Chiu Ming Sun v. Michael Ma Wing and Others

HCA007013/1980

Striking out for abuse of process of court - res judicata - issue estoppel.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

Coram: Mr. Justice Rhind

Date: 19 January 1982

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JUDGMENT

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In open Court

1. These are applications by the five defendants to strike out the Statement of Claim on the grounds that it is frivolous, vexatious and an abuse of the process of the Court. An additional ground for striking out advanced by the fifth defendant is that the Statement of Claim discloses no reasonable cause of action against the fifth defendant.

2. Under an Agreement (Agreed Bundle F1) made on 3rd May 1978, the plaintiff (hereafter referred to as "Mr. Chiu") bought all of the 5002 issued shares in the 3rd defendant company (hereafter referred to as "Yat Ming") for a price of $15 million.

3. The 2nd defendant (hereafter referred to as "Mr. Mark"), who is a solicitor, acted for Mr. Chiu in drawing up the Agreement just referred to, and also acted for him on related transactions for the financing of the purchase of those shares, as well as for re-selling them.

4. Because there had to be at least two shareholders, one of the shares in Yat Ming was transferred into the name of the 1st defendant (hereafter referred to as "Mr. Ma") to be held in trust for Mr. Chiu who was registered as the holder of the remaining 5001 shares. Mr. Chiu had been looking for a solicitor to act for him in the transactions just referred to, and it was Mr. Ma, then a friend of Mr. Chiu, who introduced Mr. Mark to him for that purpose.

5. Yat Ming's sole asset was a pair of Letters of Entitlement (Agreed Bundle A56), issued in respect of land in the New Territories known as "Leung Yuen".

6. The next step in the series of legal transactions entered into by Mr. Chiu, with Mr. Mark acting as his solicitor, was an Agreement dated 6th May 1978 between Mr. Chiu and Pomulus Company Limited (hereafter referred to as "Romulus").

7. Subject to the fulfilment of terms and conditions as specified in that Agreement, Romulus agreed to buy and Mr. Chiu agreed to sell the whole 5002 issued shares in Yat Ming to which Mr. Chiu was beneficially entitled. If Mr. Chiu could fulfil all the contract obligations imposed on him, such as, within the time allowed, getting the Letters of Entitlement exchanged for the land known as "Leung Yuen" on terms that the land could be used for residential purposes, with a plot ratio of not less than 7.5, coverage of not less than 50% and heights of fifteen storeys, then the formula employed for calculating the purchase price under the Agreement resulted in a total of $83,790,000 in Mr. Chiu's favour.

8. One of the provisions of that Agreement with Romulus was to advance Mr. Chiu $15.4m. by way of deposit. That advance enabled Mr. Chiu to discharge his liability to the persons from whom he bought at the price of $15m. under the Agreement of 3rd May 1978 already referred to.

9. Detailed provisions were also included in the Agreement dated 6th May 1978 between Mr. Chiu and Romulus about what was to happen in the event of Mr. Chiu failing to exchange the Letters of Entitlement for Leung Yuen on the terms specified. In particular, provision was made for the repayment of the deposit of $15.4m. which had been advanced for Mr. Chiu's purposes. I do not think it necessary to refer in detail to those provisions beyond saying that Mr. Chiu could have been personally liable to repay Romulus the $15.4m.

10. Besides obtaining Yat Ming's statutory books, share transfer certificates signed in blank together with the supporting share certificates for the 5001 and the 1 share in the names of Mr. Chiu and Mr. Ma respectively as provided for in the Agreement of 6th May 1978, Romulus also took mortgages over the Letters of Entitlement to secure the $15.4m. advanced to Mr. Chiu as deposit. (See B155).

11. Up to this point, there is no disagreement of any significance as to what happened. Now come the events which have opened the way for so much litigation.

12. In early August 1978, Mr. Chiu called at Mr. Mark's office to sign documents (Exh B240) which are in fact Share Transfer Instruments and Bought and Sold notes. On their face, those documents record that Mr. Chiu sold 5000 Yat Ming shares to Mr. Ma for $500,000 on 8th August 1978. The purport of those documents is to the effect that Mr. Ma has now become the beneficial owner of the shares in Yat Ming.

