Yifung Properties Ltd and Another v. James Nicholas Barrie Smith and Another
Read the full judgment text of HCA 2539/2015 on BabelCite. This High Court CFI judgment was delivered on 22 May 2017.
1. This is an application of Mr James Nicholas Barrie Smith and Elliot Advisors (HK) Limited (“ Elliot Advisors ”) by summons dated 2 December 2015 (“ the Summons ”) for an order that the Writ herein together with the Statement of Claim both dated 2 November 2015 be struck out and all further proceedings in this action be dismissed on the ground that they do not disclose any reasonable cause of action, and/or they are frivolous and vexatious, and/or are otherwise an abuse of process of the court
Cited by 5 cases · Cites 3 cases
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HCA 2539/2015 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 2539 OF 2015 _________
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------------------------ DECISION
Introduction 1.This is an application of Mr James Nicholas Barrie Smith and Elliot Advisors (HK) Limited (“Elliot Advisors”) by summons dated 2 December 2015 (“the Summons”) for an order that the Writ herein together with the Statement of Claim both dated 2 November 2015 be struck out and all further proceedings in this action be dismissed on the ground that they do not disclose any reasonable cause of action, and/or they are frivolous and vexatious, and/or are otherwise an abuse of process of the court. Further or alternatively, they seek an order that Elliot Advisors shall cease to be a party to this proceedings and the name of Elliot Advisors be struck out by reason of issue estoppel. 2.Yifung Properties Limited (“YPL”) and Wonder Earn Group Limited (“WEGL”), the plaintiffs herein, oppose this application. They also took out a summons dated 23 March 2016 (“Affirmation Application”) for their application for leave to adduce the Affirmation of Paul David Cummins (“the 1st Affirmation”) as further evidence in opposition. The defendants contest this application. 3.YPL and WEGL jointly instituted another High Court Action against Elliott Advisors under HCA 1359/2014 (“the 1359 Action”) previously. In the 1359 Action, Au-Yeung J disposed of an injunction application and a striking out application separately by two decisions respectively dated 17 November 2014 (“the Injunction Decision”) and 19 October 2015 (“the Striking out Decision”). The Court of Appeal handed down a judgment decision dated 3 June 2015 (“the CA June Judgment”) whereby the renewed application for leave to appeal against the Injunction Decision was dismissed. The Court of Appeal further handed down the Reasons for Judgment and Decision on Costs dated 9 September 2016 (“the CA September Judgment”) whereby the Court of Appeal, among other matters, explained their reasons for upholding the Striking out Decision. 4.For the striking out application in the present action, the defendants place heavy reliance on the 1359 Action. The 1359 Action shares common factual matrix with the present action and I shall respectfully adopted the narratives of the background facts in the CA June Judgment and the abbreviations used therein. Background facts 5.At the outset, I have to make a mention about three key players in the dispute between the parties. They are Manchester Securities Corporation (“MSL”) which is a company incorporated in the USA, Yifung Developments Limited (“YDL”) and its former director Ricky Liu. 6.From paragraphs 8 to 11 of the CA June Judgment, the background facts are set out as follows:
7.YPL and WEGL, being the only two shareholders of YDL, are the equitable mortgagors in respect of the Loan. They together with Capital Metro, all being incorporated in the BVI, are the plaintiffs in the 1359 Action. 8.I should also explain the relationship between Elliott Advisors and MSC. Elliott Advisors, locally incorporated, forms part of a group of companies known as Elliott Group comprising various investment and financial services firms in the USA and in Asia. It provides advisory services to two funds of the Elliott Group. MSC is one of those companies directly owned by one of the funds of the Elliott Group. 9.Mr Smith has been the manager director and Responsible Officer of Elliott Advisors. He dealt with the plaintiffs for Elliott Advisors on behalf of MSC. 10.Au-Yeung J found no substance in the plaintiffs’ allegations and acceded to the striking out application by the defendants in the 1359 Action including Elliott Advisors. After the plaintiffs’ appeal was rejected for reasons given in the CA September Judgment, the plaintiffs applied to the Court of Appeal for leave to appeal to the Court of Final Appeal. The Court of Appeal handed down a judgment dated 12 December 2016 (“the CA December 2016”) and refused the plaintiffs’ application. 