Ngai Few Fung v. Cheung Kwai Henug

CACV 147/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 147 OF 2007

(ON APPEAL FROM HCMP 1186 OF 2006)

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BETWEEN

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Before : Hon Cheung JA and Yam J in Court

Date of Hearing : 30 November 2007

Date of Judgment : 7 December 2007

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J U D G M E N T

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Hon Cheung JA :

Background

1.The plaintiff and the defendant are the joint owners of a property known as Flat B, 12^th Floor, Tak Wai Building, No. 25, Cheung Lok Street, Kowloon, Hong Kong (‘the property’).  The parties are registered as ‘joint tenants’ of the property.  The property was bought in 1998 for the sum of $2,380,000.  It was financed by a bank loan of $1,666,000.  According to the parties the current value of the property is estimated at about $2,300,000.  According to the plaintiff the outstanding loan is about $1,300,000.

2.In 2004 the plaintiff commenced an action against the defendant in the District Court (District Court Civil Action No. 2331 of 2004) (‘the 1^st action’) in which he claimed that he and the defendant were engaged in a partnership venture by acquiring the property for the purpose of investment for gain.  He claimed that he had given notice to the defendant to terminate the partnership venture, alternatively he asked for an order that the partnership be dissolved by the Court.  He also asked for orders that the property be disposed of and the net proceeds of sale be distributed in accordance with the terms of the partnership venture. 

3.The defendant acting in person filed a defence in which she denied that the property was acquired pursuant to a partnership venture.  She claimed that the plaintiff was her boyfriend and the property was given by him to her as a gift. 

4.The case was tried by H H Judge C B Chan who on 23 February 2006 dismissed the plaintiff’s claim.  She rejected his case that the property was acquired as a partnership venture.  She also rejected the defendant’s claim that the property was given to her by the plaintiff as a gift. 

5.Subsequent to the judgment the plaintiff on 14 June 2006 issued an originating summons in the Court of First Instance, High Court (Miscellaneous Proceedings No. 1186 of 2006) (‘the 2^nd action’) seeking the following relief :

‘	(1)	the Property be partitioned from being held under joint tenants by the Plaintiff and the Defendant to that of tenants-in-common in equal shares;
	(2)	the Property be sold with net proceeds to be divided among the Plaintiff and the Defendant in equal shares;’

6.The defendant applied to strike out the proceedings.  The application was refused by Ms Registrar Au Yeung on 9 November 2006.  The Registrar ordered the case to be tried and the parties to serve pleadings. 

7.The defendant was dissatisfied with the judgment of the Registrar and lodged an appeal to Deputy High Court Judge Muttrie.  Judge Muttrie on 13 February 2007 affirmed the decision of the Registrar and dismissed the appeal. 

8.After the dismissal of the appeal the plaintiff on 23 April 2007 issued the statement of claim in the 2^nd action and sought the following relief :

‘	AND THE PLAINTIFF CLAIMS AGAINST THE DEFENDANT UNDER THE PARTITION ORDINANCE CAP. 352 FOR :-
	1.	A Declaration that the Property be partitioned from being held under joint tenants by the Plaintiff and the Defendant to that of tenants-in-common.
	2.	The Property be sold with net proceeds after paying off the mortgage loan due to American Express Bank Limited and any ancillary charges in relation to the disposal to be divided among the Plaintiff and the Defendant -
		(a)	according to the parties’ respective contributions to the Property as shown in the schedule attached;
		(b)	alternatively in equal shares, after first paying off the parties’ respective contribution made in acquiring the Property in April/June 1998 and/or the Plaintiff’s sole contribution to the monthly mortgage installments since
			(i)	January 2003;
			(ii)	alternatively February 2006 after the Judgment in DCCJ2331/2004 was delivered;
			(iii)	further alternatively June 2006 after the present action was commenced.’

9.The defendant now appeals against Judge Muttrie’s decision to this Court. 

The issue

10.The narrow issue in this appeal is whether by reason of the doctrine of estoppel, the plaintiff was precluded from bringing the 2^nd action for the partition of the property.  The defendant’s case for striking out the 2^nd action is that the plaintiff could have and should have asked for partition and sale of the property in the 1^st action and he should not be permitted to raise the issue again in the 2^nd action.

Henderson v. Henderson

11.This principle of estoppel can be found in the well-known case of Henderson v. Henderson (1843) 3 Hare 100, where Wigram V. C. at 115 held that :

‘

…where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the sub­ject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.  The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have  brought forward at the time.’

Yat Tung Investment Co. Ltd

12.This principle was approved by the Privy Council in an appeal from Hong Kong in the case of Yat Tung Investment Co. Ltd v. Dao Heng Bank Ltd. and another [1975] A.C. 581.  Lord Kilbrandon at page 590 held that :

‘	But there is a wider sense in which the doctrine may be appealed to, so that it becomes an abuse of process to raise in subsequent proceedings matters which could and therefore should have been litigated in earlier proceedings.’

