REMEDY ASIA LTD v. YICK SHING CONTRACTORS LTD

HCCT 4/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 4 OF 2012

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D E C I S I O N

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Background

1. This is an application by the plaintiff (“Remedy Asia”), to re-amend the Amended Writ which was issued on 7 February 2012, by adding as the proposed 2^nd plaintiff True Light Civil Contractors Limited (“TL”) acting through its liquidators, since TL was wound up by order of the court on 18 October 2006. 

2. Under a deed of assignment (“Deed”) executed on 9 November 2011, TL through its liquidators had assigned to Remedy Asia all its rights in, title to and interest in the debts due to TL (“Indebtedness”) under 2 contracts made with the defendant, Yick Shing Contractors Ltd (“Subcontract A and Subcontract B”).  On 11 October 2011, leave was granted by Harris J for the liquidators to enter into the Deed.  Consequently and pursuant to the Deed, Remedy Asia instituted these proceedings against the defendant on 7 February 2012, to claim for the Indebtedness due to TL.  The claims made by Remedy Asia are for sums in excess of $32 million and $7.9 million, as payments allegedly outstanding and due under Subcontract A and Subcontract B, and for damages to be assessed in respect of Remedy Asia’s wrongful termination of Subcontract B.

3. On 6 November 2012, the defendant applied by summons to strike out Remedy Asia’s claims, on the grounds that they disclose no reasonable cause of action, are frivolous or vexatious, or otherwise an abuse of process.  The grounds replied on are that the Deed constitutes champerty and/or maintenance and is accordingly void or unenforceable; Remedy Asia has no locus to bring the action since it is not the legal owner of the Indebtedness; and the claims brought in respect of Subcontracts A and B are time-barred.

4. On 26 June 2014, Au J handed down his judgment (“Judgment”), dismissing the application to strike out.  He found that the assignment under the Deed is not an absolute assignment, that the interest in the Indebtedness did not vest in Remedy Asia at the time of the Deed but only after Remedy Asia has paid TL 55% of the recovered Indebtedness (pursuant to clause 3.2 (vii) of the Deed), but that the arrangement under the Deed is not prohibited by the law of champerty and maintenance.  Since His Lordship considered that the assignment under the Deed was not an absolute assignment within the meaning of s 9 of the Law Amendment and Reform (Consolidation) Ordinance (“LARCO”), he considered that TL should be joined as a party, and stayed the action unless and until TL (acting through its liquidators) is joined, to complete the title to sue for the Indebtedness.  Au J further ruled, in dismissing the application to strike out, that on the construction of the relevant clauses of Subcontract A and Subcontract B, the claims made in the action against the defendant under Subcontract A and Subcontract B are not time-barred, since the relevant dates of the cause of action are the dates of the respective final certificates issued under these contracts, which are respectively 29 January 2007 for Subcontract A and 18 March 2009 for Subcontract B.

5. Consequently to the Judgment of Au J, Remedy Asia applied on 4 August 2014 to join TL as the proposed 2^nd plaintiff.  The joinder and amendment of the Writ is opposed by the defendant.  The defendant claims that it had applied to Au J for leave to appeal against the Judgment and although such leave was refused by His Lordship on 30 September 2014, the defendant intends to apply to the Court of Appeal for leave to appeal.  Such application has not yet been made.

Should the application for joinder be dealt with before the intended appeal?

6. The defendant claims that the hearing of Remedy Asia’s proposed joinder should be dismissed as premature, and a waste of time and costs, or stayed pending the Court of Appeal’s determination of the defendant’s intended appeal against the Judgment.  It was argued that the issues raised in the appeal are all inter-related, and that the intended appeal would have an impact on the issues to be determined on the application for joinder of TL.  It was argued that it would be the economical and sensible course to adjourn the application for joinder, and for the matter to be dealt with only after the appeal has been determined by the Court of Appeal (assuming that leave would be granted).