13. Mr. Chiu does not deny signing those documents in early August 1978, but maintains that they were in blank when he signed them. According to Mr. Chiu, it was represented to him by Mr. Mark or Mr. Mark's staff that Mr. Chiu's signature was required on those documents for the purpose of resisting Romulus which was being difficult about the Agreement of 6th May 1978, but there was no suggestion that he was transferring his shares to Mr. Ma. Mr. Chiu contends that the documents in their present form are a complete sham: he never transferred the shares to Mr. Ma and was never paid any $500,000.

14. As Mr. Chiu would have it, Mr. Ma, with the collusion of Mr. Mark and Mr. Mark's staff, has cheated Mr. Chiu out of his ownership of Yat Ming.

15. On the 21st August 1978, Mr. Mark obtained possession of the Letters of Entitlement (See F45) from the solicitors for Romulus for the purpose of proceeding with the exchange of land.

16. At what stage Mr. Mark ceased to be Mr. Chiu's solicitor is not clear, but, at any rate, by the 29th March 1979 (see Agreed Bundle F56) Mr. Chiu had instructed the 4th defendant (hereafter referred to as "Mr. Foo"), a solicitor with the firm of Messrs Foo & Li, to act for him in relation to the issued shares of Yat Ming, all of which Mr. Chiu claimed to own still.

17. As the result of an exchange of correspondence between Mr. Mark acting for Mr. Ma, and Mr. Foo acting for Mr. Chiu, it became clear that Mr. Ma and Mr. Chiu were each claiming to be beneficially entitled to the whole of the issued shares of Yat Ming.

18. Litigation quickly got under way. On the 20th April 1979 Mr. Chiu issued High Court Writ No. 1600 of 1979 against Mr. Ma, Mr. Mark, and Yat Ming, or, in other words, against the same three persons who are the first three defendants in the present action before me.

19. The only relief that Mr. Chiu sought against Mr. Mark by those proceedings No. 1600 of 1979 was to prevent his disposing of the Letters of Entitlement. On the very day of the issuing of the writ, Mr. Chiu sought an interlocutory injunction against Mr. Mark before Trainor J. to prohibit Mr. Mark from disposing of the Letters of Entitlement, but after giving his personal undertaking to the Court in the terms sought, Mr. Mark was not required to play any further part in the proceedings. According to what Mr. Chiu's counsel, Mr. Charles Ching Q.C., said at the time the action came on for trial (8th July 1980), Mr. Mark was by then no longer a party even, (See transcript, Agreed Bundle B66), and certainly there is no material before me to suggest he was required to take any step in the action after giving the undertaking I have just referred to.

20. As against Mr. Ma and Yat Ming, Mr. Chiu sought a declaration that he was the owner of the issued shares in Yat Ming. He also sought what was in effect a consequential order for the cancellation and delivery up of the Instrument of Share Transfer and the Bought and Sold notes (Agreed Bundle B240) which he alleged to be a sham.

21. At every significant stage of that litigation, Mr. Foo acted on the advice of Counsel, and at the hearing itself, Mr. Chiu was represented by Mr. Charles Ching, Q.C., the Junior being Mr. Anthony Rogers.

22. In his defence, Mr. Ma contended that not only was he beneficially entitled to all the issued shares in Yat Ming, having bought them from Mr. Chiu for $500,000 as evidenced by the Instrument of Share Transfer and the Bought and Sold Notes, but also he went on to counter-claim for $1.5m. he allegedly lent to Mr. Chiu who, according to Mr. Ma, needed the money to settle a claim for an "introduction fee" of $3m. incurred when Mr. Chiu first bought the shares on 3rd May 1978.

23. Things began going none too well for Mr. Chiu once he started answering the questions put to him in cross-examination by Mr. Henry Litton, Q.C., the Counsel for Mr. Ma, at the trial. A perusal of the transcript of the Court proceedings (Agreed Bundle B101 et seq.) reveals Mr. Chiu answering questions in a way which could only serve to undermine his credibility.

24. At the time of the adjournment at the close of the first hearing day, Mr. Chiu had still not yet finished being cross-examined. Mr. Chiu's lawyers communicated to their client that the other side were willing to settle the action on terms which included paying Mr. Chiu $1.5m. in consideration of Mr. Chiu relinquishing his claim to the shares. The counter-claim by Mr. Ma against Mr. Chiu for $1.5m. would be dropped. Mr. Ma would also keep Mr. Chiu indemnified against any claims from Romulus for the return of the deposit of $15.4m. under the Agreement of 6th May 1978, and against any claim for the alleged $3m. "introduction fee" previously referred to. The proposed terms of settlement were explained to Mr. Chiu by Mr. Ching in Cantonese, and Mr. Chiu indicated that he was prepared to accept them. (See Messrs Deacons' letter of 26th November 1980 on behalf of Mr. Ching to Mr. Chiu. Agreed Bundle A24).

