Yat Tung Investment Co Ltd v. Dao Heng Bank Ltd and Another
Read the full judgment text of CACV 51/1972 on BabelCite. This Court of Appeal judgment.
1. The appeals in these two actions arise from certain orders made by Briggs J. in chambers when, on the 5th and 6th of October, 1972, he dealt with three separate summonses arising from two related actions viz : O.J. Action 909 of 1970 and O.J. Action 534 of 1972. Both of these actions concern the property known as 195 and 197, Johnston Road and 114, Thomson Road, a single plot on which a 14-storey building now exists having been under construction since about 1963 and being eventually complete
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CACV000051/1972 IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 51 OF 1972 (ON APPEAL FROM O.J. 534 OF 1972) -----------------
----------------- CIVIL APPEAL NO. 50 OF 1972 (ON APPEAL FROM O.J. 909 OF 1970) -----------------
----------------- Coram: Full Court(Blair-Kerr, S.P.J., Huggins & McMullin, JJ.) Date of Judgment: 21st March, 1973. ----------------- JUDGMENT ----------------- McMullin J. : 1. The appeals in these two actions arise from certain orders made by Briggs J. in chambers when, on the 5th and 6th of October, 1972, he dealt with three separate summonses arising from two related actions viz : O.J. Action 909 of 1970 and O.J. Action 534 of 1972. Both of these actions concern the property known as 195 and 197, Johnston Road and 114, Thomson Road, a single plot on which a 14-storey building now exists having been under construction since about 1963 and being eventually completed in 1968. In Action 909, Choi Kee, Ltd., as alleged owners of the plot and the building thereon, seek primarily possession against the Yat Tung Investment Co. Ltd. and two other associated companies all of which are private companies the majority shareholder and principal executive of which is Mr. LAI Yung-kwong. The fourth defendant in that action, KEUNG Wai-shum, who was apparently a caretaker employed by the third defendant, had disappeared both from the building and from the proceedings at the time the summonses came on for hearing before the judge in chambers so that, effectively, the existing defendants in that action are three closely inter-linked limited companies under the control of Mr. Lai. In Action 534 of 1972 one of these companies, the Yat Tung Investment Co. Ltd., as plaintiff, seeks, among other relief, declarations which would invalidate the claim of Choi Kee, Ltd., (the second defendant in that action and plaintiff in Action 909) to be beneficially entitled to the property in question. 2. The circumstances leading up to the three applications in chambers are somewhat complicated and the two actions referred to already are closely associated with an earlier O.J. Action, No. 969 of 1969, to which it will be necessary to refer. Before turning to look at the history of these events in more detail, the orders made by the judge in chambers will form a convenient point of departure. The effect of his written judgment delivered on the 23rd October 1972, and covering the summonses in all three applications was to dismiss an application by the Yat Tung Investment Co. Ltd. and the other defendants in Action 909 of 1970 to amend their commen defence and to allow two applications by their opponents, one, in Action 909, to strike out the existing statement of claim by the Yat Tung Investment Co. Ltd. as frivolous and vexatious, and the other, in Action 909, to strike out the existing statement of claim by the Yat Tung Investment Co. Ltd. as frivolous and vexatious, and the other, in Action 909, to strike out the defence of the Yat Tung Investment Co. Ltd. and the other defendants in that action upon closely similar grounds. Judgment for possession of the premises against all defendants in Action 909 was also given and was, as will be seen, a logical consequence of the other orders made. I will for convenience hereafter refer to these three actions by their numbers without further description and to the two companies principally concerned as Yat Tung Ltd. and Choi Kee, Ltd. 3. The tale begins in 1964 when the building, then under construction, and the plot were in the hands of owners who have since disappeared from the proceedings. At that time, however, the work of construction was already in the hands of a company which was, effectively, the property of Mr. Lai. The company at that date was known as the Mee Ah Hong Construction Company but, upon the 20th of December 1966, it was transformed, by incorporation, into the Mee Ah Construction Company Limited i.e. the second plaintiff in 969 and the third defendant in 909. The then owners of the property had, earlier, already mortgaged it to the Dao Heng Bank Limited (the defendant in 969) and they created a further charge upon the property on the 14th of July 1967 the total of both charges being $1,400,000. Because the then owners were in default to the Dao Heng Bank in respect of the payment of interest under these charges, on the 13th of May 1968 there occurred the event which may fairly be regard as the root of the litigation which in the course of the next five years grew and swelled into the tangle of actions and applications with which the courts are still concerned. It is the bank's contention that upon that date. in lawful exercise of its power of sale under the building mortgage and further charge created by the original owners, it sold the property to Yat Tung Ltd., a company which, according to the bank, had actually been set up by Mr. Lai for the very purpose of holding and managing this property. The Mee Ah Construction Company Limited continued, however, to be the contractors upon the site. These two companies were the first and second plaintiffs in the first of the actions, 969. In that action what was primarily at issue was whether or not the defendant bank owed to the plaintiffs a sum of $435,783.81. This simple pecuniary claim, however, although the substantive relief claimed, is buttressed by claims for two separate declarations without which it would not be sustainable and which are themselves necessitated by the state of facts alleged by the plaintiffs in connection with the purported sale of the property to Yat Tung Ltd. on the 13th of May 1968. It is common ground between the parties that subsequent to the purported sale an assignment of the property to Yat Tung Ltd. was completed on the 23rd of May 1968. On the same date Yat Tung Ltd. executed a building mortgage in favour of the bank to secure a sum of $1,000,000. The views of the two parties as to what actually occurred on the 13th and 23rd of May however are in total collision. According to Yat Tung and its co-plaintiff, Mee Ah Hong Construction Co., the sale at the auction on the 13th and the subsequent assignment and mortgage were all part of an elaborate artifice to conceal the truth of an agreement arrived at privately between the parties that Yat Tung Ltd. would hold the property in trust for the bank, which, by virtue of its relationship with the prior mortgagors, would not have been entitled to buy the property itself, and that the company lent itself to this device in return for a promise on the part of the bank to pay all outstanding construction costs and all such costs in the future arising from the erection and completion of the building. The company thus became nominal owner only and the bank true owners of the property. These allegations were wholly denied in the defence put in by the bank in 969 in which the validity of the sale to the plaintiffs and the subsequent mortgage were affirmed and in which it was stated that the bulk of the money secured by the mortgage was advanced to the first plaintiff. Both parties in their pleadings, and in their evidence, dealt with certain other financial adjustments made between them as a result of the selling of two of the units in the completed building each party accounting differently for the ultimate disposal of the proceeds of such sales but it will be unnecessary to venture into the complications of these subsidiary claims. In the upshot, the bank, having denied the allegation of a sham sale and mortgage, and having presented its own figures concerning the state of accounts between the two parties counterclaimed for a sum of $45,231.97. 