PAKO ENTERPRISES LTD v. TSE, YUET TOA

HCA 2239/2018

[2020] HKCFI 773

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2239 OF 2018

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BETWEEN

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D E C I S I O N

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1.  This is the defendant (“D”)’s appeal against the summary judgment granted by Master Chow dated 12 December 2019 (“the Judgment”), pursuant to which final judgment was entered against D on the basis of the plaintiff (“P”)’s “Counterclaim to Counterclaim” (“CC-to-CC”). On 22 January 2020, Master J Wong granted a stay of execution of the Judgment pending the outcome of this appeal.

2.  Originally, the appeal was fixed to be heard on 7 April 2020.  Due to the General Adjourned Period, that hearing did not take place as scheduled.  The parties have agreed that the appeal be disposed of on paper without an oral hearing.  The parties have provided detailed written submissions to the court, and I have considered the same.

Essential Facts

3.  The dispute between the parties concerns the ownership and possession of a property known as Flat B on the 1^st Floor (including the Flat Roof), No. 36 Hillwood Road, Kowloon (“Property”).

4.  P’s pleaded case in the statement of Claim (“SoC”) is as follows (“the bare licencee case”):

(1) One Ma Yuk Wan (“Ma”) acquired the Property in 2004 and let it to Lee Pui Wah (“Lee”).

(2) Lee arranged for her daughters Cheung Sau Lam (“Cheung”) and Joey Tong (“Tong”) to move into the Property.

(3) Cheung had a close relationship with D.  Therefore, D was also allowed to live in the Property as a bare licencee[1].

(4) Lee used P as a corporate vehicle to acquire the Property in 2008 from Ma.

(5) Since then, D was allowed to continue to live in the Property in the same way and capacity as before due to her close relationship with Cheung at the material times[2].

(6) When the relationship between Cheung and D fell through in mid-2018, D was required by P to leave the Property.  But D refused.

5.  D’s pleaded case in her the defence is as follows:

(1) Ma purchased and held the Property on trust for Lee, Cheung and D pursuant to an agreement amongst them (“the Agreement”). According to the Agreement, Lee owns half of the beneficial interest in the Property whereas Cheung and the Defendant own the remaining half of the beneficial interest in the Property.

(2) D’s parents contributed HKD$259,500 (ie 15%) of the purchase price of the Property and transferred their interest to D.  At all material times, P and Lee knew about D’s interest in the Property.

6.  D has raised a counterclaim, seeking a declaration that D is a 25% beneficial owner of the Property and an order requiring P to make D as a registered owner of the Property having 25% interest in the same, or to pass 25% of the sale proceeds to D after selling the Property.

7.  After D has filed and served the defence and counterclaim, P provided to the court and served on D a document called “Reply, Defence to Counterclaim, and Counterclaim to Counterclaim”.

8.  In the CC-to-CC, P adopts the facts pleaded in SoC [3] to [12][3].  However, immediately thereafter, P avers that in the event of D succeeding in any part of the counterclaim, P would proceed to claim against D on the basis that both P and D are co-owners of the Property, and P is entitled to have joint possession of the Property with D, and P should be entitled to mesne profits, damages, occupation rent and/or compensation until joint possession is given (“the co-owner case”).

9.  Master Chow allowed P’s application for summary judgment on the basis of the matters pleaded in the CC-to-CC, ie both P and D are co-owners of the Property and P is entitled to the reliefs claimed in the CC-to-CC.

Analysis

10.  It is trite that an appeal hearing under Order 58 is a de novo hearing.  The hearing before me is an actual rehearing as if the application came before me for the first time^[4].

11.  “Summary judgment, if it is to be given, is to be given on the pleaded case.”[5]  In my view, P is not entitled to rely upon the co-owner case pleaded in the CC-to-CC to obtain summary judgment.  With respect, the learned master erred in granting the Judgment to P.