11.For completeness, I should mention that the plaintiffs issued another writ under HCA 1143/2014 on 20 June 2014 against MSC and Elliott Advisors. For unknown reason, the writ was never served and was ultimately withdrawn. This action has little bearing on the present application. The present action 12.The present action is premised upon the alleged misrepresentation made by Mr Smith in the course of the negotiation between MSC and Elliott Advisors on the one part and YDL and the plaintiffs being the mortgagors on the other. The negotiation was allegedly held from August 2012 to March 2014 and it was about how YDL and the plaintiffs could discharge all the liabilities under the FA, the IRD and other related security documents including the equitable mortgages created by the plaintiffs. 13.Allegedly Mr Smith on behalf of MSC and Elliott Advisors invited Ricky Liu to consider obtaining finance to pay MSC a sum (“the Settlement Sum”) representing the outstanding balance of the Loan and MSC’s potential entitlements under the IRD. It was understood by the parties that YDL’s payment of the Settlement Sum would fully discharge all the liabilities under the FA, the IRD and other related security documents. 14.The other related security documents expressly include the two equitable share mortgages executed by YPL and WEGL in favour of MSC. 15.The pleaded case of the plaintiffs is that in the course of such negotiations Mr Smith all along misrepresented to the plaintiffs by conduct that he had actual authority from MSC to amend, vary and/or waive the terms of the FA, the IRD and the other related security documents. His invitation to pay the Settlement Sum would allegedly constitute a material variation of the terms of the FA and the IRD when in fact he did not have authority from MSC to agree on such a material variation. 16.The plaintiffs allege that they relied on the representation of Mr Smith and conducted the negotiations with him and no one else. With a view to payment of the Settlement Sum, the plaintiffs devoted efforts from March 2013 to March 2014 to acquire financing and professionals such as lawyers, consultants and financial advisors to prepare various documents and reports for the purpose of raising finance to pay the Settlement Sum. 17.The plaintiffs further allege that Mr Smith made the misrepresentation fraudulently or in the alternative, negligently. They claim damages to be assessed. They say Elliott Advisors, being the employer of Mr Smith should be vicariously liable. Affirmation Application 18.Mr Cummins was one of the financial advisors engaged by YDL from January 2010 to September 2010. In the 1st Affirmation, he refers to the part in the affirmation of Ricky Liu, which mentioned a dinner held in late September 2010 (“the Dinner”). He took part in the Dinner and so did Mr Smith. 19.Mr Cummins confirms the account of the Dinner given by Ricky Liu. He distinctively recalls that Mr Smith told them during the Dinner that he had full authority over any single investment of up to US$50 million in Asia (excluding Japan). The FA concerned a loan of US$39 million and so Mr Smith had full authority to deal with any matter arising from or related to the FA and the IRD and the other security documents. 20.In his second affirmation filed in support of the Affirmation Application, Mr Cummins gave an explanation for the lateness of filing the 1st Affirmation. He attributed that to his recent change of mind. He first turned down the request of Ricky Liu to make an affirmation for the plaintiffs in January 2016. He has just recently changed his mind without giving any explanation except that he now thinks it is the right and just thing to do. 21.Mr Mok S.C., leading Mr Li, for the defendants, argue that the plaintiffs have failed to show that there are exceptional circumstances to justify a grant of leave to file the late 1st Affirmation pursuant to O.32 r.11A(4) of the Rules of High Court (“RHC”). 22.Master Chow by her order dated 18 December 2015 gave directions for the filing of evidence (“the Directions Order”) for the purpose of the Summons. After the defendants have filed and served their evidence in reply, there should be no further affirmation without leave. O.32 r.11A(4) is engaged and indeed the plaintiffs have to show exceptional circumstances. 23.DHCJ Le Pichon in Jose Miranda Da Costa Junior and Ors. v Lorenzo Yih and Ors., unreported, HCA 156/2010, 28.4.2014 considered this provision in detail when dealing with an application for leave to appeal against her dismissal of a summons for filing further evidence on the day before the hearing of a judgment summons. The deputy judge had this to say,