4. The writ in 969 issued on the 8th of August 1969, the statement of claim being filed on the 27th of December in the same year. Between the issue of the writ and the filing of the statement of claim however, a further event had occurred which is of considerable importance to these appeals. It is the bank's contention that Yat Tung Ltd. had fallen into arrears in the payment of the interest upon its mortgage and it is undoubtedly the fact that, in purported exercise of the right of sale under this mortgage, the property was once more put up for auction and was sold to Choi Kee, Ltd., the plaintiff in 909, on the 26th of November 1969. Thereafter the progress of action 969 was as follows : The defence by the bank in its final form was filed on the 27th of February 1970; reply and defence to the counterclaim were filed by the Yat Tung on the 3rd of May 1970; the action came on for hearing before Pickering J. on the 5th of January 1971 and was completed on the 22nd of that month. Judgment was given in favour of the bank on the 23rd of April 1971; the plaintiffs appealed to the Full Court and the appeal came on for hearing on the 3rd of February 1972 being dismissed by the Full Court on the following day. 5. Meanwhile Choi Kee, Ltd. the purchaser of the property, finding that Mr. Lai's various companies were still in actual physical possession of the first five floors of the premises, and had in addition barred entry to all the remaining floors, itself commenced action 909 by writ issued on the 16th of June 1970 i.e. about one month subsequent to the close of pleadings in Action 969. In this second action possession of the premises was the primary claim supplemented by a prayer for certain consequential orders concerning the removal of certain signs and fastenings upon doors etc. and the restraining of Yat Tung Ltd. and its two associate companies and its caretaker from further interference with the Choi Kee Company's quiet enjoyment of the premises. The three defendant companies and the caretaker in the employment of Mr. Lai filed a common defence to this action on the 20th of August 1970. In this defence the alleged trespass is denied on the grounds that Choi Kee, Ltd. had no lawful title to the premises because of the matters advanced by the plaintiffs in 969 (to which action specific reference is made in the defence) viz : that the mortgage under which the bank had purported to sell the property to Choi Kee, Ltd. was void and of no effect. It is further pleaded that Choi Kee, Ltd. being a related company of the Dan Heng Bank and sharing common directors and shareholders therewith was aware of this state of affairs by virtue of the fact that the writ in 969 had been registered as a lis pendens on the 23rd of August 1969 shortly after the issue of the writ in the former action. It should be noted that at the date of this defence the hearing of 969 was still more than four months in the future. A reply to this defence was put in on the 8th of September 1970 and in this the mortgage and sale to the Yat Tung Investment Co. Ltd. of the 13th of May 1969 were affirmed as valid. What is important to note at this point, therefore, is that Yat Tung Ltd. was relying, as defendant in 909 on the very matter which had been pleaded by it as the factual basis of its claim as plaintiff in 969 and at the date of the defence in 909 the issues in 969 had not yet been resolved by judgment. So far as 909 is concerned the matter rested in that position until the filing of the several summonses which were dealt with by the judge in chambers. Mr. Ching, who appeared for the Dao Heng Bank and for Choi Kee, Ltd. told the court that it was his understanding that the parties at this juncture were agreed that the result of Action 909 should depend upon the result of 969, but Mr. Bernacchi for the respondents was unable to hear him out in this and Mr. Ching sought to put the matter no further. It was, however, agreed (as the learned judge at chambers notes in his judgment) that 909 should be stayed pending the trial of 969. 6. The situation, then, at the close of pleadings in 909 was that all the parties in these two actions were awaiting the result in 969 and Yat Tung Ltd. and its associated companies were standing fast upon the position maintained by them in the earlier action. As has been noted above, judgment was given in 969 on the 23rd of April 1971 but the appeal to the Full Court was not disposed of until the 4th of February 1972. We were informed that a great part of the delay was due to the preparation of the record in the appeal which, because of the long trial and the many documents involved, presented a formidable task. Since there was no appeal to the Privy Council one might have thought that Choi Kee, Ltd. would have pursued its advantage by moving swiftly to judgment in 909 but in fact the next initiative was on the part of the defeated Yat Tung Ltd. which, only a month after the dismissal of the appeal in the Full Court, issued its writ in the last of the three associated actions, viz. 534, on the 3rd of March 1972, statement of claim being filed on the 21st of that month. In this action, to which the Dao Heng Bank Ltd. and Choi Kee, Ltd. are defendants, Yat Tung Ltd. essays to make an adroit accommodation to the turn affairs had taken by boldly proclaiming that the very finding of Pickering J. which, at the pain and expense of protracted litigation it had previously sought diligently to prevent, was now to become the very basis of its fresh claim. Paragraphs 5 and 6 of that statement of claim are in the following terms :
Among the declarations sought is a declaration that the plaintiff is still mortgagor of the property and owner of the equity of the redemption. The effect of this, if such were granted, would be, of course, wholly to circumvent the endeavour of Choi Kee, Ltd. in 909 to evict the Lai companies from the premises. By this resilient pleading the Yat Tung Company sought to deprive the bank of the fruits of victory in 969 by seizing from it the very trophy which had been won by the bank in the first tournament and using it as a weapon to disarm its opponents in the later action. The facts relied upon to justify this remarkable volte-face are set forth in paragraphs 11 to 15 of the statement of claim and amount to the allegation, now put forward for the first time, that the sale and assignment of the property by the bank to Choi Kee, Ltd. which took place on the 26th of November 1969 and the 6th of January 1970 respectively were a complete sham and thus were fraudulent; in the alternative in breach of the first defendant's duty as mortgagee; alternatively, otherwise improper. These improprieties are further particularized in paragraph 14 as follows :-