13.After referring to Henderson Lord Kilbrandon further held that :

‘

The shutting out of a “subject of litigiation”─a power which no court should exercise but after a scrupulous examination of all the circumstances─is limited to cases where reasonable diligence would have caused a matter to be earlier raised; moreover, although negligence, in­advertence or even accident will not suffice to excuse, nevertheless “special circumstances” are reserved in case justice should be found to require the non-application of the rule.’

Brisbane City Council and Another

14.In Brisbane City Council and another v. Attorney General for Queensland [1979] A.C. 411 the Privy Council (on appeal from the Full Court of the Supreme Court of Queensland, Australia) after referring to the decision of Yat Tung,explained that abuse of process is the true basis of the doctrine of res judicata.

15.Lord Wilberforce at page 425 stated that :

‘	This is the true basis of the doctrine and it ought only to be applied when the facts are such as to amount to an abuse: otherwise there is a danger of a party being shut out from bringing forward a genuine subject of litigation.’

Johnson v. Gore Wood & Co (a firm)

16.In Johnson v. Gore Wood & Co (a firm) [2001] 2 WLR 72 the House of Lords explained the rationale behind the Henderson ‘abuse of process’ principle :

(1)	The principle is to serve public interest in that there should be finality in litigation and that a party should not be twice vexed in the same matter.
(2)	This is reinforced by the current emphasis on efficiency and economy on the conduct of litigation, in the interests of the parties and the public as a whole.
(3)	The onus is on the party alleging abuse.
(4)	The bringing of a claim or the raising of the defence in later proceedings may, without more, amount to abuse if the Court is satisfied that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.
(5)	It is, however, not necessary, before abuse may be found, to identify any additional elements such as a collateral attack on a previous decision or some dishonesty.  But where those elements are present the later proceedings will be much more obviously abusive.
(6)	There will rarely be a finding of abuse unless the later proceeding involves what the Court regards as unjust harassment of a party.
per Lord Bingham of Cornhill at page 90.

17.Lord Bingham, however, emphasised this :

‘

It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive.  That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.  As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not.’  (emphasis added)

18.Lord Millett at page 118 also echoed this view.  He further held that :

‘

It is one thing to refuse to allow a party to relitigate a question which has already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which has not previously been adjudicated upon.  This latter (though not the former) is prima facie a denial of the citizen’s right of access to the court conferred by the common law and guaranteed by Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (1953).

In so far as the co-called rule in Henderson v Henderson suggests that there is a presumption against the bringing of successive actions, I consider that it is a distortion of the true position.  The burden should always rest upon the defendant to establish that it is oppressive or an abuse of process for him to be subjected to the second action.’

19.In Hong Kong the right to access to the Court is also guaranteed by the Basic Law and by the Bill of Rights.

Ray Chen v. Anita Wan Ching Lam and Another

20.In Ray Chen v. Anita Wan Ching Lam and another (High Court Action No. 4582 of 2001) Ma J (now Ma CJHC) after comprehensively reviewing various decisions from Henderson to Johnson stated that :

‘

The case of Yat Tung poses special problems unique to the courts in Hong Kong.  Being a decision of the then highest court in Hong Kong and also having been followed on numerous occasions at all levels of courts here, Yat Tung is binding on me.  The broad statements of principles contained in that case to which I have already referred, are therefore binding.’

Application of the principles to the present case

21.Yat Tung is, of course, binding on this Court.  However, I do not regard the subsequent decisions of the Privy Council in Brisbane City Council and the House of Lords in Johnson changed the law decided in Yat Tung.  The strength of the common law to which Hong Kong subscribes is that it is an evolving system.  At any one time a judicial pronouncement cannot be expected to cover every argument or every aspect of the issue in dispute.  The decision is subject to explanation and refinement as case law develops.  Unless there is an express statement that a previous decision is wrong, I would not readily subscribe to the view that a later decision is to be treated as a departure from a previous approach.  This will apply to the Henderson or Yat Tung principle.  I do not regard, for the purpose of precedence, the law is crystallised by and remains static after Yat Tung and that the Hong Kong Courts should not pay heed to the subsequent cases after Yat Tung.

22.The Privy Council in Brisbane City Council has identified that the true basis of the Henderson or Yat Tung principle is based on abuse of process.  This being the true basis of the principle then one can see immediately that it is not permissible to adopt a mechanistic approach by simply saying that since the cause of action or defence could have been raised in an earlier proceedings then it should have been so raised so that the subsequent raising of those issues in the later proceedings will necessarily become abusive. 

23.In the 1^st action the plaintiff had failed to establish that the property was acquired pursuant to a partnership venture.  On that basis his application for the sale of property was dismissed.  At same time the defendant in the 1^st action had failed to establish that the property was a gift from the plaintiff to her.  If this was a gift then only she and not the plaintiff would be the beneficial owner of the property. 