12.  P’s case as pleaded in the SoC is that D was staying in the Property as a bare licencee and that licence has been revoked. In the premises, P ought to deliver vacant possession and also pay mesne profits and damages to P.  However, P has put forward another case in the CC-to-CC, ie both P and D are co-owners of the Property.  On this basis, P is claiming joint possession of the Property.  These are diametrically opposite cases.  In my judgment, P is not entitled to put forward a different case in the CC-to-CC while the SoC remains intact.

(1) Order 18 rule 10(1) provides:

“A party shall not in any pleading make any allegation of fact, or raise any new ground of claim, inconsistent with a previous pleading of his.”

The bare licencee case and the co-owner case are clearly two different and inconsistent cases. Without amending the SoC (in which D is alleged to be a bare licencee), I cannot see how P can put forward a case in the CC-to-CC alleging that D is a co-owner of the Property.  In my view, the CC-to-CC has offended Order 18 rule 10(1).

(2) Further, by seeking reliefs on the basis that D is a co-owner of the Property, P in fact is putting forward a new cause of action.  P cannot do so without amending the SoC.  As said by Lam J (as he then was) in Magic Score Limited v. The Hong Kong and Shanghai Banking Corporation Limited and Another[6]:-

“20. Thus, it is not appropriate to raise in the reply a new cause of action (see Hong Kong Civil Procedure 2006 Paragraph 18/3/2).  A plaintiff who wishes to pursue an additional or alternative cause of action should do so by amending the statement of claim.

21. This is not simply a technical rule. A defendant to an action is entitled to know from the writ and statement of claim what are the precise limits of claims he is faced with.  He should focus on the same and then put forward his case in his defence and prepare for the evidence accordingly.  He should be able to conduct the litigation and arrange his affairs on the basis that all the relief and remedies claimed against him have been set out in the statement of claim, subject to any amendments that might be made to that document.  He could, for example, consider whether to make any payment into court or any offer for settlement based on this.  He could also decide what is the proportionate time and costs that he should spend on the litigation by reference to those claims.  A reply (or any subsequent pleadings) is not the right place for new claims to be put forward as it does not contain any prayers and a defendant does not have any automatic right to file any pleadings subsequent to reply (see Order 18 rule 4).  It would also be confusing for new claims to be buried amongst other positive allegations made in genuine reply to a defence.”  (Emphasis added)

13.  Further, Order 18 rule 12A provides:

“A party may in any pleading make an allegation of fact which is inconsistent with another allegation of fact in the same pleading if —

(a) the party has reasonable grounds for so doing; and

(b) the allegations are made in the alternative.”

As said by Au J in Hui Yin Sang Another v Tsoi Ping Kwan and Another[7], the objectives of this rule is to prevent a party from pleading inconsistent cases in relation to a matter which is plainly within his knowledge, so that there could be no justification for him to put forward inconsistent factual alternatives.  The party also cannot properly verify the inconsistent cases pleaded in the same pleading by a statement of truth.  P has in fact adopted [3] to [12] of the SoC as part of the CC-to-CC, which include the plea that D was staying in the Property as a bare licencee.  In other words, in the CC-to-CC, P in fact maintains the bare licencee case and at the same time puts forward the co-owner case.  As to which case (ie the bare licencee case or the co-owner case) is true, this must be a matter within Lee’s knowledge[8].  I do not see any reasonable ground justifying the course adopted by P in the CC-to-CC.  In my view, the CC-to-CC is also contrary to Order 18 rule 12A.

14.  I am aware that P is putting forward the co-owner case in the CC-to-CC on the condition that in the event of D succeeding in any part of her counterclaim.  However, as rightly submitted by Mr Byron Chiu, counsel for D, P is not entitled to seek final judgment on the basis of the co-owner case in the CC-to-CC without abandoning the bare licencee case in the SoC, for the two cases are inconsistent with each other.  P cannot seek final judgment on the co-owner case as set out in the CC-to-CC, and at the same time preserve the chance of arguing that in fact D has no interest in the Property and was a bare licencee and is now a trespasser staying the Property.  P cannot blow hot and cold and there must be finality of proceedings.  As said by Anthony Chan J in Yang Foo-oi by Leung Ping Chiu, Roy (Her Next Friend) v Wai Wai Chen and Another[9]:

“Abuse of process

215. This issue is intricately related to the one of Conditional Judgment.

216. This issue arose from the fact that whilst challenging the Judgment based on the contention that the Claims had been assigned to Angela under the Gift Documents, Vivien had made clear that when she is able to do so she would be contending that those very Documents were obtained by Angela with undue influence and breach of fiduciary duty, and that they should be set aside. It was said that such contention “will be advanced as soon as may be, whether in proceedings in which Vivien participates or in other proceedings instituted by her (eg, mental health proceedings, proceedings instituted after the death of Yang or otherwise)”.

217. There is no dispute that where a plaintiff in subsequent proceedings adopts a position which is inconsistent with the position he had adopted in previous proceedings, that would generally be regarded as an abuse of process.

……

221. This court was previously informed that the contention that the Gift Documents should be set aside represented Vivien’s primary position. Whether that position should be so labelled is not critical. However, there can be little doubt that the “primary position” represents a much larger prize for Vivien. She would stand to benefit from her mother’s estate, which would include the compensation obtained under the Judgment. If the “primary position” prevails, her sister would not get more than her from their mother’s estate. Therefore, if Vivien is in a position to challenge the Gift Documents, the overwhelming probability is that she would do so.

222. On the other hand, there is currently no legal proceedings on foot in which Vivien is arguing that the Gift Documents are invalid. ……

Conditional Judgment

226. It had been proposed by Vivien that the court may consider setting aside the Judgment “on condition of it not being later shown that the Deed of Gift is invalid”.

227. I agree with Mr Yu that plainly the Proposed Condition is a gambit by Vivien to avoid the legal consequences of the position she has taken in these proceedings. It is to pre-empt the operation of the doctrines of election and abuse of process. Mr Yu submitted that, as a matter of principle, such a step should not be sanctioned by the court. It is also inequitable for a wrongdoer to be afforded an opportunity to blow hot and cold as and when it suits her needs.

228. I have already touched on the principle of abuse of process. The doctrine of election was defined in Spencer Bower: Reliance-Based Estoppel, 5th edn, rubric 13.1, as follows:

“Election applies where B is faced with inconsistent courses of action which affect A’s rights or obligations.  If B, with knowledge of the choice between them, decides on one course of action rather than the other and communicates that choice to A, B is bound by that decision.”

229. The doctrines of election and abuse of process may be seen to overlap: see First National Bank Plc v Walker [2001] 1 FLR 505, §54 (Sir Andrew Morritt V-C).

230. It must also be said that the Proposed Condition is against the principle of finality of proceedings.

231. I am unable to see what justification there can be to allow Vivien to blow hot and cold after she had successfully invoked the power of the court to set aside the Judgment on the basis that the Claims were validly assigned to Angela under the Gift Documents.

……”

15.  I have never come across a pleading known as “counterclaim to counterclaim”.  As said by the learned judge in Magic Score, if the plaintiff intends to put forward a new claim against the defendant, what the plaintiff should do is to amend the statement of claim and not to raise the new claim in the reply or any subsequent pleadings.  What P has done here is improper and must not be followed by any litigant in any writ actions.

16.  In my judgment, the CC-to-CC is not a proper pleading and P is not entitled to rely upon the same to pursue an application for summary judgment against D.  This appeal must be allowed, and P’s application for summary judgment must be dismissed.

Disposition

17.  I allow the appeal, set aside the Judgment and dismiss P’s application for summary judgment.  The parties shall consider the way forward in the light of this decision, and seek directions concerning the future conduct of these proceedings from the court in due course.

18.  Costs should follow the event.  I order that costs here and below, including the costs of D’s application for stay of execution pending appeal, be paid by P to D forthwith.  Those costs be summarily assessed at HK$103,000.

19.  Lastly, it remains for me to thank counsel for the assistance provided to the court.