FAR WEALTH LTD AND ANOTHER v. LO KI MOU AND ANOTHER

HCA 1617/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1617 OF 2016

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AND

HCMP 6/2016

MISCELLANEOUS PROCEEDINGS NO 6 OF 2016

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(Heard Together)

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DECISION

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Introduction

1.  There are two sets of proceedings between the parties that arise out of the sale and purchase of the Property, being the two shops on Argyle Street.  The first set of proceedings were commenced by the vendors of the Property when they issued a Vendor Purchaser Summons (HCMP 6/2016) on 4 January 2016 against the purchasers.  The second set of proceedings were commenced by the purchasers when they issued a Writ of Summons indorsed with Statement of Claim (HCA 1617/2016) on 18 June 2016 against the vendors.

2.  I shall refer in this decision to the plaintiffs in HCMP 6/2016 / defendants in HCA 1617/2016 as the vendors, and the defendants in HCMP 6/2016 / plaintiffs in HCA 1617/2016 as the purchasers.

3.  Pursuant to an application by the vendors by summons dated 21 September 2016 to strike out the purchasers’ Statement of Claim, by way of an Order dated 15 May 2017, without prejudice to the purchasers’ rights to file a counterclaim in HCMP 6/2016, if necessary, Master S Lo struck out and dismissed with costs the purchasers’ claims in HCA 1617/2016 on the ground of abuse of process. The purchasers had also sought by a summons in each set of proceedings that such proceedings be listed and tried together before the same Judge, with HCMP 6/2016 being tried immediately after HCA 1617/2016.  Those summonses were dismissed with costs by Master S Lo.

4.  The purchasers appealed the orders made by Master S Lo on 15 May 2017 and this is the decision determining that Appeal.

Appeals from Masters

5.  As set out at §58/1/2 of Hong Kong Civil Procedure 2017, an Appeal from a Master to a Judge in Chambers is dealt with by way of an actual rehearing of the application which led to the Order under Appeal, and the Judge treats the matter as though it came before him for the first time.

Factual background

6.  Pursuant to the Agreement, being two Provisional Sale and Purchase Agreements both dated 13 January 2015, the Property was sold by the vendors, who are cousins and the registered owners of the Property, to the purchasers, with each purchaser acquiring one shop.  The completion of the sale and purchase of the Property was agreed to be on or before 29 May 2015.  Initial and further deposits in the total sum of HK$8 million were paid by the purchasers to the vendors.  The transactions were not completed.

7.  On 4 January 2016 the vendors issued a Vendor Purchaser Summons in the form of an Originating Summons seeking, inter alia, declarations that the vendors are discharged from further performance of the Agreement, and are entitled to retain the deposits paid by the purchasers, as well as to resell the Property, be indemnified by the purchasers for the commission owed to the estate agent and recover damages for repudiation or rescission of the Agreement.  It is the vendors’ case that they satisfactorily answered the requisitions raised by the purchasers and thus showed and proved good title.

8.  On 18 June 2016 the purchasers issued the Writ of Summons indorsed with Statement of Claim seeking a declaration that the Agreement has been rescinded/set aside or further or in the alternative, that the Agreement is not enforceable.  Additionally, the purchasers sought an order for repayment of the deposits, together with a declaration that pending return of such deposits they are entitled to liens on the Property to the extent of such deposits. The purchasers also sought payment by the vendors to them of sums to cover the legal costs and disbursements incurred by them in relation to the sale and purchase of the Property.  The purchasers’ claim is based upon fraudulent misrepresentation and/or lack of authority with it being said that the vendors, through their solicitors as agents, made the false representation that the 1^st defendant had sufficient authority to represent the 2^nd defendant and sign the Agreement on behalf of the 2^nd defendant.

Issues for the court to determine

9.  It is logical that I should first deal with the vendors’ strike out summons, as if I agree to the same and strike out the claims in the proceedings brought by the purchasers, there will be no need to deal with the balance of the orders sought in the purchasers’ Notice of Appeal dated 26 May 2017.  If I do not strike out the claims in the proceedings brought by the purchasers, however, I should then proceed to deal with such balance.

10.  The vendors argue that all the claims and issues raised in HCA 1617/2016 are contained and covered in HCMP 6/2016.  Hence, as it is open to the purchasers to raise in their defence and by counterclaim in HCMP 6/2016 all the issues and claims for relief raised in HCA 1617/2016, it is a waste of costs and time to bring such second proceedings and doing so is an abuse of process of the court as a same cause of action would be litigated twice.  Further, the vendors submit that even if there is no counterclaim brought by the purchasers in HCMP 6/2016, the issues raised in HCA 1617/2016 for determination are the same issues as already raised in HCMP 6/2016 for determination.

11.  Additionally, the vendors’ point out that HCMP 6/2016 is well advanced with lengthy affirmations having been filed by the parties exhibiting all the relevant documents.  Hence, it is said that substantial costs would be saved by converting such proceedings into a writ action with the affirmations filed standing as the parties’ pleadings.  Mindful that all relevant documents have been exhibited, the vendors submit that the discovery is basically completed and the case can proceed to trial quickly; whereas HCA 1617/2016 is at a very primary stage considering for instance, that a defence has not been filed.  Accordingly, the vendors further submit that striking out HCA 1617/2016 is consistent with the underlying objectives of the Civil Justice Reform in saving costs and time.