24.Mr Barlow S.C. leading Mr Chen for the plaintiffs submits that the opposition made under O.32 r.11A(4) is merely technical in nature and the significant evidence of Mr Cummins should be taken into account in the defendants’ application for such a draconian relief. 25.Whilst Mr Barlow disagrees with the deputy judge in Jose Miranda Da Costa Junior and Ors that the rule in Ladd v Marshall is relevant to O.32 r.11A(4), he submits that the plaintiffs can nevertheless meet all such requirements and the defendants suffer no prejudice at all if leave is granted. 26.I cannot accept his submissions. I agree with the deputy judge entirely. O.32, r.11A(4) has to be adhered to and leave should not be lightly granted. Exceptional circumstances are expressly required in the provision. Any objection based on the lack of such circumstances cannot be taken to be technical ground only. The CJR can never be effective by payment of lip service alone. 27.In my view, the rule in Ladd v Marshall is indeed relevant factors that the court should take in account in the course of its consideration of the whole circumstances when dealing with an application under O.32 r.11A(4). 28.On the limited evidence adduced by the plaintiffs, I do not think they have shown exceptional circumstances at all. The Affirmation contains the recollection of Mr Cummins about the Dinner, which took place a few years ago and it could have been available within the time permitted under the Directions Order. 29.There is little evidence how Ricky Liu approached Mr Cummins for the purpose of making a supporting affirmation after the Directions Order was made. I do not know how much effort the plaintiffs have made. If Mr Cummins could out of the blue change his mind of his own volition in March before the hearing, the plaintiffs should have done more to procure him to make an affirmation within time and this Affirmation Application could be avoided. 30.I cannot accept the explanation of Mr Cummins for the lateness of the Affirmation. I am not convinced of his sudden awakening. It appears to be a lame excuse only. 31.Further, on the issue of materiality of the 1st Affirmation, Mr Mok highlights to me that the Dinner was held and the representation was allegedly made by Mr Smith in September 2010 whereas the misrepresentation under complaint in the present action was made by conduct from August 2012 to March 2014. Hence the evidence of Mr Cummins is irrelevant to the pleaded case. Mr Mok is plainly right. 32.Further, the oral representation allegedly made by Mr Smith is different from the misrepresentation alleged in the present action. The 1st Affirmation has very little probate value. 33.In the premises, the plaintiffs cannot begin to persuade this court that there are exceptional circumstances. Having considered the matter on the whole, I believe it is only right to refuse to exercise my discretion in their favour and so I dismiss the Affirmation Application. I also make a costs order nisi that the plaintiffs should pay the defendants their costs of the Affirmation Application (with no certificate for two counsel), to be taxed if not agreed. The Striking out Application Applicable principles 34.The defendants rely on three grounds under O.18 r.19(1) of the RHC. The applicable principles are trite and the following summary extracted from the written submissions of Mr Barlow should suffice: 35.Striking out is a drastic remedy and it follows that no court should give effect to it unless it is satisfied that the legal basis of the claim is unarguable or almost incontestably bad and where the legal viability of the cause of action is sensitive to the facts, an order to strike out should not be made: per Litton VP in Yue Xiu Finance Co. Ltd. and Anor. v Dermot Agnew and Ors.[1996] 1 HKLR 137 at 141C. 36.The onus is on the applicant to demonstrate that the case is one in which it is “plain and obvious”. It is only in plain and obvious cases that the court should exercise its summary powers to strike out the pleading under this rule. There should be no trial upon affidavit. Disputed facts were to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out: Hong Kong Civil Procedure 2017 Vol.1 §18/19/4 at p.458. 37.No evidence shall be admissible on an application under paragraph (1)(a) of RHC 18.19: RHC O.18 r.19(2). A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed. A proceeding is vexatious when it is oppressive or lacks bona fides: Hong Kong Civil Procedure 2017 Vol.1 §18/19/7 at pp.461-462. 