It is said that as a result of these matters the sale to Choi Kee Ltd. is either void or voidable. The last of the matters particularized (para.g) refers to the contention that the bank refused to pay the third of the instalments of the advance made under the mortgage. This was explicitly denied by the bank and was a claim which had never been advanced in 969. 7. It may be that the bank and Choi Kee, or their legal advisers, were taken aback by the boldness of this tactic for their first reaction was to put in a detailed and vehement defence on the 18th of April 1972. No doubt thereafter the singularity of the situation prompted second thoughts for on the 14th of June they took out two summonses one in 909 and one in 534, both very similarly worded, asking the court to strike out the Yat Tung claim in 534 and the defence of Yat Tung and its associated companies in 909 as being vexatious, frivolous and/or otherwise an abuse of the process of the court. Thereafter nothing appears to have happened until the 27th of September 1972 when the Lai companies moved by summons to amend the defence put in by them in 909. This final summons was obviously a necessary and very drastic adjustment of the defence put forward in 909, necessitated by the final result in 969 to bring the matter pleaded into line with the novel claim put forward by Yat Tung in 534. The amendment which it thereby sought to make would substitute for the pleading that the transaction between the bank and the Yat Tung Ltd. in 1969 was invalid the wholly different pleading that the purported purchase by Choi Kee, Ltd. from the bank in 1970 was void and of no effect for the reasons stated in the statement of claim in 534. It would appear that the bank's two summonses to strike out were originally set down for hearing on the 18th of September 1972. Eventually those summonses together with the Yat Tung Company's summons to amend were all set down for hearing on the same day and this was therefore the somewhat tangled state of affairs which confronted Briggs J. in chambers on the 5th of October 1972. 8. Before dealing with the grounds of appeal and arguments thereon, it will perhaps be as well to stress the following features of that situation. Firstly, in 969 the bank and the Yat Tung Company were primarily at issue on the question of accounts. If the company made good its claim the bank would be found to owe it a sum in the region of $435,000; if the bank made good its defence and counterclaim not only would it not owe that sum but on its accounting it would be owed a sum of $45,000 by the company. Secondly, in 969 the question of the subsequent sale by the bank to Choi Kee, Ltd. is not put in issue by the statement of claim which, in paragraph 18, refers thereto briefly only as a matter of history; but it is introduced in the counterclaim as an essential part of the bank's explanation of the figure which it claims as outstanding on the accounts between them. Thirdly, the validity of the sale to Choi Kee Ltd. is not directly impugned either in the statement of claim or in the reply to the defence and counterclaim. It was, however, a possible corollary of the allegation that the mortgage executed between Yat Tung Ltd. and the bank was a sham, and that any purported sale by the bank under the terms of that mortgage would be voidable so that any accounting which had reference to the sum allegedly paid by Choi Kee, Ltd. to the bank as the purchase price of the property might have to be disregarded. As the pleadings stood in 969 this possibility was not dealt with and the claim of Yat Tung Ltd. was presented as though the discrediting of the mortgage was only incidental to establishing the correctness of its own figures. But when in 534 it purported to accept its position as mortgagor as a consequence of the court's findings in 969, the odd position had come about that, in impugning the subsequent sale to Choi Kee, Ltd., Yat Tung was expressly renouncing the benefit of the credit allocated to it by the bank arising from that sale so that, instead of owing the bank the $45,000 claimed by the bank in its counterclaim in 969, it would put the bank in a position to claim the entire $1,000,000 advanced under the mortgage thus affirmed. This is the point at which it becomes very apparent that the dispute between the parties had shifted from being one of mutual accounting and payment in 969 to one of trespass and possession in 534 and 909. This peculiarity in the Yat Tung Company's present stance is one that touches at the very root the opposing contentions of the parties in these three cases and which lies at the heart of the decision given by the judge in chambers. Essentially the appellants' complaints are to be found on grounds 2 - 6 of the grounds of appeal filed in Appeal 51 and these may be reduced to the allegations that the judge wrongly found, (a) that the validity of the sale to Choi Kee, Ltd. was a matter conclusively decided by 969 and not subject to further question; and, (b) that the appellants had chosen to put their case in 969 in one way and were not to be permitted thereafter to present it again in a different and contradictory way. 9. Mr. Bernacchi would have it that the only real difficulty confronting his clients arises from their failure to plead the invalidity of their sale to Choi Kee Ltd. when defending the counterclaim put in by the bank in 969. There was good reason for him to wish to maintain that line because the sale to Choi Kee Ltd. did not take place until after the writ in that action had been issued and although his clients were aware of the sale by the time the statement of claim was put in it would, as Mr. Ching concedes, have been improper to include the further pleading concerning that sale since the same had not been referred to in the writ. It was because of this that we were treated to some argument on the question whether this new matter might have been urged by way of defence to the counterclaim or whether it would have been necessary to adopt the somewhat unusual expedient of putting in a counterclaim to the counterclaim. To that I will refer later. I will turn first however to the reasons given by the judge in chambers for his refusal to allow the amendment of the defence in 909. What he has to say on that subject is the key to the principal difficulties which this case has presented upon appeal in relation to the questions of res judicata and election for there is no doubt that the judgment is primarily founded upon the application of those two principles. On page 6 of the judgment the learned judge said :
The reference there to the courts was, of course, to the finding of Pickering J. and its affirmation on appeal by the Full Court. He then goes on to cite Scarf v. Jardine(1) and Vine v. National Dock Labour Board(2) as authority for the proposition that a party, if he elects to set up a certain claim and loses upon that claim, cannot set up a second claim of another nature in the same cause of action. On page 7 he goes on to say as follows :