12.  The purchasers counter these arguments on the basis that under the Rules of the High Court, there is no requirement that a party has to bring a counterclaim instead of a separate action.  The purchasers assert a party is given the option of bringing a counterclaim as an alternative to bringing a separate action, which it is submitted is made clear by Order 28, rule 7(1), as well as by Order 15, rule 2(1), and can be traced back to the discussion in Stooke v Taylor (1880) 5 QBD 569.  It is therefore, argued by the purchasers that it cannot be an abuse of process for them to choose to bring a separate action instead of proceeding by way of a counterclaim.

13.  Further and additionally, the purchasers argue that there are good reasons for them to bring a separate action instead of proceeding by way of counterclaim.  First, they assert that there is a real risk that their claims for rescission due to fraudulent misrepresentation fall outside of the scope of the Vendor Purchaser Summons procedure when one has regard to section 12(1) of the Conveyancing and Property Ordinance (Cap 219), which provides that (the purchasers’ emphasis added):

“ A vendor or purchaser of land may apply by petition or by originating summons to the court in respect of any question arising out of or connected with any contract for the sale or exchange of land (not being a question affecting the existence or validity of the contract or relating to compensation payable by the Government or a public body), and the court may make such order upon the petition or originating summons and as to costs as to the court appears just.”

14.  Secondly, they assert that it is obvious that their claims raise substantial factual disputes and, with reference to §5/4/2 of Hong Kong Civil Procedure 2017, that the Originating Summons procedure is inappropriate to deal with such disputes.  Hence, it is submitted by the purchasers that even if they had proceeded by way of counterclaim in HCMP 6/2016, such proceedings would have to be converted and continued as a writ action and therefore, it would have been pointless for them to bring the counterclaim in HCMP 6/2016, only to revert back to the position as if the parties had begun a writ action.

Legal principles

15.  As relied upon by the vendors, paragraphs 26 to 28 of the decision of Recorder Fok SC (as he then was) in Lam Pak Cheung v Lin Zhen Lue [2009] 1 HKLRD 35 set out the relevant principles applicable to an application to strike out:

“ The relevant principles applicable to the application to strike out

26. The court has power to strike out or dismiss proceedings which are an abuse of its process under O.18 r.19(1)(d) and also under its inherent jurisdiction. The process of the court must be used bona fide and properly and must not be abused. To this end, the court will prevent the improper use of its machinery and will, in a proper case, summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation.

27. As is pointed out in Hong Kong Civil Procedure 2008, Vol.1, p.351 para.18/19/10, the categories of conduct rendering a claim frivolous, vexatious or an abuse of the process are not closed but depend on all the relevant circumstances and for this purpose considerations of public policy and the interests of justice may be very material.

28.   The court’s jurisdiction to strike out or dismiss proceedings is, of course, discretionary and is only to be exercised in plain and obvious cases.”

16.  As well as placing reliance upon such decision in Lam Pak Cheung, the vendors rely upon the decisions in Collin Navigation Co SA v Perusahaan Pertambangan Minyik Dan Gas Bumi Negara [1986] HKC 78 (CA) and Wong Chi Pan v Lau Yu Chau (unreported, HCMP 3000/2014), to support their argument that where the issues covered and the relief sought in two sets of proceedings are the same, it is an abuse of process to issue the second set of proceedings because it causes an unnecessary multiplication of actions and hence, HCA 1617/2016 was correctly struck out by Master S Lo.

17.  Having considered those decisions, I note that they each deal with a situation where the second action was commenced by the plaintiff.  It does seem obvious that commencing a second action based upon the same cause of action or commencing a second action asking for relief which might have been sought or obtained in the first action, is an abuse of process and should not be permitted by the court to avoid a multiplicity of proceedings.  However, this is not the situation we are dealing with here and I do not consider that these decisions are directly relevant in relation to the striking out of HCA 1617/2016.

18.  I accept the position put forward by the purchasers that the relevant Rules of the High Court referenced in paragraph 12 above, give the party the option of bringing a counterclaim, but is not automatically required that they do so.

19.  However, when coming to a decision in relation to striking out a claim based upon a multiplicity of proceedings and particularly when exercising the court’s inherent jurisdiction, I am required to have regard to and implement the underlying objectives set out in Order 1A, rule 1 of the Rules of the High Court, with the primary aim “to secure the just resolution of disputes in accordance with the substantive rights of the parties.”  (Order 1A, rule 2(2) of the Rules of the High Court).

20.  Such underlying objectives include to increase the cost effectiveness of any practice and procedure to be followed in relation to proceedings before the court; to ensure the case is dealt with as expeditiously as is reasonably practicable; to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings; and to ensure fairness between the parties.