7. First, I do not agree that it would be premature to deal with the application for joinder, or that the application should not be dealt with now, simply because there is a pending appeal, or because the defendant intends to appeal against the Judgment.  An appeal does not operate as a stay of the proceedings, and there is no justification for an intended application for leave to appeal to so operate as a stay.  It is not known when the application for leave to appeal can be dealt with, whether leave to appeal will be granted, and if granted, when the appeal itself can be heard.  There is no good reason why, in this interim, all applications in the action should be held in abeyance.

8. If the Court of Appeal grants leave to the defendant to appeal against the Judgment, and on hearing the appeal, finds that the arrangement under the Deed is champertous, and/or that Remedy Asia has no interest at all in the Indebtedness under the Deed, such that the action or Remedy Asia’s claims should be struck out, the outcome of the appeal may, or may not, affect TL’s claim as the legal owner of the Indebtedness.  If the Court of Appeal finds, on appeal, that the claims in respect of Subcontract B are time-barred, then despite any order that I may make on the current application for the joinder of TL, it will still be open to the defendant to apply for TL’s claims to be struck out on the basis that they are, for the same reasons held by the Court of Appeal, time-barred.  That should be a relatively simple application on the basis of the ruling by the Court of Appeal. 

9. I therefore do not regard the contingency of a successful outcome on the defendant’s intended appeal to warrant this court not dealing with Remedy Asia’s joinder and amendment application.

Should the joinder and amendment be granted?

1. The prohibition issue

10. On the merits of the joinder application itself, the defendant argued that the joinder should not be allowed, as it is prohibited by clause 3.1 (C) of the Deed.  This provides as follows:

“Any negotiations or proceedings commenced by the Assignee pursuant to Clause 3.1 (B) shall be conducted in the sole name of the Assignee (ie Remedy Asia).”

11. I do not agree that clause 3.1 (C) and the other terms of the Deed prohibit the joinder of TL as the assignor in this action.   The Deed imposes duties on Remedy Asia as the assignee to negotiate and secure settlement or recovery of the Indebtedness at its own expense, and to notify the assignor TL of Remedy Asia’s intention to commence proceedings for recovery of the Indebtedness (clause 3.2 (vii)).  It also imposes duties on TL and the liquidators to permit Remedy Asia as the assignee to initiate and conduct any proceedings for recovery (clause 3.1 (B) (ii)).  The liquidators of TL had agreed to the commencement of these proceedings in the name of Remedy Asia, and now support the application for joinder and consent to being joined as plaintiff.   There is obviously waiver of any non-compliance with the provisions of clause 3.1 (C) which provides that the proceedings shall be conducted in the sole name of Remedy Asia as the assignee.

12. It may well be that, as the defendant argued, the provisions of LARCO were not considered by the parties to the Deed and not drawn to the attention of Harris J, at the time when leave was granted by the court for the parties to execute the Deed upon its terms.  I am not satisfied that the conduct of these proceedings in the name of TL through its liquidators is such deviation from or variation of the terms of the Deed as to require further leave to be sought from Harris J in the winding up proceedings.

13. If the defendant has cause for costs concerns with regard to TL being made an additional party to these proceedings, it is open to the defendant after the joinder to apply to the court for the appropriate order, relief and remedy to which it may be entitled, and as may be appropriate to the circumstances of the case.

2. The time bar issue

14. The defendant also argued that TL’s claims under Subcontract B are all time-barred and, being new claims as defined in s 35 (2) of the Limitation Ordinance (“Ordinance”), these claims cannot be added by virtue of the provisions of s 35 of the Ordinance. 

15. It is pertinent to bear in mind the claims made by the parties and raised in the pleadings as they stand today.  According to the Statement of Claim as amended on 5 November 2012, Remedy Asia  (as assignee under the Deed) claims to be entitled to monies for work performed by TL under Subcontract A, and to further sums due as the certified value of TL’s work performed under Subcontract B prior to 18 April 2006.  Remedy Asia also claims that the defendant had wrongfully and unlawfully terminated Subcontract B on 18 April 2006, and that but for such wrongful termination, TL would have been entitled to earn further sums under Subcontract B, such that the defendant is liable for damages in respect of such wrongful termination.