There is no doubt that there one sees not only a finding that Yat Tung Ltd. had elected between two possible contentions as its source of right but also a specific conclusion that the validity of the sale to Choi Kee, Ltd. has actually been litigated in 969. The reason which the judge in chambers gives for the latter finding is found on page 4 of the judgment where having set out that finding he says :
This finding which is the substance of the second and third grounds of appeal rests of course upon the fact that Pickering J. in giving the bank judgment upon its counterclaim in 969 necessarily did so on the facts as pleaded in that counterclaim. However, I think Mr. Benacchi is right to say that that matter was not directly litigated before the court of trial. If the judge in chambers was implying that there had been express adjudication by Pickering J. upon that very issue and that the matter was therefore res judicata in that sense I would, with respect, be inclined to disagree. But I do not understand him to be employing the doctrine in that way. Although he took the view that the court in 969 by its award of damages upheld the validity of that sale I think it would be more truly put by saying that the court upheld the validity of the bank's pecuniary claim which was predicated upon the validity of that sale. This is an area of the law where some subtle seeming distinctions must be made and that form of estoppel which is usually called res judicata has limits which it is not always easy to state. That he was not using it in its strictest sense it is clear from the fact that the judge in chambers expressly relies on the words of Somervell L.J. in the case of Greenhalgh v. Mallard(3) where that learned judge (at page 257) says that :
I say this by way of a necessary clearing of the ground for the proper application of this principle for I think that the passage in the judgment immediately preceding that quotation led Mr. Bernacchi to belabour a finding which was not strictly necessary to the conclusions arrived at and which counsel, I believe rightly, did not think was supported by the pleadings or the evidence. Thus at page 10 the judge in chambers said :
It was never part of the case for Yat Tung Ltd. in 969 that the sale to Choi Kee was not a valid sale. The point is first raised by way of defence in 909. Indeed the reply to the defence and connterclaim in 969 admits that the defendant sold the property to Choi Kee Ltd. and contents itself with denying that the bank did in fact suffer any loss as a result of the sale. As I have said, the validity of that sale seems not to have been put in issue and could only be said to have been adjudicated in the sense that it was never challenged. Admittedly what Yat Tung Ltd. is now doing wears the appearance of a total contradiction of its previous stance, but, I think Mr. Bernacchi rightly maintains that, the Yat Tung pleadings in 969 are not in actual collision with its pleadings in the two later actions. The matter urged by way of defence in 909 and by way of claim in 534 and the claim in 969 cannot be said to set up mutually exclusive or contradictory cases. The improprieties now alleged against the sale to Choi Kee Ltd. could readily have been made the subject of an additional claim in 969 had the matter been known to the plaintiff at the time of the writ. The fact that it was not so know at that date has given Yat Tung Ltd. its excuse for not pleading it. But when one turns to consider the original defence put in in 909, some nine months after that sale, it is clear enough that no such explanation for failure to plead the additional defence is available. I feel therefore that it is unnecessary to go into the argument and the several cases referred to by counsel concerning the necessity for showing two mutually inconsistent causes of action before a party is put to an election between them. The original defence and the proposed amended defence in 909 are clearly not mutually exclusive although they are different. The apparent contradiction is rather in Yat Tung Ltd. now claiming (in 534) a declaration that it is the mortgagor of the property whereas in 969 it claimed that it was not. The later claim is a logical pursuit of benefit arising from an adverse decision and the contradiction is more apparent than real since the two actions involve different causes of action. But even though that is so, I believe that the wider principle of estoppel per rem judicatam upon which the judge in chambers relied is perfectly applicable in respect of the application to amend. The defence in 909 as it originally stood was that the defendant companies were entitled to resist the claim for possession on the ground that Choi Kee Ltd. had no good title and they relied for that purpose upon the defect in the plaintiffs' title which they deemed had arisen because of the bank's purported selling to Choi Kee Ltd. under what the defendants alleged was bogus mortgage. Mr. Ching has raised the issue, without pressing for it to be decided, as to whether that was in any event a good defence to the action as it stood. Indeed a nice question arises since all that the defendants then were saying was that the bank had purported not as mortgagec but as cestui que trust to pass title to Choi Kee Ltd. a point to which I will return later. The alternative and far more formidable defence which had been available to them then since November 1967 was to be found in those matters of fraud, negligence or other impropriety attributed to the sale by the bank to Choi Kee Ltd. The question as I see it is not one of res judicata in the strict sense or even res judicata by implication but in that wider sense referred to in the case of Greenhalgh v. Mallard(3). The stricter meaning of the doctrine is very admirably set out at page 152 of the second edition of Spencer Bower on Res Judicata. He first of all refers to the decision of Coleridge J. in Reg. v. Hartington, Middle Quarter (Inhabitants)(4) at pages 794 - 7 where it was said that the judgment relied upon as res judicata :
or is
in the sense that they are
In a later passage on the same page the same learned author says :
I think Mr. Bernacchi was right to maintain that the validity of the sale to Choi Kee was not directly put in issue and was not directly decided in 969. What was before Pickering J. was a dispute concerning two opposed versions of a certain statement of accounts. The Yat Tung version depended upon it showing a bogus mortgage and creation of a trust in return for a promise to pay construction costs which resulted in a balance in its favour of $435,000 odd. The bank's version of the same affair affirmed the validity of the mortgage and, in giving a somewhat different picture of the general accounts between the parties, incidentally threw into the balance the price it claimed to have got for its sale of the property to Choi Kee Ltd. Of course it was necessary to the decision of Pickering J. in giving judgment on the counterclaim to assume that there had been a valid sale to Choi Kee Ltd. and he did so, no doubt, in rejecting the suggestion that the mortgage had been a bogus arrangement. But his mind was never directed to the question whether there had been any degree of fraud or impropriety attaching to the actual circumstances of the sale to Choi Kee. If therefore he can be said to have, by implication, affirmed the validity of that sale it would surely be stretching the rule to say that his adjudication concluded that issue to any greater extent than could be implied from the matter actually put before him viz : the alleged invalidity of the mortgage itself. If, following his decision Yat Tung Ltd. had sought to persist in its original defence in 909 then although invalidity of the sale to Choi Kee resulting from the allegedly bogus ...(illegible) been argued in 969, when raised in 909 the answer of res judicata in the strict sense would have been complete. The present situation is perhaps analogus to the situation in In The Estate of Park, Park v. Park(5) which is referred to on page 155 of Spencer-Bower whose note of the decision is in the following terms:
