CHUN YIP CONSTRUCTION CO. LTD. v. E. BON BUILDING MATERIALS CO. LTD.

HCCT77/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO.77 OF 2002

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D E C I S I O N

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Background

1. The plaintiff in this application ("Chun Yip") was the defendant in District Court proceedings, heard in February 2002, in which it was sued by the present defendant ("E. Bon") for money owed pursuant to a supply of goods contract. The District Court action was an Order 14 application in which E. Bon successfully obtained summary judgment on unpaid invoices for the supply of ironmongery. Chun Yip later applied for leave to appeal that decision but withdrew the application.

2. In August 2002, Chun Yip issued a writ against E. Bon for damages for breach of contract arising out of the same supply contract. In the District Court, the only defence pleaded was that Chun Yip was entitled to withhold payment because E. Bon had not provided certificates of origin in respect of the goods. Chun Yip made no counterclaim alleging damage flowing from the failure to supply the certificates and pleaded no defence of set-off. Moreover it had accepted and not rejected the goods. By the August 2002 writ, however, Chun Yip seeks damages on these very grounds. In the present application, E. Bon seeks an order striking out the statement of claim on the sole basis that it is an abuse of process.

The law

3. Mr Charles Sussex SC, representing E. Bon, relies solely and simply on the case of Yat Tung Investment Co. Ltd v. Dao Heng Bank Ltd [1975] AC 581, a Hong Kong Privy Council decision which, he submits, represents the law in Hong Kong and which is binding on this court. He acknowledges, however, that it is not a binding authority in the UK and indeed there have been cases in the UK since 1975 which have not followed it and which have laid down different tests. Mr Benjamin Chain, for Chun Yip, has referred this court to those decisions in a valiant attempt to persuade me that Yat Tung either does not apply or should not be applied in the present application.

The Yat Tung case

4. Mr Sussex's case, advanced with eloquent simplicity, is that Chun Yip's claim could have and should have been raised in the District Court. It, therefore, comes within the definition of "res judicata in the wider sense" and therefore is an abuse of process. The facts in Yat Tung need not be recited here. The important principle which it lays down and is the present law in Hong Kong is as follows :

"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. For example, if it had been suggested that when the counterclaim in no. 969 came to be answered Mr. Lai was unaware, and could not reasonably have been expected to be aware, of the circumstances attending the sale to Choi Kee, it may be that the present plea against him would not have been maintainable. But no such averment has been made."

5. The cornerstone of Mr Sussex's argument is the part of this extract which has been emphasized in italics.

6. The principle has been applied and considered in recent Hong Kong cases. In Re Li Wai Man [2000] 3 HKC 265, it was held that :

" (1) It would be an abuse of the process of the court if the debtor was allowed to raise the cross-claim now which could and should have been raised in that previous application to set aside the statutory demand. Under the wider principle of res judicata and as a matter of the due administration of justice, the court should discourage such piece-meal attempts to oppose the petition. Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1973-76] HKC 194 followed (at 267I-268A)."

7. Suffiad J in Tang Kin Wah v. Cheng Choy Kam Chee Connie, HCPI 771/2000, said :

" The starting point is of course the Privy Council decision in Yat Tung. Moreover, there can be no question that that decision is binding on all Hong Kong courts except the Court of Final Appeal."

(although the learned judge in that case went on to decide that there had been no actual abuse of process on the particular facts of that case.)

8. Ma J (as he then was) in Ray Chen v. Anita Wan Ching Lam & Johnson, Stokes & Master, HCA4582/2001, considered the decision in Yat Tung in some detail. It is helpful in this case to recite part of that judgment. Firstly, in relation to the general principles of res judicata:

"(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 res judicata 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'."

(The judgment continues with a review of some English authorities which question Yat Tung).

9. Secondly, to recite his words in relation to the binding nature of Yat Tung on this court:

"The case of Yat Tung poses special problems unique to the courts in Hong Kong. Being a decision of the then highest court in Hong Kong and also having been followed on numerous occasions at all levels of courts here, Yat Tung is binding on me. The broad statements of principles contained in that case to which I have already referred, are therefore binding. That said, I leave open for argument in a future case whether these statements of principle can properly be reconciled with other authorities from common law jurisdictions, some of which I have also referred to above. This is ultimately a matter for a higher court to resolve."

10. E. Bon's case is, therefore, that the claim must be struck out unless the plaintiff can show any "special circumstances" why it should not be which, as stated in the Yat Tung decision, would demonstrate it to be a case in which justice required the rule not to be applied.

11. Such "special circumstances" could only 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.

12. Mr Chain, understandably, in his submission, did not seek to persuade this court that "special circumstances" existed. He recognized the fact that the set-off and counterclaim, which form the basis of the August 2002 writ, were available at the time of the Order 14 District Court proceedings and could have been raised.

13. The thrust of his submission relied on other extracts from the Yat Tung case. He submitted that the ambit of Yat Tung was not as wide as contended for by Mr Sussex and that the facts of this case fell outside its true ambit. In particular he referred the court to the following extract:

"The Vice-Chancellor's phrase 'every point which properly belonged to the subject of litigation' was expanded in Greenhalgh v. Mallard [1947] 2 All E.R. 255, 257, by Somervell L.J.:

'... 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.'

Again, a phrase used by Lord Shaw of Dunfermline in delivering the opinion of the Board in Hoystead v. Commissioner of Taxation [1926] A.C. 155, 171, 'the present point was one which, if taken, went to the root of the matter on the prior occasion', ..."

14. He submits, therefore, that the ambit of Yat Tung is confined to cases where fundamental matters were not raised in the earlier proceedings and attempts are later made to revive them by fresh litigation.

15. It does not cover all matters that could possibly have been raised. In the present case, he argues, the fundamental issue in the District Court Order 14 application was whether or not the price of the goods was due and payable. The defence pleaded was that it was not due because the certificates of origin had not been provided. The fact that that Chun Yip did not go on to plead that they had a set-off and counterclaim which could wholly extinguish the claim, if proved, was not a fundamental failure coming within the doctrine of "res judicata in the wider sense".

16. In my judgment the answer to this is that even if the ambit of Yat Tung is as narrow as Mr Chain contends, it would still plainly apply to the facts of the case. The facts of the counterclaim were available at the time and were clearly of a fundamental nature to the entire case. In any event, in my judgment, Yat Tung should not be given this narrow construction. I cannot glean from the judgment anything to contradict the contention that if an obvious and important matter could have been raised, then it should have been raised and that to raise such a matter in later proceedings amounts to an abuse of process.

17. On the facts of this case I find there to be no escape route from the binding nature of Yat Tung on this court. Accordingly I grant the application to strike out and dismiss the action. I also make a cost order nisi in the defendant's favour.