16. The defendant maintains that the cause of action in respect of all the claims made under Subcontract B accrued on 18 April 2006, the date of the alleged wrongful termination of Subcontract B by the defendant.  All such claims were accordingly time-barred by the time of the issue of these proceedings in February 2012.  When the original Writ and Statement of Claim were filed, Remedy Asia’s claims were only made in respect of Subcontract A and the sums due thereunder.  The defendant highlighted that it was only when amendments were made to the Statement of Claim in November 2012, that claims were added for the sums and damages alleged to be due in respect of Subcontract B.

17. On behalf of the defendant, Mr Parker argued that these claims in respect of Subcontract B are “new claims” which, under s 35 of the Ordinance, cannot be allowed to be made by joining TL after the expiry of the time limit, as they do not satisfy the conditions set out in s 35 (6) (b) and (7) (b).

Issue estoppel

18. On behalf of Remedy Asia, Mr Pennicott SC emphasized that at the defendant’s application to strike out, the issue of time bar has already been clearly and unequivocally determined, when Au J ruled that the relevant date for the purposes of time limitation in this case is 29 January 2007 for the claim under Subcontract A and 18 March 2009 for Subcontract B, such that the claims were not time barred at the time of the issue of the original Writ on 7 February 2012.  The Judgment is final as at today, subject only to leave being granted by the Court of Appeal and the Judgment being overturned on appeal.  Issue estoppel applies and the defendant is precluded from re-arguing the issue of time bar. 

19. In Re Chime Corp Ltd (No 2) [2003] 2 HKLRD, the court held that issue estoppel arises in a situation where a party is precluded from contending the contrary of any precise point which, having once been distinctly put in issue, had been solidly and with certainty determined against him.  The findings have to be “sufficiently clear and precise”.  The court made it clear that it is not helpful to categorize the determination as interlocutory or procedural, as issue estoppel would depend on the nature and substance of the ruling.  At paragraph 23 of her judgment, Kwan J (as she then was) referred to instances of determinations capable of giving rise to res judicata, or to a final ruling on the merits of a case, and explained:

“Whether the determination on an interlocutory application is capable of giving rise to issue estoppel would depend on the nature and substance of the ruling.”

20. On a reading of the Judgment, it seems clear to me that Au J has made a distinct determination on the issue of time bar which was precisely raised by the defendant as a central and essential ground of the striking out application.  At paragraphs 42 and 43, His Lordship dealt with the contentions and arguments made by Mr Parker and Mr Pennicott on when the cause of action in respect of Subcontract B accrued, and then considered the construction of the relevant clauses of the Subcontracts.  He reached the following decision in paragraph 51:

“I therefore accept that the claims are not time-barred as the relevant dates of the cause of action under the Subcontracts are the dates of the respective final certificate issued under them.”

21. Au J proceeded (in paragraph 53 of the Judgment) to consider the further argument made on behalf of the defendant, that the claims brought under Subcontract B were time-barred at the time of the amendments to the Statement of Claim in December 2012.  He referred to the decisions of the Court of Appeal in Sun Focus v Tang Shing Bor [2012] 1 HKLRD 738, and in Global Bridge Assets Ltd v Sun Hung kai Financial Ltd [2012] 4 HKLRD 474, and determined that under the “relation back” principle, an amendment once allowed and made, automatically relates back to the date of the writ in the action.  His Lordship therefore found that it was no longer open to the defendant to challenge the amendment and the relation back in this case for the striking out application.