It is true that the plaintiff in 969 is disaffirming the reality of the mortgage between itself and the bank but it is not strictly speaking(all appearances to the contrary notwithstanding affirming its reality in the subsequent actions; rather it is asking the court to reaffirm its own decision by declaration. What it is doing in 534, and what it and its related companies are seeking to do in 909, is making it clear that they are not seeking to dispute the court's finding in 969 but wish to bring to the court's attention a matter which had not been brought to its attention before and which has never been considered by any court in any of the actions thus far. For this reason I do not see that there is much force in Mr. Ching's observation that if, as the judge in chambers thought, Mr. Lai must give evidence again, he will be in an impossible position either as defendant in 909 or plaintiff in 534. No doubt ...(illegible) in cross-examination with the equivocal nature of his stance. But it is not the case that he will be compelled to commit perjury or else lose his action and fail in his defence. It would be perfectly in order for him to say :
He has not blown hot and cold in respect to his case against the sale to Choi Kee : rather it would ...(illegible) he blew as hot as he could and when that was insufficient he sought later to blow hotter still. The real reason for the judge's refusal to permit him to amend is to be found in the passage where he says : (on page 6)
It should be noted there that the judge is careful to say that the new defence is "based on facts" which were formerly denied and not that the Yat Tung Investment Company now is seeking to affirm the truth of those facts. A very useful statement of the principle of res judicata in the wider sense in which I believe the judge relied upon it is to be found in Henderson v. Henderson(6) in passage from the judgment of Wigram, V.C., (a passage quoted in Greenhalgh v. Mallard at page 258) :
Although the judge in chambers referred to the lateness of the amendment, the fact that it alleged a fraud and the lack of an affidavit in support, and although Mr. Ching relies upon these same matters in disputing the companies' right to have their amendment I think it is clear that the judge in chambers regarded these as subsidiary to the main question i.e. whether such a litigant should receive the assistance of the court when by "such a litigant" he meant one who had changed horses in mid-stream and altered the whole quality of his defence. I doubt whether he would have dismissed that application upon the subsidiary grounds alone, since he expressly cited the dictum of Brett M.R. in the case of Clarapede(7) to the effect that however late an amendment is proposed it should be permitted if it can be made out without injustice to the other side. As it appears to me he took these subordinate matters together with the main question as to whether issues of election and res judicata also stood against the Yat Tung Company in dismissing that application. This is clear from what is said on page 7 when in giving the reasons for refusing leave to amend he refers not only to the change of the whole tenor of the defence and the fact that the defendant, having chosen to rely on a certain version of the facts now alleges a new version, and in particular a fraud, and goes on to say that he should not be encouraged to do so. These reasons follow immediately upon his conclusion that what the defendant now seeks to put forward has already been litigated at the former action. Although Mr. Ching would have it that any one of the grounds advanced both before us and in the court below for refusing the application to amend would be of itself sufficient I would hesitate to agree. The lateness and novelty of the defence and the introduction of a serious claim of fraud although they might be good grounds on their own for the exercise of the judge's discretion in refusing such an amendment were not, in my view, the principal reason why the amendment was in fact refused. Without resorting to the idea of election and without the finding that the matter had been litigated in 969 it seems very unlikely that he would have refused the amendment. Nor do I think that this court should take a different attitude. The real issue to be decided is whether it be true to say that the allegation of fraud and the voidability of the sale to Choi Kee were matters available for litigation in 969 and that Mr. Lai chose not to rely on them and whether they are to be regarded as res judicata in the sense that they ought to have been so litigated. 10. It has been a recurrent refrain throughout Mr. Bernacchi's argument in dealing with his many grounds of appeal that the action in 969 was primarily in contract or for goods sold and delivered and that proof of the claim involved reference to the mortgage relationship only incidentally and that this was a totally different ground of action from the ground now alleged in 534 and in the defence in 909 concerning the voidability of the sale to Choi Kee. Further, it was his contention that the causes of action in 969 and 909 were not only different but that they were not mutually exclusive i.e. in the sense that they are not inconsistent and conld stand together. As I have indicated, I believe that view is well founded. If the learned judge in chambers had found they were mutually exclusive I would be in agreement with the substance of ground 4 of the grounds of appeal which alleges such a finding. But I do not think that he did so. Rather, he based himself partly upon the doctrine of res judicata in the wider sense in which I have tried to describe it above and partly upon his conclusion that the Yat Tung company and its associates had from the start elected to pursue one line of action and that it was too late for them now to shift to a different line. Indeed the whole question of election was only pursued by Mr. Ching in the sense that he maintained that from very nearly the outset of the proceedings in 969 a cause of action and a source of defence was known to and available to the Yat Tung company which had deliberately decided not to put it forward. Obviously the concepts of election in this sense and of res judicata in the wider sense are closely linked and to some extent overlapping. As it seems to me the root of the matter is concerned with the vital issue of the counterclaim in 969. Throughout, Mr. Bernacchi has clung to the fact that the sale to Choi Kee Ltd. took place after the issue of the writ although he concedes that