the plaintiff was claiming a partnership, under which he was entitled to get back his contributions plus half the net remaining value.  In effect he was claiming that he was beneficially entitled to the lion’s share of the value of the property.  The defendant was claiming a gift, or, in other words, that she was the beneficial owner of the property in its entirety.  The judge disbelieved them both.  Clearly the plaintiff cannot re-litigate the issues relating to the partnership and his contributions.  Nor can the defendant re-litigate the issue of whether there was a gift.  Res judicata works both ways.

20.  We are therefore left with two joint tenants of property, one of whom seeks partition under the Partition Ordinance.  An outline of the history of the law of partition appears in the judgment of Reyes J in Fortis Bank Asia HK v. Y Kam Hoi Herman & Ors, HCMP 134 of 2002, as follows:

“Originally partition was only available at common law to coparceners, that is, persons who jointly inherited a parcel of land^3.  In 1539 statute (Act 31 Henry VIII c.1) extended the right of partition to joint tenants and tenants in common of freehold estates.  In 1540 statute (Act 32 Henry VIII c.32) granted a right of partition to joint tenants and tenants in common of land held for a term of life or years.  This later act provided that partition would not be ordered if it was prejudicial to persons who were not parties to the proceedings.  Under the 1539 and 1540 Acts the Court had no discretion, where the stipulated conditions were met, to refuse partition.  English law was liberalised further by Partition Acts promulgated in 1868 and 1876.  These gave the Court the power to order a sale of property instead of partition, if it was thought more beneficial.

Before 1969 the Acts of 1539 and 1540 were enforceable in Hong Kong under the Application of English Law Ordinance.  The Partition Ordinance was enacted in 1969…”

21.  By section 2 of the Partition Ordinance, the court may order partition under section 4, or sale under section 6, or refuse to make an order.  The common law right to partition and sale remains save that the court has a discretion to refuse to make an order.  There is no question of physical partition in this case so the issue for the court, if this action proceeds to trial, will be whether or not to order sale.

22.  The parties are joint tenants.  Each joint tenant has an identical interest in the whole land and every part of it; their interest is the same in extent, nature and duration.  If the court orders sale, therefore, prima facie they would take equal shares of the net proceeds but this would be subject to any dispute of the extent of the beneficial ownership.

23.  In fact the plaintiff seeks in the first place an order that “the property be partitioned from being held under joint tenants by the plaintiff and the defendant to that of tenants-in-common in equal shares”; in effect a severance of the joint tenancy.  Where there is such severance, prima facie there would be a tenancy in common in equal shares but again this is subject to any dispute of the extent of the beneficial ownership.

24.  The plaintiff is not now seeking to litigate on the extent of the beneficial ownership.  The extent of his contributions and his resulting beneficial entitlement is not in issue here.  Therefore, it seems to me, he does not ask the court to decide issues which the District Court was asked to decide in the original litigation.

25.  If this action goes to trial, the defendant will no doubt argue that the court should, in its discretion, refuse to order sale.  She claims that she will suffer hardship if she has to move out.  Section 6 requires the court to take into account the circumstances of the persons interested in the property and may make no order for sale when the interests of all the parties would be better served by their continuing to remain as co-owners, or where the order would result in very great hardship to one co-owner: Fook Sun Enterprises Co. Ltd v. Cromwell Investment Co. Ltd & Others [1973-76] HKC 335, Chow Doi Kwai v. Chan Cho Yuk [2000] 2 HKLRD 235.

26.  Hardship is not an issue which the District Court was asked to decide.  No doubt the defendant can argue hardship if she wishes except that, if she bases that on her claim to hardship on her alleged beneficial interest in the entirety of the property, that also may be met with a plea of res judicata.

27.  I do not, therefore, see that res judicata in the narrower sense applies here.

The wider sense – Yat Tung estoppel

28.  Judge C B Chan in her judgment referred to the fact that the plaintiff had not pleaded an alternative case to apply for an order for sale of the Property under the Partition Ordinance.  There is a dispute as to whether he was given the chance to amend, but that is immaterial; partition was not litigated in the earlier proceedings.

29.  Lord Kilbrandon in Yat Tung Investment Co. Ltd v. Dao Heng Bank Ltd [1975] AC 581 said at 590:

“The second question depends on the application of a doctrine of estoppel, namely res judicata.  Their Lordships agree with the view expressed by McMullin J that the true doctrine in its narrower sense cannot be discerned in the present series of actions, since there has not been, in the decision in no. 969, any formal repudiation of the pleas raised by the appellant in no. 534.  Nor was Choi Kee, a party to no. 534, a party to no. 969.  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.  The locus classicus of that aspect of res judicata is the judgment of Wigram V-C in Henderson v. Henderson (1843) 3 Hare 100, 115, where the judge says :

‘...where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.  The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.’

The shutting out of a ‘subject of litigation’ a power which no court should exercise but after a scrupulous examination of all the circumstances is limited to cases where reasonable diligence would have caused a matter to be earlier raised; moreover, although negligence, inadvertence or even accident will not suffice to excuse, nevertheless ‘special circumstances’ are reserved in case justice should be found to require the non-application of the rule.”

