MART TREASURE INVESTMENT LTD v. CHIU KWOK WING BENEDICT

HCA 3472/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3472 OF 2003

_______________________

J U D G M E N T

_______________________

1. On the defendant's application by summons dated 27 October 2003 for an order that the plaintiff's statement of claim be struck out, Master A. Leung on 13 January 2004 ordered that the said summons be dismissed with no order as to costs. On the plaintiff's application by summons dated 20 October 2003 for summary judgment under O.14 RHC, the master ordered that unconditional leave to defend the action be given to the defendant with costs in the cause. The plaintiff and the defendant each lodged a notice of appeal against the master's orders.

2. The background facts are that in High Court Action 905 of 2001 ("Action 905") the plaintiff obtained judgment against Mr. Dai Shu Sing as 1st defendant, Mr. Peter Chan ("Mr. Chan"), a solicitor as 2nd defendant and Chan & Chiu, a firm of solicitors ("the firm") as 3rd defendant.

3. The plaintiff's claim in Action 905 against Mr. Chan and the firm was for damages for professional negligence.

4. The plaintiff obtained a default judgment against the 1st defendant Mr. Dai Shu Sing.

5. On 12 December 2002, after a trial before Deputy Judge Wright, the plaintiff obtained judgment against Mr. Chan and the firm for $4,100,000 with interest on different sums from different dates. The plaintiff also obtained an order for costs to be paid on the indemnity basis. Deputy Judge Wright found that Mr. Chan and the firm had breached their professional duties to the plaintiff. The action was in respect of a sale of property in 1997. It was found that Mr. Chan and the firm had acted negligently in failing to disclose to the plaintiff's shareholders the sale of the property at an increased price and making disbursements from moneys belonging to the plaintiff and held in the firm's clients' account.

6. Mr. Chan and the defendant in this action Mr. Chiu Kwok Wing Benedict ("Mr. Chiu") were partners in the firm at the time when the plaintiff's cause of action in Action 905 arose. However, it is not in dispute that Mr. Chiu and Mr. Chan had a complete division of functions and duties in the partnership and that they in fact practised from different offices. It is also not in dispute that Mr. Chiu resigned from the partnership of Chan & Chiu on 31 October 2000. The writ in Action 905 was issued after his resignation on 26 February 2001. The writ was never served on Mr. Chiu. It was, however, served on the firm. Mr. Chan filed an acknowledgment of service in the name of the firm by "Peter Chan, a partner in the firm of Chan & Chiu (a firm)".

7. After the judgment of Deputy Judge Wright in Action 905, the plaintiff took out an application by summons dated 7 February 2003 under O.81, r.5 RHC for an order that the plaintiff may be at liberty to issue execution against Mr. Chiu as a partner in the firm. That application was heard by Master S. Cheung and she dismissed the plaintiff's application on 23 May 2003.

8. The plaintiff appealed against the master's decision and the matter came before Deputy Judge Muttrie. On 30 June 2003 Deputy Judge Muttrie dismissed the plaintiff's appeal with costs to Mr. Chiu.

9. The plaintiff filed a notice of appeal against Deputy Judge Muttrie's decision on 25 July 2003.

10. Mr. Chiu then applied for security for costs of the appeal. That application came before Woo JA. On 5 September 2003 Woo JA ordered the plaintiff to provide security for Mr. Chiu's costs of the appeal. He ordered that the plaintiff do within 28 days from the date of his order give security by paying the sum of $280,000 into court. He also ordered that until the security was given the appeal should be stayed. He further ordered that in default of the security being given within the time stipulated the appeal do stand dismissed without any application and without any further order, with costs of the appeal to be taxed and paid by the plaintiff to Mr. Chiu.

11. The last day for payment of the security into court under the order of Woo JA was 3 October 2003. Instead of complying with the order of Woo JA, the plaintiff on 18 September 2003 commenced this action. The plaintiff having failed to give the security as ordered, the appeal was therefore dismissed.

12. On 20 October 2003 the plaintiff applied by summons for summary judgment in this action. On 27 October 2003 the defendant applied to strike out the plaintiff's statement of claim.

13. It is common ground that if the defendant should succeed in striking out the statement of claim then the plaintiff would be unable to obtain summary judgment.

14. Mr. Cheung, on behalf of the defendant, submitted that the statement of claim should be struck out and that the plaintiff's summons under O.14 should be dismissed.

15. Mr. Victor Chan, for the plaintiff, made a contrary submission that the statement of claim should not be struck out and that the plaintiff was entitled to summary judgment.