22. I agree that the Judgment is, for the purpose of issue estoppel, a clear decision on the merits of the date of accrual of the cause of action for the sums due under Subcontract B in this action.  The issue of time bar of the claims made under Subcontract B had been identified, put in issue and argued by the parties at the striking out.  It has been considered and determined, solemnly and with certainty, on the merits, against the defendant.  It is no longer open to the defendant to argue otherwise in these proceedings.

Whether new claims necessary for determination of the original action

23. If for any reason I am wrong on the application of issue estoppel, I consider that the joinder of TL to make the claims under Subcontract B falls within s 35 (6) and (7) of the Ordinance, and can be allowed even if they constitute “new claims” as Mr Parker asserted. 

24. Mr Parker relies on s 35 (3) and (5) of the Ordinance.  Sections 35(3) and (4) state:

“Except as provided by section 30 or by rules of court, the court shall not allow a new claim within sub-section (1) (b), other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Ordinance which would affect a new action to enforce that claim.

(4)  For the purposes of subsection (3), a claim is an original set-off or an original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action.”

25. Sections 35 (5) to (7) provide as follows:

“(5) Rules of court may provide for allowing a new claim to which subsection (3) applies to be made as there mentioned, but only if the conditions specified in subsection (6) are satisfied, and subject to any further restrictions the rules may impose.

(6) The conditions referred to in subsection (5) are -

(a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment; and

(b) in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.

(7) The addition or substitution of a new party shall not be regarded for the purposes of subsection (6) (b) as necessary for the determination of the original action unless either -

(a) the new party is substituted for a party whose name was given in any claim made in the original action in mistake for the new party’s name; or

(b)  any claim already made in the original action cannot be maintained by or against an existing party unless the new party is joined or substituted as plaintiff or defendant in that action.”

26. Mr Parker’s submission is that as Subcontract B was terminated on 18 April 2006, any claim sought to be made in respect of such wrongful termination, was time-barred when proceedings were commenced in February 2012.  Mr Parker argued that O 15 r 6 (5) and (6) cannot be relied upon to permit the joinder of TL after the expiry of the period of limitation in this case, if the joinder is prohibited under s 35 of the Ordinance, as not satisfying  the conditions referred to in s 35 (6) (b) and (7) (b).

27. Mr Parker’s arguments are premised, firstly, on the fact that Remedy Asia has no interest whatsoever in the Indebtedness under the Deed, as the Deed is not an absolute assignment, and Remedy Asia is neither the legal nor equitable owner of the Indebtedness, since its interests in the Indebtedness are entirely contingent.  Mr Parker relies on clause 3.2 (vi) and (vii) of the Deed.  My understanding of the argument is that since Remedy Asia has no interest in the Indebtedness at all, it cannot be said that the joinder of TL is necessary in that it will complete its interest, or maintain its claim. Mr Parker argued that any joinder of TL is to pursue its own separate interest in the 55% of the Indebtedness.

28. Under the Deed, Remedy Asia undertakes to bear all the costs and expenses of seeking recovery of the Indebtedness by legal proceedings, negotiations or settlement.  Under clause 3.2 (vi) and (vii) of the Deed, Remedy Asia undertakes to TL that it will pay to TL (acting through its liquidators) 55% of the net recovery of the Indebtedness, and to make such payment forthwith upon its receipt of the amounts recovered.  Clause 3.2 (vii) expressly provides that “the balance of any part of the Indebtedness recovered by (Remedy Asia) shall vest in (Remedy Asia) only after payment to (TL) of the prescribed amount of the recovery. 

29. Mr Parker submits that Remedy Asia’s interest in the Indebtedness is accordingly restricted to 45% of the Indebtedness, which is contingent upon the recovery of the Indebtedness, and that such interest vests in Remedy Asia only after its payment of 55% of the net recovery to TL. 

30. Au J found in the Judgment that the assignment under the Deed is not an absolute assignment.  He agreed that the interest in the Indebtedness does not vest in Remedy Asia at the time of the Deed, and that the interest in the Indebtedness only vests in Remedy Asia after it has paid TL 55% of the recovered Indebtedness (paragraph 23 of the Judgment). 