21.  Turning to section 12 of Cap 219, Mr Cheung on behalf of the vendors has drawn to my attention first, to the position being that the purchasers have pleaded and accepted in the Statement of Claim in HCA 1617/2016 the existence and validity of the Agreement, and the claims brought forward by the purchasers relating to misrepresentation and want of authority lead to a challenge to the enforceability or rescission of the Agreement; and secondly, to several decisions where the court has adjudicated on issues of misrepresentation and rescission involving Vendor Purchaser Summons brought by way of Originating Summons.

22.  These authorities encompass:

•   Wide Link Ltd v Tam Sing Cheong & Others (unreported, HCMP 1102/1998),
•   Leung Kai Hong & Another v Sheehan Danny William & Another [2007] 3 HKLRD 707,
•   Best Linkage Ltd v Marbella Garden Ltd (unreported, HCMP 1437/2014),
•   Forever Business Ltd v Long Surplus International Investment Ltd (unreported, HCMP 1630/2005), and
•   Ip Kam Wah & Another v Fair City Group Ltd [2005] 4 HKLRD 168.

23.  Mr Lam on behalf of the purchasers has referred me to §7.11.2 of Eggers on Vitiation of Contractual Consent (1^st Edition), wherein it explains that the remedy of rescission in respect of a fraudulent misrepresentation provides for the induced contract to be “set aside ab initio, as if it never existed”, such that “This virtual expunging of the contract results in each party returning to the other the benefits respectively received from the other”. In other words, “the parties are placed in the same position they would have been in had the contract never been concluded”. However, such paragraph continues by stating that “The misrepresentation renders the contract voidable, not void, such that the transaction, including any transfer of property, remains operative and effective until it is set aside”. In this respect, I also note that in §21-383 of Chitty On Contracts Hong Kong Specific Contracts (5^th Edition), when dealing with whether a contract between the parties for the sale and purchase of land does exist, the example given is whether a document amounted to a sufficient memorandum in writing under section 3(1) of Cap 219.

24.  In light of these authorities, I consider that the Agreement exists and continues to remain operative and effective until such time as rescission is granted, if it is. Further, I accept that the court is given a wide discretion by section 12 of Cap 219 to determine matters arising out of or in connection with any contract for the sale or exchange of land and that includes dealing with issues of misrepresentation and/or rescission.

Decision

25.  I accept that a party is not obliged to bring a counterclaim, as opposed to issuing separate proceedings.  The relevant Rules do give a party an option with respect to bringing a counterclaim.  However, in this case there is a clear overlap in the relief sought in both proceedings, which involve the same parties, the same issues and relate to the same factual matrix.  Hence, mindful of the underlying objectives and in exercising the inherent jurisdiction of the court, I consider that it is clearly sensible that only one set of proceedings go forward.

26.  Whilst I find that there was no abuse by the purchasers in commencing HCA 1617/2016 in the sense that this was not a second set of proceedings commenced by the same party and hence, the authorities put forward by the vendors as referenced above do not apply in this case; as referenced in paragraph 25 above, I also find that where the underlying objectives would be met by there being only one set of proceedings encompassing all the issues, a second set of proceedings can and should be struck out as an abuse of process.  In this case, as referenced above, HCMP 6/2016 does encompass all the issues, is significantly more advanced than HCA 1617/2016 and allows for the just resolution of the disputes between the parties that have arisen as a consequence of the Agreement not completing.  I consider that it is not appropriate to allow the same issues to be litigated in two sets of proceedings.

27.  Further, as I have accepted that matters of misrepresentation and rescission are allowed in a Vendor Purchaser Summons brought by Originating Summons, I do not agree with the argument raised by the purchasers in respect of section 12 of Cap 219.  Additionally and in any event, as noted in paragraph 11 above, the Vendors have acknowledged the need to convert HCMP 6/2016 into a writ action and, as set out in paragraph 14 above, the purchasers have implicitly accepted that they could have proceeded by way of a counterclaim in HCMP 6/2016, with it then being converted into a writ action, it would clearly be sensible for HCMP 6/2016 to be so converted. Upon this happening the points raised by the purchasers to justify them bringing a separate action instead of proceeding by counterclaim would fall away. I would accordingly, encourage the vendors to proceed to bring on such an application as part of the directions to be sought in HCMP 6/2016 referred to in paragraph 30 below.

28.  In conclusion, in light of the matters set out above and particularly, the underlying objectives set out in paragraph 20, I consider that, exercising the inherent jurisdiction of the court, it is right to strike out HCA 1617/2016 as an abuse of process without prejudice to the purchasers’ rights to bring a counterclaim in HCMP 6/2016.

29.  I accordingly, dismiss the appeal brought by the purchasers and make a costs order nisi that the costs of the appeal are to be paid by the purchasers to the vendors with certificate for counsel, to be taxed if not agreed.

30.  With respect to the directions hearing in relation to HCMP 6/2016 adjourned by the Order of Deputy Judge To dated 5 July 2017 to be heard immediately after this Appeal, I accede to the invitation of Mr Cheung on behalf of the vendors and direct that such adjourned hearing be restored for hearing before a Master with costs reserved.