38.An abuse of the process of the court connotes that the process of the court must be used bona fide and properly and must not be abused. Abuse can be concluded in groundless claims or where the pleading is a sham or entirely without substance: Hong Kong Civil Procedure 2017 Vol.1 §18/19/10 at p.463 39.In line with the underlying objectives in Order 1A and the spirit of the Civil Justice Reform, it is within the court’s case management power to strike out the whole pleadings and let the plaintiff prepare and apply to file a fresh set of statement of claim if there are viable claims: Wallbanck Brothers Securities (Hong Kong) Ltd v Emily Tse & Ors (unreported, CACV222/2015, 19.10.2015) at §13 per Lam VP. No reasonable cause of action 40.On this ground, I should confine my analysis to the pleaded case of the plaintiffs alone and nothing else. I should assume the plaintiffs could prove all the factual allegations in their pleading. 41.With this assumption, I cannot conclude that there is no reasonable cause of action disclosed in the Statement of Claim. 42.Mr Mok submits that there is no causal link between the alleged misrepresentation and the alleged conduct of the plaintiffs purportedly acting on it. This is however a fact sensitive issue and I cannot resolve this in the absence of my analysis of the evidence, which is impermissible under the rule. 43.Next Mr Mok complains about the deficiency of the pleading in respect of their claim for damages. Mr Barlow submits that the plaintiffs should be entitled to recovery of any expenses incurred as a result of fraudulent or negligent misrepresentation: McGregor on Damages (19th Edn.) at §§47-036 and 47-028. As a matter of general principle, his submission is correct. 44.However I agree with Mr Mok that the claim for damages is badly pleaded. The basis for general damages is not clearly pleaded and there is a complete lack of particulars of special damages such as the alleged professional charges incurred. I agree that there is indeed much room for improvement and mere deficient particularity is no ground for striking out. The following commentary in Hong Kong Civil Procedure 2017 Vol.1 §18/19/5 at p.460 is apposite:
45.There is no suggestion that the defects here cannot be remedied and that the plaintiffs have disregarded any orders to provide particulars. Thus, I am unwilling to strike out the Statement of Claim for want of particulars. 46.To conclude, I refuse to exercise my discretion to strike out the Statement of Claim pursuant to O.18 r.19(1)(a). It is amenable to improvement by way of provision of particulars. Other grounds of the Striking out Application 47.Mr Barlow complains the fact that the defendants rely on the three other grounds under O.18 r.19(1) to strike out the claim. He submits that it is wrong in principle and is confusing to do so. He relies on the dicta of Scarman LJ and Bridge LJ in Goldsmith v Sperrings Ltd. [1977] 1 WLR 478 at pp.498 and 503 for the proposition that if a reasonable cause of action is pleaded, then his pursuit of remedies which the law affords in respect of that cause of action does not constitute an abuse of process. 48.I do not think this is a correct reading of the dictum of Scarman L.J.. It was merely said that the task of satisfying the court that an action with a cause of action recognized by the law should be stayed before trial for being an abuse of process of the court should be a heavy one. I do not think the defendants shy away from this heavy onus at all. 49.Indeed Mr Barlow made the same arguments relying on Goldsmith v Sperrings Ltd. in the 1359 Action in the plaintiffs’ application for leave to appeal to the Court of Final Appeal. In the CA December Judgment, after concluding that the point taken had never been argued and hence leave to appeal on that point should be refused, Kwan JA indicated her disagreement with that point nevertheless and had this to say at §15,
50.Therefore, I see no problem at all for the defendants to rely on other grounds in their application. Despite my conclusion reached on the first ground, I should proceed to examine the remaining two grounds in light of all the evidence available. Before doing so, since the defendants rely on the 1359 Action, I should go a bit further into the facts in that action. The 1359 Action 51.The plaintiffs in the present action together with Capital Metro brought the 1359 Action against, among other persons, MSC and Elliott Advisors for the principal purpose of negating the existence of the event of default (“the Event of Default”) so that there could be no valid enforcement action pursuant to the equitable mortgages and the legal charge. They relied on an oral assurance purportedly made by Mr Smith to raise an estoppel point (“the Estoppel Point”). 