25. The terms of settlement were embodied in a document describing itself as a Memorandum of Agreement (Agreed Bundle B14) which was signed by Counsel.

26. For present purposes, it is not necessary for me to elaborate on that Memorandum of Agreement beyond saying that it embodied detailed provisions for the settlement of H.C.A. 1600/79 then before the Court, as well as making provision for the conduct of M.P. Action 305/80 and H.C.A. 3111/80, which were both concerned with the struggle to get control of Yat Ming, and hence the Letters of Entitlement.

27. Part of the Memorandum of Agreement contemplated the Court making a declaration to the effect that Mr. Ma had been the beneficial owner of 5001 shares in Yat Ming since 8th August 1978.

28. When the parties went back to Court on the morning of 11th July 1980, a copy of the Memorandum of Agreement was handed up to Mr. Commissioner Gittins who had been conducting the trial. The learned Commissioner's attention was then drawn to the Vice-Chancellor's judgment in Metzger v. Department of Health and Social Security ⁽¹⁾ which is to the effect that courts do not make declarations simply because the parties have chosen to admit something, and that there are no declarations without argument.

29. Mr. Litton then proceeded to submit why he considered it proper for the learned Commissioner to make the declarations sought. Mr. Ching did not resist.

30. The learned Commissioner made the declarations asked for, and formal judgment was entered. The precise terms of the formal judgment are to be found in the Agreed Bundle, A19.

31. As a result of the terms of the Memorandum of Agreement, Mr. Ma could no longer be plagued by M.P. Action 305/80, and on the with September 1980 he settled H.C.A. 3111/80.

32. At that point, he thought the way was clear for Yat Ming to sell the two Letters of Entitlement. Yat Ming sold those Letters of Entitlement to the 5th defendant (hereafter referred to as "Celberg") on the 29th day of September 1980 for a price of $113,165,965. That sum was paid to Yat Ming on the 13th day of October 1980.

33. Since then, Celberg has sold the land granted in exchange for the Letters of Entitlement for $163,165,971. (See A66).

34. Then comes the present action, H.C.A. 7013/80, commenced by a Writ dated the 4th day of December 1980, again seeking a declaration that Mr. Chiu is the beneficial owner of the issued shares in Yat Ming. That is the only relief of any significance he seeks against Mr. Ma and Yat Ming.

35. I do not think anyone who has to read the Statement of Claim will disagree with me when I say it is not an easy document to follow.

36. A perusal of that Statement of Claim discloses that the first string to Mr. Chiu's bow is that he never sold the shares in Yat Ming to Mr. Ma. That is precisely the same assertion which Mr. Chiu made against Mr. Ma and Yat Ming in H.C.A. 1600/79. An alternative line of attack in the event of the first one failing is that, if such a sale were found to have taken place, then it was void or voidable because Mr. Ma stood in a fiduciary relationship to Mr. Chiu, and the sale was not at a fair price, unconscionable and/or procured by the undue influence of Mr. Ma. Precisely what this alleged fiduciary relationship is supposed to be has not been particularised, but I gather it is meant to consist either in Mr. Ma's allegedly performing some sort of legal adviser's role through his having an alleged connection with Mr. Mark's firm, or else in his having been a trustee of one share at the time Mr. Chiu made his purchase of the shares in Yat Ming on 3rd May 1978.

37. The question of Mr. Chiu's entitlement to a declaration in this present action H.C.A. 7013/80 has already come to a head as the result of an application he has made for an Interlocutory Injunction against Mr. Ma and Yat Ming to prevent them from disposing of the proceeds of the sale to Celberg.