16. It seems to me that the first question I have to consider is whether or not the statement of claim should be struck out. The defendant's summons dated 27 October 2003 for an order that the statement of claim be struck out sets out the grounds as follows :

(a) It is scandalous, frivolous or vexatious;

(b) It amounts to an abuse of process of the court;

(c) It may prejudice or embarrass the fair trial of the action;

(d) It is an attempt by the plaintiff to enforce an unenforceable judgment against Mr. Chiu;

(e) It is an attempt by the plaintiff to re-litigate the same subject dispute which had been fully disposed of Action 905; and

(f) It is an attempt by the plaintiff to avoid compliance with Woo JA's order made in Civil Appeal no. 212 of 2003 on 5 September 2003 that the plaintiff should provide security for Mr. Chiu's costs.

17. The applicable principles are not in dispute. It is trite law that a litigant is not allowed to re-open the matter which has already been disposed of by a court of competent jurisdiction. The rule is based on public policy that a defendant should not be vexed by successive suits and that there should be an end to any claim. There is also the public interest in avoiding any possibility of two courts reaching inconsistent decisions on the same issue.

18. In Buckland v. Palmer [1984] 1 WLR 1109 Donaldson MR said at page 1114 :

“ Whilst I dislike procedural technicality and, on the facts of the instant appeal, the defendant's argument might be thought to have no other justification, in reality there are wider issues involved. The public interest in avoiding any possibility of two courts reaching inconsistent decisions on the same issue is undoubted and this alone would suggest that two actions based upon the same cause of action should never be allowed. Equally clear is the public interest in there being finality in litigation and in protecting citizens from being "vexed" more than once by what is really the same claim. Against this must be set the public interest in seeing that justice is done. It will not be done if, for example, a plaintiff accepts payment of a small sum which is only part of his claim in the belief that the remainder is not in issue and will be paid in due course. These competing public interests will be differently reconciled on the differing facts of particular cases and this is best achieved if we hold, on principle and on the authorities to which I have referred, that (1) it is an abuse of the process of the court to bring two actions in respect of the same cause of action but (2) where there has been no judgment in the first action, that action can, in appropriate circumstances, be revived and amended so as to enable there to be an adjudication upon the whole of the plaintiff's claim. Should the original claim be brought in the county court and the enlarged claim be outside its jurisdiction, that court has power to transfer the whole matter to the High Court."

19. I was also referred to Bradford & Bindley Building Society v. Seddon [1999] 1 WLR 1482 where Lord Auld reiterated the principles at pages 1490 - 1491.

20. As to res judicata, Ma J (as he then was) said in Ray Chen v. Anita Wan Ching Lam and Johnson Stokes and Master (HCA 4582 of 2001, unreported, 9 May 2002) at para. 22 of his judgment :

“ Res judicata - the principles

22. I begin with a statement of the general principles :

(1) Res judicata in its narrow sense simply means that a party will not be permitted to relitigate in subsequent proceedings issues which have already been adjudicated upon in previous proceedings by a court of competent jurisdiction. This form of abuse of process is often known as a res judicata proper or in its classic or narrow sense.

(2) Res judicata in its so-called wider sense is the principle that "the court requires the parties to that litigation to bring forward the whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matters which might have been brought forward as part of the subject in context, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case." : see Henderson v. Henderson [1843] 3 Hare 100, at 115 per Sir James Wigram VC. In Yat Tung Investment Company Limited v. Dao Heng Bank Limited [1975] AC 581, Lord Kilbrandon said at 590A-B, "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."

21. Mr. Cheung's main submission was that the issue in this action has been finally and conclusively determined in the proceedings before the master and Deputy Judge Muttrie in Action 905 leading to the dismissal of the plaintiff's appeal from the decision of Deputy Judge Muttrie and that the matter is res judicata. Mr. Cheung was relying on res judicata in its narrow sense. There is an issue estoppel and the plaintiff cannot re-litigate the same issue in these proceedings. He further submitted that it is an abuse of the process for this action to be allowed to continue. For those reasons, the statement of claim should be struck out.

22. Mr. Victor Chan submitted that the issue that the court is being asked to determine in this action has not been determined in Action 905 and that there is no res judicata to prevent the plaintiff from proceeding in this action. In the circumstances he submitted that the statement of claim should not be struck out.

23. It is necessary to see what has been determined in the application for leave to execute the judgment in Action 905 against Mr. Chiu. It is also necessary to see what claim is made in this action.

24. The plaintiff applied under O.81, r.5 to enforce the judgment in Action 905 against Mr. Chiu.

25. O.81, r.5(2) provides :

“ Where a judgment is given or order made against a firm, execution to enforce the judgment or order may, subject to rule 6 and to the next following paragraph, issue against any person who-

(a) acknowledged service of the writ in the action as a partner, or

(b) having been served as a partner with the writ of summons, failed to acknowledge service of it in the action, or

(c) admitted in his pleading that he is a partner, or

(d) was adjudged to be a partner."