it was before the filing of the statement of claim. He maintains that if, as Mr. Ching undoubtedly suggested in the court below, Yat Tung Ltd. could only be said to have been under the necessity of putting in a counterclaim to the bank's counterclaim then, since a counterclaim is a wholly separate cause of action and may be litigated at any time at the option of a defendant, he could not be accused of not having brought forward all relevant causes of action at the same time. In other words he says this question of the invalidity of the sale to Choi Kee Ltd. could never have been pleaded by his client by way of defence to the counterclaim in 969. For my part I am wholly unable to agree. That counterclaim, as Mr. Ching rightly observes, squarely put before the court the correctness of the defendant bank's manner of accounting for the sum which it said was owed to it by the plaintiff. This involved by implication, though not directly, the allegation that the sum which it sought to credit to the plaintiff resulting from the sale to Choi Kee was correctly accounted. The validity of that sale was not put in issue either by the plaintiff or the defendant but the fact of it was clearly before the court. The plaintiff therefore had to confront a situation in which it might be (as indeed it turned out to be) that the court would not accept his story of a bogus mortgage. That being the case, then, if in addition, the plaintiff was well aware that the subsequent sale to Choi Kee Ltd. was affected with fraud or negligence and had been at an undervalue it must have been obvious that to secure his position against every possible contingency it was necessary to plead that the defendant's manner of accounting, which left the plaintiff owing a sum of $45,000, was, aside from all the other complaints concerning the bogus nature of the mortgage between the bank and the plaintiff, itself wholly erroneous. It should not have been difficult to plead that at current market prices, if the sale to Choi Kee Ltd. had been a valid sale, a sum would have been realised which would not only obliterate the debt owing to the defendant (even accepting the defendant's account of the facts) but which would, in addition, leave the defendant in possession of a balance in favour of the plaintiff. No compelling reason has been advanced to show that this matter could not have been plesded by way of defence to the counterclaim. It would not have been a question of the plaintiff company taking up contradictory postures in relation to its own cause of action but simply of meeting the defendant upon his own ground in the event that the court disbelieved the plaintiff on the substance of its claim. But whether pleaded by way of defence to counterclaim or by way of defence and counterclaim to counterclaim, (and no especial difficulty in the way of such a pleading has been shown) it was, to my mind, so clearly a matter necessary and proper to be litigated at the same time with all the other issues between the parties that it would have been wholly wrong for the judge in chambers to have permitted the amendment. Mr. Bernacchi sought to maintain that it would be illogical to ask a defendant to such a counterclaim to rely upon a ground of defence which would in effect mean that he was owing more than the amount actually claimed against him in that counterclaim. Mr. Ching's reply to that was sufficient to dispose of it. The substance of such defence would not have been simply that the sale to Choi Kee Ltd. was voidable but that the sum which the bank alleged that it had realised was, in the circumstances. wholly inadequate. Indeed there was a suggestion from the Bar in the course of the appeal was that the property could well reach something in the neighbourhood of $2,000,000. As Mr. Ching pointed out all it needed to fetch, more than the bank say it fetched, was another $50,000 to put the plaintiff in credit on the defendant bank's own case. 11. What has been said already applies with equal force to the appeal from the application to strike out the statement of claim in 534. In Poulett v. Hill(8) a case on which both parties have sought to rely Lopes, L.J., in the very brief judgment on page 281 says :
The point at issue in that case was whether a mortgagee who had brought a foreclosure action was entitled, before the first action had been concluded, to commence a second action for arrears of interest under the same mortgage. The court found that since the Judicature Acts such successive actions were no longer necessary and that such proceedings were oppressive. At page 282 Kay L.J. says :
In my view these words may form a suitable epigraph to the attempt by Yat Tung Ltd. to assert, in an action brought over two years later, a claim which ought to have been brought before the court at least as early as the point of time at which it faced the counterclaim of its opponent. It is indeed as Mr. Bernacchi says a different claim and a separate issue from the issue primarily raised by the plaintiff in 969 but it was throughout, a clear and substantial issue and such as could readily have been raised either by way of defence or counterclaim. Of course it is true to say that a counterclaim is a separate cause of action but that is so in so narrow and technical a sense in the present circumstances that I do not think that any such rule should be held to support the plaintiff in refusing to ventilate at one of the same time with his other claims an issue so intimately connected with and so importantly opposed to the claims of his opponent. 12. To the application of the doctrines of election and res judicata in the extended or diluted sense in which Mr. Ching, rightly as I think, sought to apply them, the whole question of the bona fides of Mr. Lai and his companies is very relevant. In relation to that aspect of the matter the following may serve as a commentary as well as a summary of the argument and its conclusions : In 969 the cause of action was breach of a contract to pay construction costs (or possibly for work done and materials supplied) and incidental to that there was in issue the question whether there was such trust agreement as Yat Tung Ltd. alleged or whether, as the bank alleged, Yat Tung Ltd. was truly purchaser and mortgagor of the premises. The sale to Choi Kee Ltd. came into the picture as a part only, albeit an important part, of the accounts between the bank and the plaintiff in 969. In that action Yat Tung Ltd. admits the sale to Choi Kee Ltd. and makes no question of the validity of that sale, not even such question as might have been raised as a consequence of Yat Tung's allegation that the mortgage was a sham. That might have been a way of establishing that the sale to Choi Kee Ltd., On its own, and apart from the later allegations made against it, was voidable but, the validity of Choi Kee's title was never debated at the trial. 