30.  The defendant argues that partition could and therefore should have been litigated in the District Court action, and therefore it is an abuse of process to raise this issue now.

31.  The statement that it is an abuse of process to raise in subsequent proceedings matters which “could and therefore should” have been litigated in earlier proceedings has been rejected by the House of Lords in Johnson v. Gore Wood & Co. (a firm) [2001] 2 WLR 72.  It was held that the test of whether there is abuse should be “a broad, merits-based judgment which takes account of the public and private interests involved and also which 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”; see Johnson at page 90D, per Lord Millett.

32.  However, the decision in Yat Tung is still binding in Hong Kong; see re Li Wai Man [2000] 3 HKC 265; Tang Kin Wah v. Cheng Choy Kam Chee Connie [2002] 1 HKC 552; and in particular Ray Chen v. Anita Wan Ching Lam & Anor, HCA 4582 of 2001 where Ma J, as he then was, discussed the effects of Johnson and other English decisions, including Bradford & Bingley Building Society v. Seddon Hancock & Others [1999] 1 WLR 1482.

33.  In Tang Kin Wah, Suffiad J, after considering the impact of the Bradford and Bingley case, which was a decision of the Court of Appeal in England, and also the case of Port of Melbourne Authority v. Anshun Pty Ltd (1981) 147 CLR 589, a decision of the High Court of Australia went on to note that 

“After citing the words of Wigram V-C in Henderson v. Henderson (1843) 3 Hare 100, Lord Kilbrandon in the case of Yat Tung went on to point out at page 590 that the phrase used by the Vice-Chancellor : “every point which properly belonged to the subject of litigation” was expended in Greenhalgh v. Mallard [1947] 2 All ER 255, at 257, by Somervell LJ in these words :

“... res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but ... it covers issues or facts which are so clearly part of the subject matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them.”

Immediately thereafter, Lord Kilbrandon in the Yat Tung case at page 590 also referred to a phrase used by Lord Shaw of Dunfermline in delivering the opinion of the Board in Hoystead v. Commissioner of Taxation[1926] AC 155, at 171 :

“The present point was one which, if taken, went to the root of the matter on the prior occasion.”

which phrase Lord Kilbrandon conceded to be precisely apposite to the failure, in answer to the counterclaim in the earlier proceedings, to raise the matters founded on in the later proceedings which, if then substantiated, would have been then decisive.”

34.  I do not think that partition went to the root of the matter to be decided in the District Court.  The plaintiff, as I have said, relied on a partnership; he was trying to get his money out of it by having the flat sold.  He did not need to apply for partition, in order to achieve that end.  There was no need for the court to go into any question of title.  It would follow that while partition could have been litigated, it does not follow that it should have been.

35.  I am told, although I have not seen any transcript, that the learned Master raised the question whether, since the District Court action was an action in personam and this action is an action in rem, the Yat Tung principle applied.  After hearing argument, she held that it did not.  The defendant attacks this part of the decision, relying on The Indian Grace (No. 2) [1996] 2 Lloyd’s LR 12.  I do not think this case assists, because the issue there seems to have been whether two actions, in rem and in personam, were between the same parties or their privies.  In fact I doubt that the fact that one action here was in personam while the other is in rem makes any difference; what is important is whether the question of partition went to the root of the matter to be decided in the District Court.

36.  In case I am wrong in my finding that while partition could have been litigated, it does not follow that it should have been, I must consider whether there are special circumstances which require the non-application of the rule.

37.  In Chun Yip Construction Co. Ltd v. E. Bon Building Materials Co. Ltd, Burrell J held that “special circumstances” which would call for the non-applicability of the plea:

“could only amount be circumstances which (a) were special, (b) explained why a defence had not been raised when it could and should have been, and (c) led to an injustice”.

It is argued for the defendant that there are no such special circumstances here.

38.  I do not think it is necessary to go into the questions of what “special” might mean, or whether there must in every case be an explanation as to why the issue was not raised in the earlier proceedings.  The important question is whether, if the res judicata principle applied here, it would lead to injustice. 

39.  As I have indicated above, the learned judge believed neither side.  The plaintiff did not establish the extent of his majority beneficial interest by reason of contributions made; and the defendant did not establish her entire beneficial interest either.  The parties are at a stalemate.  But they are still joint tenants, with a right, subject to the court’s discretion, to partition or sale.

40.  If the principle is applied so as to strike out the Originating Summons it will mean that the defendant will remain in sole possession of the flat for life to the exclusion of the plaintiff, in spite of the fact that, at trial in the District Court, she failed to establish the basis on which she claims that possession, i.e. that the plaintiff made a gift of the flat to her so that, notwithstanding that the title is in joint names, she is the sole beneficial owner.

41.  The defendant is entitled to possession as joint tenant, as is the plaintiff; those are the incidents of the title.  Without establishing the claims she put forward in the District Court, however, I do not see that she can have any right to exclude the plaintiff from possession or to exclude him from exercising his right, subject to the court’s discretion, to partition or sale. She cannot simply maintain the stalemate.  That would be unjust.

42.  If, then, partition could and should have been litigated in the District Court action, there is a special circumstance which requires the non-application of the rule.

Result

43.  In the result the defendant’s appeal is dismissed with costs (nisi) to the plaintiff in any event.