38. At the hearing of that application, which was before O'Connor J., Mr. Ma and Yat Ming resisted the making of an interlocutory injunction on the ground that there was no serious issue to be tried. In his judgment dated the 24th December 1980, O'Connor J. agreed with Mr. Ma and Yat Ming on that. He held in effect that, in the present action H.C.A. 7013/80, Mr. Chiu was trying to re-litigate against Mr. Ma and Yat Ming the very issue of the ownership of the shares which had already been litigated against the same pair in H.C.A. 1600/79. It was a classic instance of res judicata. Moreover, the alternative ground of a void or voidable sale on which Mr. Chiu would now seek to put his case if he failed on his prime ground of no purported sale whatever, was one that could have been litigated first time round. Mr. Chiu was not seeking to rely on any material against Mr. Ma and Yat Ming which had been unavailable to him at the time of bringing H.C.A. 1600/79. In a plaintiff when litigating does not bring forward all his claims against his opponent arising from the subject matter of the litigation, he will be estopped from doing so in subsequent proceedings, unless there are some special circumstances such as the plaintiff, despite reasonable diligence, not being aware of material evidence which has come to light since the previous proceedings. O'Connor J. found in effect that none of the allegations made against Mr. Ma and Yat Ming by the present action 7013/80 was based on material unavailable to Mr. Chiu at the time of H.C.A. 1600/79. As O'Connor J.'s opinion was to the effect that Mr. Chiu was bound to fail on the present action against Mr. Ma and Yat Ming in view of what had happened in H.C.A. 1600/79, the learned Judge held there was no scope for granting Mr. Chiu an interlocutory injunction.

39. O'Connor J. also ruled against the possibility of the judgment in H.C.A. 1600/79 being set aside on the ground of mistake. As O'Connor J. pointed out, Mr. Chiu was in no way mistaken as to the facts on which that judgment was based. Mr. Chiu's real complaint is that, now having had more time to reflect, he is not happy with the bargain he has secured for himself. In a popular sense I suppose Mr. Chiu might lament that he made a "mistake" in agreeing to what might now seem to have been a very poor bargain with the benefit of hindsight, but that is not the sort of mistake which the law treats as operative for the purpose of over-turning bargains freely entered into.

40. The case of In re Roberts [1905] 1 Ch. 704, and a passage from Volume 16 of Halsbury, paragraph 1237 cited to me by Mr. Stevenson on Mr. Chiu's behalf, on the topic of setting aside a compromise where there has been a mistake of fact or of law, did not in my opinion assist his client. Firstly, there is no discernible mistake of fact or law on which Mr. Chiu might rely, and secondly, the authorities cited to me appear to be confined to compromises of disputes in relation to family property.

41. Am I bound to hold that Mr. Chiu is sure to fail against Mr. Ma and Yat Ming in the present proceedings because O'Connor J. has formed that opinion in related interlocutory proceedings? The question is academic, for I happen to find myself wholly in agreement with both the conclusions and the reasoning in his admirably lucid judgment. Even had I found myself less fully in agreement with my learned Brother, I tend to doubt whether it would have been proper for me to arrive at a different conclusion from his for reasons of judicial comity. I would have done no more than express reservations about his reasoning, and than left it to the appeals process, if activated, to provide a definitive answer in due course.

42. Because Mr. Chiu is bound to fail in the present proceedings against Mr. Ma and Yat Ming for the reasons I have just indicated, it would be an abuse of the process of the Court to allow the action to proceed against them. They therefore succeed on their applications to have the action struck out against themselves.

43. As against Mr. Mark, Mr. Chiu has put forward the following three heads of claim in the present action:-

44. Dealing firstly with (i), the allegation against Mr. Mark presupposes that Mr. Ma committed a breach of fiduciary duty. However, in view of what transpired at the hearing of H.C.A. 1600/79, Mr. Chiu is estopped from asserting that. During the course of those proceedings, he admitted in the Memorandum of Agreement (see Agreed Bundle A14) that his sale of the shares in Yat Ming to Mr. Ma was valid, and that at all material times from the 8th August 1978 onwards Mr. Ma was the beneficial owner of all the issued Yat Ming shares. Those admissions by Mr. Chiu create an estoppel in favour not only of Mr. Ma but also of Mr. Mark. How the doctrine of issue estoppel operates against a party to previous litigation is explained by Denning M.R. in McIlkenny v. Chief Constable of the West Midlands ⁽²⁾ at page 705.

45. Being no longer entitled to assert that Mr. Ma committed a breach of fiduciary duty, the opportunity simply cannot arise for Mr. Chiu to allege that anyone else could have participated in such a breach.