13. In 909 the issue is possession and the cause of action trespass by Yat Tung Ltd. and the other defendants. Yat Tung Ltd. now says, for the first time, that the Choi Kee Ltd. has no title to evict him and at first puts this contention (never argued in 969) squarely on the footing that, since the assignment was on trust, and since the mortgage was a sham, the sale to Choi Kee Ltd. must have been vitiated so that no good title passed. Presumably what this means is that the bank, as legal owner of the property under the original mortgage, purported to pass that legal interest to Yat Tung Ltd. and then to receive it back from Yat Tung Ltd. as mortgagee, subject only to the equity of redemption whereas, in truth, they passed the legal estate to Yat Tung Ltd. to be held in trust for them. They thus retained an equitable interest only which, nevertheless, they purported to pass to Choi Kee Ltd. as the full estate both legal and equitable. Yat Tung Ltd. says of course that the bank would have got full legal interest in the property had it performed its promises under the alleged trust agreement i.e. if it had paid the construction costs and if it had done everything else in strict accordance with what it says was the agreement between them resulting in the state of indebtedness by the bank which is alleged by the plaintiff in 969. 14. Whether this is a good defence to Choi Kee's claim is questionable. It could be argued that this device was in effect a sale by the bank to itself and therefore that it was in no better state than an outright and blatant purchase by the bank of the property as mortgagee from the original owners so that it was altogether null and of no effect in like manner as would be a purchase by a mortgagee of the mortgaged property, since : "a sale to oneself is no sale". On that view, nothing would have happened to deprive the bank of its right to sell the legal estate to Choi Kee, Ltd. so that, despite the interposition of a curious, suspicious and ineffectual charade, the bank was left in as good a position to transmit title to Choi Kee, Ltd. as it had been immediately upon the default of the original owners under the original mortgage. Whatever may be the proper resolution of that question, when one turns to consider 909 one wonders why any defendant possessed of so simple an answer to Choi Kee's title as Yat Tung Ltd. now claims to possess, would nevertheless choose to prop his defence, not partly, not even primarily, but wholly upon a balance of legal and equitable niceties the very substance of which was, moreover, a pretence in which he himself had willingly participated. A litigant is always at risk in "keeping the good wine until last" for he can seldom claim the benefit of miraculous intervention to explain his delay. But, where, as here, he makes no secret of having wilfully held it back almost to the close of day he must expect to have his claims for it most narrowly examined. Mr. Ching has described the new matter now pleaded as a myth not merely because of the lateness and novelty of the rather dramatic accusations which are now brought forward, but because of what he regards as the contradiction at the root of the whole situation brought about by these latest manoeuvres. There is no doubt something paradoxical or even bizarre in the present position of the Yat Tung Company and its associates for if a court were to avoid the sale to Choi Kee Ltd. thus securing to Yat Tung Ltd. the immediate benefit it sought to obtain i.e. continued possession of the premises, its respite might be very temporary and its victory hollow. The bank could then claim a return of the full sum advanced under the mortgage which was affirmed by the court in 969 i.e. $1,000,000, under the covenant to repay, less all deductions originally allowed save, of course, the purchase price paid by Choi Kee, Ltd. which would presumably have to be refunded to that company. If Yat Tung Ltd. was unable to pay the bank could foreclose or sell or sue on the covenant to repay and Yat Tung Ltd. would be powerless to resist any such action. In addition the bank as legal mortgagee would in any event, be entitled to take proceedings by way of ejectment as soon as the sale had been set aside. But strange though the result might be if 534 were to succeed I do not think it can be said that 534 is at this stage barred by outright contradiction between what is now pleaded and the pleadings or the result in 969. The setting aside of the sale to Choi Kee, Ltd. in any such subsequent action would not in any way overturn the judgment of Pickering J. That judgment assumed the right to sell but did not purport to validate the sale itself. The effect of the sale on the accounts of the parties was accepted only because the court disbelieved the trustee allegation; the fact of the sale was never disputed nor was its validity disputed before that court on the grounds now advanced. The real defect in the position of the Lai companies is to be found rather in the general impropriety of the present manner of attempting to shore up a defeated claim by late discovery of suspicicus novelties. The anomalies referred to above merely serve to fortify the total impression of a last ditch stand disingenuously contrived. 15. It should be remembered that it was not merely that the Yat Tung Company as plaintiff in 969 failed to bring forward its present contention concerning the sale to Choi Kee, Ltd. As to that it may seize upon the excuse, however tenuous and technical, afforded by the fact that the writ preceded the sale. Although for my own part I do not regard that as a very cogent answer, it was at least an available answer. The same cannot be said for the Yat Tung Company's reticence in pleading to Choi Kee's claim in 909. Of two possible asnwers to the claim for possession it chose to put forward only the more doubtful and oblique, seeking to introduce the other some considerable time later and only after the first had failed. Moreover it has never sought to counterclaim in 909 for the balance of the alleged true value of the property. All this is surely substantial reason for suspicion. 16. The judge in chambers could not and did not remain unmindful of the trial judge's estimate of Mr. Lai as a litigant. It is not necessary to go into that again but the judge in chambers had no reason (nor has this court) to doubt the justice of his observation when, in summarising the evidence the trial judge referred to Mr. Lai's preoccupation with this litigation (and his suspicions concerning his opponents, their legal advisers and indeed his own) as obsessive. While I have hesitated to agree that the matter now brought forward was res judicata in quite as direct and simple a way as appears to be indicated in some of the expressions used in the judgment of the judge in chambers I do not believe that the substance of the judgment is other than I have endeavoured to convey. The claim it is now sought to put forward was indeed a thing adjudicated, not in the direct sense that the claim of fraud in the subsequent sale was ever considered and decided, but in the wider sense that the invalidity of that sale was hinted or implied in 969 and, though never actually argued, was a possible corollary of the argument. It was openly pleaded in 909 and it is now sought to be sustained in that action upon a wholly different ground and one which ought to have been disclosed at the earliest opportunity. If that ground was in truth available before the trial of 969 and the plaintiff then hung back in deference to the proprieties of pleading it ought to have discovered the full reach of its defence at least in 909. As Mr. Ching said, Yat Tung Ltd., although professing, in 534 and 909 to accept the finding of the court in 969 was doing so only in part and was covertly seeking to upset the