31. However, I do not agree with Mr Parker that paragraph 23 of the Judgment constitutes a finding by Au J that Remedy Asia has no interest in the Indebtedness at all.  Having considered the Judgment as a whole, and His Lordship’s analysis of the Deed, I only read paragraph 23 as His Lordship’s finding that the legal interest in the Indebtedness does not vest in Remedy Asia at the time of the Deed, and that such legal interest only vests in Remedy Asia after its payment to TL of the balance of the recovered Indebtedness pursuant to clause 3.2 (vii).  Following from that, His Lordship concluded that TL as the holder of the legal interest should be joined as a party in the action and directed (in paragraph 35 of the Judgment) the action to be stayed until the joinder, “to complete the title to sue” (paragraph 38 of the Judgment).

32. Considered afresh, it must be correct that despite the Deed not constituting an absolute assignment, the interest in the Indebtedness sought to be conveyed to Remedy Asia under the Deed can be recognized as equitable.  An assignment of a debt as a legal chose in action which does not comply with the requirements of s 9 of LARCO may yet amount to a good equitable assignment (see German v Yates (1915) 32 TLR 52, at 53).

33. Under the Deed, Remedy Asia as the assignee undertook the obligations, inter alia, to negotiate and secure early settlement of the Indebtedness including the initiation of legal proceedings to recover the Indebtedness, and to bear all the expenses associated with the investigations, negotiation and proceedings.  This constitutes valuable consideration.  Although clause 3.2 (vii) provides for the balance of the recovered Indebtedness to vest in Remedy Asia only after payment to the liquidators of TL, in the interim, Remedy Asia has an interest in the Indebtedness, which can be described as equitable.

34. In refusing to grant leave to the defendant to appeal against the Judgment, Au J also made it clear that there are no reasonable prospects of success for the defendant to argue that Remedy Asia lacks locus to bring these proceedings since it is not even an equitable assignee under the Deed.  In paragraph 9 of his Decision handed down on 30 September 2014, His Lordship explained:

“In the present case, the liability to pay the Indebtedness was already incurred at the time when the defendant was in breach of the relevant contracts (if established). It is valid and permissible to assign a chose in action. The lack of the necessary legal elements in the assignment as found by the court only renders the interests invested an equitable one instead of a legal one. It does not mean that the plaintiff has no equitable interest in the Indebtedness.”

35. I would respectfully agree with Au J, and accept that Remedy Asia has an equitable interest in the Indebtedness under the Deed.

36. Mr Parker’s argument, that the joinder of TL to make its claims under Subcontract B cannot be allowed, is further premised on the fact that these are new claims, and not claims already made in the action.

37. Under s 35 (6) of the Ordinance, a new claim can be allowed if, in the case of a claim involving a new party, “the addition of the new party is necessary for the determination of the original action”.  By virtue of s 35 (7), the addition of a new party shall not be regarded as necessary for the determination of the original action, unless (under s 35 (7) (b)) “any claim already made in the original action cannot be maintained by or against an existing party unless the new party is joined or substituted as plaintiff or defendant in that action”.

38. I consider that the addition of TL is necessary for the determination of the original action, and that the claims made by Remedy Asia and by the defendant in the original action cannot be maintained by or against an existing party to the action, unless TL is joined as plaintiff in the action.  My reasons are as follows.

39. It is essential to revert to the pleadings in the action and to ascertain the claims made in these proceedings.  The claim originally made by Remedy Asia in February 2012 was for payment of a sum in excess of $39 million, as the amount payable for works done by TL under Subcontract A.  By way of defence, the defendant denied these claims, alleging (amongst other things) TL’s inability to perform its works under Subcontract A, the claims being time-barred and a settlement agreement having been entered into in respect of all rights which TL may have under Subcontract A.  The defendant further claimed, in its Defence filed on 12 April 2012, that TL was in breach of Subcontract B as it had failed to perform the works required of it under the Subcontract.  The defendant accordingly counterclaimed for $9.3 million as the damages it had allegedly sustained as a result of TL’s breach of Subcontract B, and sought in its Defence to set off the $9.3 million against any sums owed by it to TL.