26. There is no dispute that the writ was not served on Mr. Chiu as a partner and that he did not acknowledge service of the writ in the action as a partner. Mr. Chiu took no part in the trial of Action 905. It is also not in dispute that he did not file and serve any pleading in Action 905. Thus he did not admit "in his pleading" that he was a partner. It is also not in dispute that he was not adjudged to be a partner. Hence, the provisions of r.5(2) did not apply to Mr. Chiu.

27. O.81, r.5(4) provides :

“ Where a party who has obtained a judgment or order against a firm claims that a person is liable to satisfy the judgment or order as being a member of the firm, and the foregoing provisions of this rule do not apply in relation to that person, that party may apply to the Court for leave to issue execution against that person, the application to be made by summons which must be served personally on that person."

28. As r.5(2) did not apply to Mr. Chiu, the plaintiff applied to the court for leave to issue execution against Mr. Chiu under r.5(4).

29. What the court was concerned with was whether the judgment of Deputy Judge Wright against the firm in Action 905 could be enforced against Mr. Chiu. The court considered and determined that application. It came to the view that leave to issue execution should not be granted and dismissed the plaintiff's application.

30. The partnership of Chan & Chiu was formally dissolved on 31 October 2000. Mr. Chiu immediately caused notice of dissolution of the partnership to be given to the Business Registration Office. The notice of dissolution was also published in the Hong Kong Lawyer publication. Mr. Wong King Fai ("Mr. Wong"), the solicitor having the conduct of Action 905 on behalf of the plaintiff, did not have any actual knowledge of Mr. Chiu's retirement from the partnership and did not serve the writ in Action 905 on him. According to Mr. Wong, he relied on the then current Law List published by the Law Society which showed Mr. Chiu as a partner of the firm. He did not carry out a business registration search nor did he consult the Hong Kong Lawyer publication. He also did not check the Law Society's web-site which gave more updated information than the Law List which is issued once a year. Had Mr. Wong carried out a business registration search he would have discovered that the firm was dissolved on 31 October 2000.

31. O.81, r.3 deals with service of writ on partners. r.3(3) provides that :

“ Where a partnership has, to the knowledge of the plaintiff, been dissolved before an action against the firm is begun, the writ by which the action is begun must be served on every person within the jurisdiction sought to be made liable in the action."

32. The plaintiff argued before the master and Deputy Judge Muttrie that r.3(3) was inapplicable as the plaintiff did not have knowledge that the partnership was dissolved before Action 905 was begun and hence the writ did not have to be served on Mr. Chiu in order to make him liable.

33. As stated in Deputy Judge Muttrie's judgment, the plaintiff did not have actual knowledge. It was, however, held that the plaintiff had constructive knowledge of the dissolution of the partnership. The judge said at para. 25 that :

“ It seems to me that, given the provisions of rule 3(3), it cannot be enough for a solicitor simply to sue a partnership in the partnership name, without checking that the partners are in fact who they appear to be. Of course this is permissible and judgment can be obtained against the partnership, as here. But a judgment is no use unless it can be executed, and it seems to me that a prudent solicitor should make sure that he will be able to execute any judgment he obtains against all who were partners at the time when the cause of action arose. I do not think it is sufficient to take no steps to find out whether such persons are still in the partnership and then attempt to rely on that inaction."

34. And at para. 27 he also said :

“ The point is that the plaintiff chose a particular method of service, notwithstanding his knowledge that the partner had left the firm. The consequences depend on his choice. It seems to me that if a plaintiff (or his solicitor) makes that choice without satisfying himself of the true position when he could have done so, then he assumes the risk that the partner is no longer a partner, and the consequences follow.

35. And he clearly held at para. 31 as follows :

“ I would therefore hold that Mr Wong had constructive knowledge of the retirement of Mr Chiu from the 3rd defendant. He was the plaintiff's agent for the purpose of raising the action and pursuing it to execution against the 3rd defendant and its partners, so such knowledge must be imputed to the plaintiff. It follows that the plaintiff by reason of the provisions of rule 3(3) cannot fix liability on Mr Chiu."

36. There can be no doubt that Deputy Judge Muttrie decided that the judgment could not be executed against Mr. Chiu and he dismissed the plaintiff's appeal. He found that the judgment could not be enforced against Mr. Chiu.

37. Mr. Victor Chan submitted that the question of the liability of Mr. Chiu was not determined by the master and Deputy Judge Muttrie. He relied on paras. 32 and 33 of Deputy Judge Muttrie's judgment as follows :

“ 32. I turn to the question of discretion. I do not see how there can be a general discretion to allow execution or not. Either the partner is liable under the Partnership Ordinance or he is not. If he is liable, then there must be execution unless rule 3(3) applies. The only discretion can be that under Order 81 rule 5(5), to order a trial of the liability of the partner where he disputes it.