pecuniary award on the counterclaim on grounds which, if they had been adduced and if they had been successful in the first instance would have prevented such an award ever being made. 17. Again it should be noted that there is a close similarity between the kind of double-dealing now ascribed to the bank and that originally attributed to it. In 969 the bank is alleged to have sold to itself with a trustee interposed to give a colour of propriety to the deal. In 534 it is said to have sold to a company which Mr. Lai obviously regards as a mere nominee of the bank; a company which, by virtue of common directors and shareholders is, on his contention, to be regarded as the bank's alter ego. Clearly two such serious allegations so closely similar in purport and so wholly distinct on the facts said to support them could have been and should have been disclosed in the first action, or at latest in 909. This piecemeal approach is eloquent of a desire to establish duplicity and fraud in the bank on some ground, come what may : a bona fide claim of this kind is ill served by "esprit de l'escalier". These observations tell equally in favour of the view that principles of election and res judicata stand against the p the defendants in 909, and more might be added to highlight the want of merit in this situation generally. Enough however has been said to show that Mr. Lai had put himself and his companies in an untenable position by failing to bring forward all his available defences and claims in the original action. That failure embraces a period of two years and there has been no explanation for it. The delay in advancing these claims, and the anomalies involved in them were they now be forwarded, with all the detriment in expense delay and continued trouble to Choi Kee Ltd. and the bank which would thereby be entailed amply support the judge's finding that they were frivolous, vexatious and an abuse of the process of the court. 18. For these reasons I would dismiss there appeals. 21st March, 1973. Representation: (1) 7 R.C. 345 (2) 1956 W.L.R. 311 (3) 1947 2 A.E.R. 255 (4) (1855) 4 E. & B. 780 (5) (1954) P. 89 (6) (1843) 3 Hare 100 (7) 32 W.R. 263 (8) 1893 1 Chancery 277 IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO.50 OF 1972 (On Appeal from O.J. Action No. 909/70) -----------------
----------------- CIVIL APPEAL NO. 51 OF 1972 (On Appeal from O.J. Action No. 534/72) -----------------
----------------- Coram: Blair-Kerr, Huggins and McMullin, JJ. Date of Judgment: 21st March, 1973. ----------------- JUDGMENT ----------------- Huggins, J.: 19. To understand these cases it is essential to know precisely what was in issue in Action No. 969 of 1969 and yet, despite repeated enquiries from the Bench, it was only at a q ...(illegible) late stage that we were referred to the pleadings in that action. For simplicity I will throughout this judgment refer to Yat Tung Investment Co. Ltd. as "Yat Tung, to Mee Ah Construction Co. Ltd. as "Mee Ah" and to the Dao Heng Bank Ltd. as "the Bank". 20. Yat Tung and Mee Ah sued the Bank first in its capacity as mortgagee and second as party to an alleged agreement whereby the Bank "promised that it would pay for all the outstanding construction costs payable to [Mee Ah] as well as future construction costs and other incidental charges". The prayers included an application for a declaration that the first sale by the Bank as mortgagee was void and also a claim for the construction costs and "other incidental charges". It is clear that upon those claims no question arose as to the validity of the second sale by the Bank as mortgagee - the sale to Choi Kee Ltd. However, the Bank counterclaimed for damages in the sum of $45,231.97 for breach by Yat Tung of the personal covenant in the building mortgage. That figure was arrived at after giving credit to Yat Tung for the benefit received by the Bank when it made the second sale as mortgagee - the sale under the building mortgage to Choi Kee Ltd. 21. In Action No. 969 of 1969 the judge gave judgment for the Bank on both claim and counterclaim. In Action No. 909 of 1970 Yat Tung repeated their allegation that the first sale by the Bank as mortgagee was void, but, that issue having been decided against them, they sought to amend and to accept the validity of the first sale but to attack the validity of the second sale. With respect to the learned judge at chambers, who appears to have thought otherwise, it seems clear that the validity of the second sale was not decided in Action No. 969 of 1969: what was decided was the validity of the first sale. If the first sale had been avoided, then the building mortgage executed by the purchaser would have been avoided also and the Bank would have had no title to pass to Choi Kee Ltd. However, it is now sought to challenge the second sale not on the ground that the Bank had no title but on the ground that the second sale was itself conducted in a fraudulent manner. 22. It is, I think, important to appreciate the nature of the counterclaim in Action No. 969 of 1969. When the judge at chambers said "It is obvious if [the sale to Choi Kee Ltd.] had not been a valid transaction that the court would not have awarded any sum in respect thereof", he overlooked the fact that the burden of proof upon the counterclaim had been on the Bank: the court did not "award any sum in respect thereof" but merely refrained from awarding a sum which the Bank did not claim. The counterclaim was a claim upon the personal covenant, and the breach of the promise to pay which was the cause of action was committed as soon as the date for repayment had passed. The fact that the obligation subsequently became, by reason of the sale of the security, an obligation to pay only a reduced sum did not alter the cause of action: see In re McHenry, McDermott v. Boyd 1894 3 Ch. 290. Although after the sale it would have been improper for the Bank to sue for more than the deficiency, had they done so it would have fallen to Yat Tung to set up the sale in diminution of the debt. By accepting the credit of the benefit received by the Bank upon the sale, which was clearly pleaded, it seems to me they have in effect conceded the validity of the sale. The matter can be put in another way. If the sale to Choi Kee Ltd. were to be avoided on the ground of fraud it would follow that the price obtained was less than would have been obtained upon a proper sale, but if more had been obtained the Bank would not have been entitled to as much as $45,231.97 in Action No. 969 of 1969. Therefore, Yat Tung could have adduced evidence of the true market value in that action, and the sum awarded to the Bank might have been reduced - possibly to vanishing point - or they might even have been able to claim a balance as damages. By tacitly accepting the correctness of the purchase price for which credit was given by the Statement of Claim Yat Tung admitted that a higher price could not have been obtained and cannot now be heard to say that it could. If a higher price was not obtainable they were not defrauded. Therefore in the words of Somervell, L.J. in Greenhalgh v. Mallard 1947 2 All E.R. 255, 257 the validity of the sale to Choi Kee Ltd. was an issue "which [was] 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 [it]". 23. I agree that the appeals should be dismissed. 21st March, 1973. Representation: |