40. In its Reply and Defence to Counterclaim filed on 21 June 2012, Remedy Asia denied the allegations made by the defendant in respect of TL’s performance under Subcontract B.  It claimed that in breach of Subcontract B, the defendant had underpaid TL and that any breach on the part of TL of its obligations to carry out works under Subcontract B was in fact caused by the defendant’s failure to pay TL the amounts to which it was entitled under Subcontract B.  Remedy Asia claimed in the Reply and Defence to Counterclaim that the defendant’s purported termination of Subcontract B by the letter dated 18 April 2006 was groundless.  It further denied that there was any breach of Subcontract B by TL.

41. Against such background, it was on 29 October 2012 that Remedy Asia applied for leave to amend its Statement of Claim, and the defendant consented to an order being made on 5 November 2012 for such amendment.  By these amendments, Remedy Asia included its claims for damages in respect of the defendant’s wrongful termination of Subcontract B on 18 April 2006, and further, for payment representing the certified value of works done by TL under Subcontract B, less payments already received.

42. As Au J found, by virtue of the amendments made in November 2012, with leave of the court by consent of the parties, the claims of Remedy Asia in respect of Subcontract B relate back to the date of the commencement of the action in February 2012 (Sun Focus v Tang Shing Bor [2012] 1 HKLRD 738).  As Remedy Asia is only the equitable assignee under the Deed, with equitable interests in the Indebtedness, TL as the holder of the legal interests in the Indebtedness is required to be joined as a new party, as Remedy Asia’s claims made in the original action (including the claims under Subcontract B) cannot be maintained by Remedy Asia as the mere equitable assignee, unless TL is joined as the holder of the legal interest.  In this respect, the conditions set out in s 35 (7) (b) are satisfied.

43. Apart from the amendments made to the Statement of Claim in November 2012, which relate back to the commencement of the action in February 2012, the claims relating to TL’s defective performance and breach of Subcontract B, leading to the defendant’s termination of Subcontract B in April 2006, had all been raised in the Defence and Counterclaim, and in the Reply and Defence to Counterclaim, filed in April 2012 and June 2012 respectively, before the amendments to the Statement of Claim.  In view of the claims and counterclaims made and asserted in the pleadings, the joinder of TL is in my view necessary “for the determination of the original action” within the meaning of s 35 (6) (b).  The “claims” made in the original action include the defendant’s claim that it was entitled to terminate Subcontract B, and that it is entitled to set-off the damages it allegedly sustained as a result of TL’s alleged breach of Subcontract B, against the sums claimed by Remedy Asia to be due by the defendant to TL under Subcontract A.  They also include the assertion made by Remedy Asia that the defendant’s purported termination of Subcontract B on 18 April 2006 was groundless, and that the defendant is not entitled to the damages it seeks under Subcontract B.  These claims cannot be determined by the court in the original action, unless TL is joined to maintain the claims made by Remedy Asia against the defendant, which include the claims made in reply to the Defence.  The joinder is also necessary for the court to determine the claims made by the defendant in its Defence and Counterclaim, and asserted against Remedy Asia, in respect of the allegations of TL’s inability to perform under Subcontract B, and that the termination on 18 June 2006 was justified.

44. For all the above reasons, I grant the application to add TL, acting through its liquidators, as 2^nd plaintiff in the action, and to amend the Writ for such joinder.

45. Since the plaintiff seeks the indulgence of the court to allow the joinder and amendment, I will make an order nisi that the costs of and incidental to the application be to the defendant, save that the costs of the contested hearing before me on 6 October 2014 be paid by the defendant to the plaintiff as the successful party.