52.Their pleaded case was that in or about November or December 2013, Mr Smith requested the Yifung Group to continue to focus on obtaining finance to pay the Settlement Sums (which was identically defined in the present action). The oral assurance (“the Assurance”) was that Mr Smith on behalf of MSC assured Ricky Liu on behalf of the Yifung Group that so long as the Yifung Group was sincere about paying the Settlement Sums, and was actively seeking new finance for such purposes, it was unnecessary for YDL to write to MSC again to extend the relevant due/repayment dates under the FA.[1] 53.The primary response to the Assurance in the joint defence of MSC and Elliott Advisors was that the Assurance never existed at all and was clearly contradicted by contemporaneous documents. Au-Yeung J agreed to this and came to the primary conclusion in the context of an interlocutory injunction application that the case on the Assurance was so contradicted by contemporaneous documents and so inherently improbable that it was demurrable on its face.[2] 54.Based on the same analysis, Au-Yeung J reached the conclusion that the plaintiffs’ claim was frivolous and an abuse of process and hence ordered that it be struck out. 55.It is noteworthy that it was also pleaded in the joint defence that while Mr Smith did represent MSC and Elliott Advisors in relation to the Loan, he was not an authorized representative of MSC in relation to any amendment, variation or waiver as regards the terms of the FA and other related transaction documents.[3] 56.Mr Barlow draws my attention to the general principle that a judgment is not admissible evidence to prove a fact in issue or a fact relevant to the issue in other proceedings between different parties: Trade and Industry Secretary v Bairstow [2004] Ch 1 (CA). He submits that the findings in the Striking out Decision are inadmissible in the present action to prove a fact in issue. 57.I pause to note that YPL and WEGL are the common plaintiffs whereas Elliot Advisors is the common defendant in both actions. I am alive to the fact that Mr Smith is not a party to the 1359 Action. 58.Mr Barlow further highlights to me that Au-Yeung J made an assumption and not a finding in her decisions that Mr Smith had apparent authority to bind MSC.[4] He is correct strictly speaking though at the same time Au-Yeung J also observed that Mr Smith at least apparent authority to bind MSC. 59.On the other hand, to substantiate the other two grounds of O.19 r.18(1), Mr Mok helpfully underscores the following similarities in the factual allegations in the 1359 Action and the present action. 60.First, both actions are concerned with the same factual matrix. There were negotiations between Mr Smith and Ricky Liu regarding a proposal for YDL to refinance the Loan so as to discharge its liability under the FA. The same allegation of the Settlement Sum is raised in both actions. 61.Second, as stated above, there are common parties. 62.Third, in both actions, the plaintiffs rely on certain representations allegedly made by Mr Smith. In 1359 Action, the Assurance was made orally whereas in the present action, he made the misrepresentations by conduct. 63.Fourth, in both actions, the Assurance and the misrepresentations were made during the negotiation taking place in the same period, i.e., from August 2012 to March 2014. 64.Fifth, in both actions, the negotiations were conducted on the basis that Mr Smith had the actual authority to conduct the same on behalf of MSC and/or Elliot Advisors. Frivolous or vexatious 65.With the foregoing matters in mind, I turn to the second ground under O.18 r.19(1)(b). First, I note that it is the pleaded case of the plaintiffs verified by Ricky Liu in the 1359 Action[5] that Mr Smith had authority to deal with the Yifung Group for and on behalf of MSC and Elliot Advisors. Indeed, Mr Smith’s role in the conclusion of the transactions between MSC and the Yifung Group and related parties is very clear. There is never any dispute about his authority in such dealings. 66.On his own evidence filed herein, Ricky Liu alleges that at the Dinner (2010), Mr Smith told him that he had full decision authority and discretion over any single investment of up to US$90 million in Asia (excluding Japan) and since the FA concerned a loan of US$39 million, he had full authority to manage and deal with any matters arising from and/or related to the FA, the IRD and other related security documents and so YDL needed to deal only with Elliott Advisors in respect of such matters (“the Assertions”). 