33. Here Mr Chiu disputes liability. The court could order a trial of that liability. However as Mr Bell points out, the misappropriated moneys went through the firm's client account. Section 13(b) of the Ordinance would apply and there seems to be no defence. In any event Mr Grossman does not seek an order for a trial. So the question of discretion does not arise."

38. I am unable to accept Mr. Victor Chan's submission. It is abundantly clear that Deputy Judge Muttrie has at para. 31 of his judgment clearly determined that the judgment could not be enforced against Mr. Chiu. At paras. 32 and 33 he was merely addressing the question of discretion which he held did not arise. In my judgment there can be no doubt that Deputy Judge Muttrie decided that the judgment could not be executed against Mr. Chiu. That was a finding that the judgment could not be enforced against Mr. Chiu.

39. There was an appeal against his decision but it was finally dismissed as the plaintiff failed to provide security for Mr. Chiu's costs of the appeal.

40. It is also necessary to see what is claimed in this action. This is set out at paras. 7 and 8 of the statement of claim where it is pleaded :

“ 7. Notwithstanding the Defendant ceased to be a partner of the said Firm on 1st November 2000, he was and remained a partner of the said Firm in September and October 1997 when the cause of action against the said Firm arose.

8. In the premises the Defendant is liable to indemnify the Plaintiff in respect of the said Judgment Sum."

41. The judgment sum is as pleaded at para. 5 of the statement of claim. The relief claimed under para. 1 of the prayer for relief is for payment of the judgment sum. It was rightly pointed out by Mr. Cheung that what the plaintiff is seeking in this action is the payment by Mr. Chiu of the judgment sum. The plaintiff is seeking to enforce the judgment against Mr. Chiu. The plaintiff is not seeking to make Mr. Chiu liable for the underlying transactions which gave rise to the liability of the firm leading to the judgment of Deputy Judge Wright.

42. There is no doubt that in this action the plaintiff is seeking to make Mr. Chiu liable to satisfy the judgment. The plaintiff is seeking to enforce the judgment against Mr. Chiu.

43. It seems to me that the issue as to whether or not Mr. Chiu is liable to satisfy the judgment in Action 905 has already been finally and conclusively determined. That is the very same issue that the court is being asked to determine in this action by the writ and the statement of claim. It seems to me that issue estoppel arises. In my judgment res judicata in its narrow sense applies and the plaintiff cannot relitigate the same question that has already been finally and conclusively decided.

44. Mr. Cheung also relied on abuse of process. He submitted that it is clear that a collateral attack was made upon a final decision by a court of competent jurisdiction and that amounts to an abuse of the process of the court. Both parties relied on Re Kibun Hong Kong Co. Ltd. (unreported, HCA No. 2207 of 2003) a judgment of Reyes J on 17 September 2003 where he said at para. 19 of his judgment :

“ Collateral attack

19. It is an abuse of process for an intending plaintiff to initiate legal proceedings for the purpose of mounting a collateral attack upon a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made (Hunter v Chief Constable of the East Midlands Police [1982] AC 529 (HL), at 541B-C (Lord Diplock)). It would be:-

'a scandal to the administration of justice if, the same question having been disposed of by one case, the litigant were to be permitted by changing the form of the proceedings to set up the same case again'

(Lord Diplock in Hunter at 542C-D quoting Lord Halsbury L C in Reichel v Macgrath (1889) 14 App Cas 665, at 668). Such abuse may exist where, an issue having been resolved in an earlier action between the intending plaintiff against one party, the intending plaintiff seeks to raise the same issue in a later action against another party. See, for example, Cosby v Government of the USA [2000] 3 HKC 688 (Stock J), at 6951-696G. Where there is such abuse it is the Court's duty (as opposed to discretion) to prevent the same (Hunter at 536D; cited with approval by the Court of Appeal in Tsang Chin Keung v Employees Compensation Assistance Fund Board (No. 2) [2003] 1 HKC 499, at 510H-I (Rogers VP))."

45. I agree entirely with what Reyes J said. I am also satisfied that a collateral attack has been made upon a final decision by a court of competent jurisdiction and that in itself amounts to an abuse of process as well.

46. I accept Mr. Cheung's submissions and reject Mr. Victor Chan's submissions. In my judgment the statement of claim should be struck out. That being so, the plaintiff's summons for summary judgment should be dismissed. I allow the defendant's appeal and dismiss the plaintiff's appeal. The orders of the master are set aside. I make the following orders :

(1) that the plaintiff's statement of claim be struck out and the action against the defendant be dismissed; and

(2) the summons issued by the plaintiff for summary judgment be dismissed.

47. I also make an order nisi for costs as follows :

(1) that the plaintiff should pay the defendant the costs of his summons dated 27 October 2003 and the costs of the plaintiff's summons dated 20 October 2003.

(2) The costs of the hearing before the master to be costs to the defendant with certificate for counsel.

(3) The costs of the appeal be costs to the defendant.