24.As a result of the dismissal of the plaintiff’s claim the stark fact is that there is in existence a property registered in the joint names of the parties.  Unless they agreed to a disposal of the property, neither the plaintiff nor the defendant would be in a position to dispose of it.  However, at the same time they are subject to a continuous obligation to discharge the mortgage payment.  In default the bank may step in and exercise its rights under the mortgage.  In my view justice requires an opportunity to be given to the plaintiff to litigate the issue of partition.

25.It is true that a claim for partition could have been raised in the 1^st action and this was not done.  But unlike many of the other cases where a party in a second action sought to litigate an issue which was in existence at the time of the first action, the parties here are subject to an obligation towards the property which is continuous in nature even after the 1^st action.  It would be extremely odd if the plaintiff who by reason of being a joint tenant is required to discharge the obligation and yet at the same time cannot seek relief in respect of his proprietary right.   

26.It is also true that the joint tenancy has been severed by the service of the originating summons in the 2^nd action, but in practical terms the difficulties of the plaintiff disposing his half share in the property to a purchaser is enormous bearing in mind that this purchaser may encounter an almost insurmountable hurdle in realising his rights in the property in the future.

The Partition Ordinance

27.Section 2 of the Partition Ordinance (Cap. 352) provides that :

‘	where any property in land is held by 2 or more persons, whether as joint tenants or as tenants in common, the Court may ─
	(a)	make an order under section 4 for a partition of the property;
	(b)	make an order under section 6 for a sale of the property; or
	(c)	refuse to make any order.’

28.Under Section 3(1) where any property in land is held by two or more persons, whether as joint tenants or tenants in common, any person interested in such property may institute proceedings in a court under this ordinance by way of an action for partition or sale. 

29.This is precisely what the plaintiff is entitled to do and did in the present action.  I cannot see any abuse in bringing forward the 2^nd action.  Unless the plaintiff brings forward the 2^nd action he will not be able to enjoy what he is beneficially entitled to in the first place. 

30.The burden of proof of abuse is on the defendant.  In this case apart from saying that the plaintiff should have asked for the relief of partition in the 1^st action, the defendant has not demonstrated any elements of abuse in the present action. 

Special circumstances

31.Henderson specifically referred to ‘special circumstances’ which may justify the non application of the principle.  I accept that in cases following Henderson, the Courts have said that loss arising from a claim being excluded could not be regarded as a special reason under the Henderson principle : see e.g. Talbol v. Berkshire County Council [1994] QB 290 and The ‘Indian Grace’ [1996] 2 Lloyd LR 12.

32.In this case I do not regard that it is an abuse to bring forward the 2^nd action.  Hence it is not necessary to resort to the ‘special circumstances’ requirement to justify the non application of the principle.  In any event the ‘special circumstances’ requirement ought to be viewed in the light of what Lord Bingham said in Johnson namely ‘whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before’.

Contribution

33.Mr. Vincent Lam, Counsel for the defendant, had in his written submission argued that in the 2^nd action the plaintiff was seeking to relitigate an issue which had been decided in the 1^st action namely, the contribution by the parties towards the purchase price and mortgage repayment.  The issue of contribution by the parties had indeed been litigated before Judge C B Chan and in my view Judge Muttrie was right when he said :

‘	Clearly the plaintiff cannot relitigate the issues relating to the partnership and his contributions.  Nor can the defendant re-litigate the issue of whether there was a gift.  Res judicata works both ways.’

34.The parties should not be entitled to relitigate on the share of their respective contribution in the 2^nd action.

35.It should be borne in mind that when Judge Muttrie heard the appeal, the statement of claim in the 2^nd action which included a claim that the proceeds of sale should be divided according to the parties’ respective contribution had not been filed.  The plaintiff had explained through counsel that it was not his intention to relitigate on the issue of contribution; the statement of claim was so pleaded because when the parties were before the Registrar the defendant had stated that the Court should look into the respective contribution by the parties in the 2^nd action.  It was on that basis the Registrar directed the parties to file pleadings on the issue of contribution.  The sealed order of the Registrar, however, did not refer to contribution.  In any event the plaintiff has now indicated that he has no intention of pursuing the issue of contribution again in the 2^nd action subject to this : after the service of the originating summons he has continued to make monthly repayments of the mortgage loan.  He seeks to deduct his half share of these payments first from the net proceeds of sale before it is to be divided equally between the parties.  In my view as this payment arose after the 1^st action, no question of estoppel arises.  Mr. Lam, counsel for the defendant, did not address us on this issue.  Mr. Lam also informed the Court that the defendant would not pursue the issue of contribution again in the 2^nd action.

Conclusion

36.In my view Judge Muttrie was correct in his decision in refusing to strike out the 2^nd action.  The appeal is accordingly dismissed with a provisional costs order in favour of the plaintiff.

Hon Yam J :

37.I agree.

Mr. Richard Leung, instructed by Messrs Tsang, Chan & Woo, for the Plaintiff

Mr. Vincent Lam, instructed by Messrs Cham & Co., for the Defendant