46. A further ground for ruling against Mr. Chiu's contention that Mr. Mark is liable to account to him is that there is nothing in the Statement of Claim, nor in the material before the Court, to suggest that Mr. Mark has been in any way the beneficiary of the profits from the sale by Yat Ming to Celberg. The remedy of an account against Mr. Mark seems wholly misconceived.

47. For Mr. Chiu to be able to rely on head (ii), namely negligence, he would need to be able to prove (a) a duty of care owed to him by Mr. Mark; (b) a breach of that duty; and (c) damage caused by any such breach of duty (Halsbury Vol. 34, paragraph 54). The damage which Mr. Chiu alleges is the loss of his shares in Yat Ming or their value (paragraph 16 of the Statement of Claim). However, Mr. Lee, for Mr. Mark, has pointed out what I regard as an insuperable obstacle to Mr. Chiu's hopes of proving that Mr. Mark was the cause of his sustaining such loss. Mr. Chiu has pleaded that there was no sale, alternatively, that there was a void sale (which again would mean that there was no sale) or, as a further alternative, that there was a voidable sale. Had Mr. Chiu been correct in any one of those three assertions prior to the settlement of 11th July 1980 in H.C.A. 1600/79, the way would have remained open up till that date for the court to restore to him what he says were his shares or their equivalent value. However, by his agreeing to the settlement of the 11th July 1980, Mr. Chiu was a party to a transaction which divested himself of the shares in favour of Mr. Ma. Any loss sustained by Mr. Chiu from that point on was attributable to that settlement. In lawyers' terminology, there was a novus actus interveniens, namely the settlement, which was the cause of the loss, so that the previous conduct of Mr. Mark became relegated to a matter of mere history after that.

48. In relation to head (iii), reference has already been made to Mr. Mark's having obtained possession of the Letters of Entitlement on the 21st August 1978. Mr. Chiu has no locus standi to complain about that. Those assets belonged to Yat Ming, not to Mr. Chiu, so that Yat Ming alone could sue.

49. Seeing no basis on which any of the claims against Mr. Mark could succeed, I regard it as an abuse of the process of the Court to allow the action to proceed against him. His application to strike out therefore succeeds.

50. Mr. Chiu's claim against Mr. Foo rests on negligence. Mr. Foo is alleged to have been negligent in the following ways -

51. All of these allegations of negligence against Mr. Foo are non-starters. At every material stage of the litigation, Mr. Foo was shielded by Counsel's advice (see the type-written sheet submitted by Mr. Sakhrani to show Counsel's involvement at the various stages of the litigation). There is no suggestion either in the Statement of Claim or in any of the other material before the Court that Counsel was at any stage inadequately instructed. In fact, it is clear that the material on which Mr. Ma now seeks to rely was at all relevant times in the possession of the Counsel Mr. Foo instructed in H.C.A. 1600/79.

52. My understanding is that a solicitor who has instructed Counsel properly cannot be liable in negligence when he follows Counsel's advice. See Halsbury, Vol. 3, paragraph 1190. On that basis, I do not see how Mr. Foo can be liable to Mr. Chiu in the way alleged, and accordingly see no point in allowing the proceedings against Mr. Foo to go any further. The action against Mr. Foo is accordingly struck out.

53. It is difficult to gauge what Celberg is supposed to have done wrong. There is no suggestion in the Statement of Claim or in any of the material before the Court that it was other than a purchaser in good faith of the Letters of Entitlement from Yat Ming at a time when Mr. Ma had been declared by the Court to be the owner of Yat Ming's issued shares. No basis having been disclosed for impugning the transaction between Yat Ming and Celberg, it is clear that Celberg should not have been joined in the present proceedings with the result that the action will be struck out against Celberg on the ground of disclosing no reasonable cause of action and as an abuse of the process of the Court.

(2) (1980) 2 W.L.R. 689

Representation:

Mr. Stevenson of (Stevenson, Low & Co.) for Plaintiff

Mr. Litton, Q.C. and Mr. K.H. Woo (C.P. Lai & Co.) for 1st and 3rd Defendants

Mr. Martin Lee, Q.C. and Mr. R. Tang (Lo & Lo) for 2nd Defendant

Mr. Sakhrani (R. Young & Co.) for 4th Defendant

Mr. Bokhary (Woo Kwan Lee & Lo) for 5th Defendant