67.Arguably, the Assertions could give rise to a representation that it was within the actual authority given by MSC to Mr Smith to amend, vary and waive the terms of the FA and the IRD and other related security documents. In other words, the Assertions formed the basis of the misrepresentation under complaint. 68.The Assertions are obviously of some importance to Ricky Liu. He made a specific mention of the Assertions in his affirmation and found it necessary to ask Mr Cummins to make an affirmation to provide collaboration with his account. 69.Curiously enough, the plaintiffs do not even mention about, let alone suing on, the Assertions. Instead, in their Statement of Claim, they rely on a plea of fraudulent or negligent misrepresentation by conduct allegedly made two years later without a single particular given. It is unknown on the pleading as to what conduct(s) is relied on to make out such a grave allegation. The affirmation evidence does not assist. 70.If the Assertions had really been made, I have no doubt that they should have been the underpinning complaint of the present action. In my view, they were raised in the last minute to lend some credence to their plea of misrepresentation by conduct, which is not even made out by prima facie evidence. 71.The evidence clearly shows that throughout Mr Smith merely conducted negotiations with Ricky Liu in regard to repayment. I agree with the analysis and findings of Au-Yeung J in the 1359 Action that MSC had not yet through Elliott Advisors concluded any agreement with YPL and WEGL to settle their liabilities arising from the FA, the IRD and their equitable mortgages. In particular, I agree with Au-Yeung J that the plaintiffs’ allegation that MSC had required YDL to pay US$47 million and the Bonus is baseless. There is no basis for the plaintiffs in this action to assert that Mr Smith had ever misrepresented that he had actual authority from MSC and/or Elliott Advisors to make important decisions on behalf of MSC whilst in fact he did not. 72.In the premises, I can conclude that the plaintiffs’ claim is plainly unsustainable and groundless. It does not appear to me to be a bona fide claim. It has no prospect of success. Though I accept Mr Barlow’s submission that the present action should not in any way hinder any enforcement actions to be taken by MSC, I am of the view that the present claim is made out of nothing and is frivolous, vexatious and an abuse of the process. Abuse of process 73.There is an additional reason why I think the present action as against Elliott Advisors is an abuse of process under O.18 r.19(1)(d). There is no reason why the plaintiffs did not raise the allegation of vicarious liability in the 1359 Action against Elliott Advisors. The joint defence of MSC and Elliot Advisors made it crystal clear that neither MSC nor Elliott Advisors gave Mr Smith the alleged authority. YPL and WEGL should take up this issue with at least Elliot Advisors even if for whatever reason it did not intend to join Mr Smith as a party to the 1359 Action. 74.Mr Barlow argues that Mr Smith was not a party to the 1359 Action and so no claim of vicarious liability can be made against Elliott Advisors. 75.I cannot agree with him. It is not uncommon for the principal alone to be sued on a vicarious basis for tortious liabilities of his agents and such examples abound. 76.Hence, I accept Mr Mok’s submission that there is an issue estoppel under the doctrine of the Henderson v Henderson. The plaintiffs could and should have raised the allegation of misrepresentation as a fallback position or otherwise against Elliott Advisors in the 1359 Action. I can conclude that it is an abuse of process to sue Elliott Advisors based on this allegation of authority. It is not necessary for me to find dishonestly on the part of the plaintiffs: Chiang Lily v Secretary for Justice [2009] 6 HKC 234. Conclusion and orders 77.For the reasons given above, I conclude that the present action is frivolous, vexatious and an abuse of process. I therefore accede to the application of the defendants to strike out the Writ and the Statement of Claim. 78.Costs should follow the event. I make an order nisi that the plaintiffs do pay the defendants their costs of this action including costs of and occasioned by the Summons with certificate for two counsel (excluding such costs relating to the Affirmation Application), to be taxed if not agreed. 79.It remains for me to thank all counsel on both sides for their helpful assistance rendered to this court.
Mr Barrie Barlow, S.C. and Mr David Chen, instructed by Li, Wong, Lam & W.I. Chueng for the plaintiffs Mr Johnny Mok, S.C. and Mr Ross Li, instructed by Akin Gump Strauss Hauer & Feld for the defendants | |||||||||||||||||||||||||||||||
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