Yick Tat Development Co v. Yung Chung Yiu
Read the full judgment text of HCA 1590/2007 on BabelCite. This High Court CFI judgment was delivered on 17 March 2011.
1. The defendant applies to strike out the plaintiff’s amended statement of claim on the ground of res judicata; alternatively to stay/dismiss the proceedings on the ground of forum non conveniens in favour of the Dongguan People’s Court.
Cites 6 cases
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HCA 1590/2007 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1590 OF 2007
BETWEEN
Before : Deputy High Court Judge Au-Yeung in Chambers Date of Hearing : 13 January 2011 Date of Handing Down Decision : 17 March 2011 ------------------------ DECISION ------------------------ 1.The defendant applies to strike out the plaintiff’s amended statement of claim on the ground of res judicata; alternatively to stay/dismiss the proceedings on the ground of forum non conveniens in favour of the Dongguan People’s Court. BACKGROUND 2.The affirmations on both sides set out a lot of details and it is important not to lose sight of the core facts and issues. 3.The plaintiff is a partnership under the full control of one Ms Chow. In around early 1990s, the defendant and other persons set up a company in Hong Kong known as P.D. Development Ltd (“PDD”) for the purpose of development and sale of an estate in Dongguan known as Yeung Ming Shan Garden (“the Garden”). This was done through a guakao arrangement (掛靠), i.e. an arrangement whereby a foreign investor (including one from Hong Kong) could only acquire rights in land through a Mainland real property company (掛靠公司) which had those landed rights. 東莞市厚街房地產公司 (“the Property Company”) was the guakao company with whom PDD entered into a joint venture agreement. 東莞市厚街赤岭管理區 (“the Mainland Authority”) was the land owner of the region in which the Garden was situated, with whom PDD entered into an agreement to develop the Garden. 4.Before long, PDD found itself in financial difficulty. The defendant thus agreed to let Ms Chow take over the investment from PDD and the plaintiff was formed to such end. 5.By a series of agreements in 1991 (“the 1991 agreements”) between:
the plaintiff became the sole investor and developer of the Garden. The Property Company would give the land use rights to the plaintiff who would provide all the capital for the development. The plaintiff would market the Garden in the name of the Property Company with PDD appointed as the sales agent. 6.In about 1995, a dispute amongst shareholders of PDD arose. Proceedings were launched in the Mainland court to challenge the takeover by the plaintiff. It resulted in a judgment dated 26 March 1997 (“the 1997 Judgment”) which held that the 1991 agreements were invalid. The rights and interests in the Garden remain vested in the Property Company. 7.Despite the litigation, the development and sale of the Garden continued and revenue was generated. Since about 1996, the defendant had been employed as the general manager of the plaintiff. His duty was restricted to the sales of the Garden and the making of payment to the Property Company for the application for certificates of ownership and other documents and tax. 8.The plaintiff alleged that in around 2006, some owners of the Garden complained that they had not received their certificates of ownership or other documents despite payment a long time ago. It began to suspect the defendant of misappropriating the money from the sales revenue. It pressed the defendant for an account but to no avail. The plaintiff took away all the books of account and records of the Garden from the management and sales office of the Garden (“the Office”) on 20 March 2007. The defendant was dismissed on 19 April. On 11 May, the plaintiff commenced an action in the Mainland (“the 2007 Action”), suing the defendant in trespass to the Office and other torts. 9.On 12 July 2007, the 2007 Action was heard with judgment reserved. About 2 weeks later, the plaintiff commenced the present action in Hong Kong against the defendant for repayment of loan monies. 10.The defendant filed his acknowledgement of service on 3 August 2007. The plaintiff served the 2-page statement of claim on 22 August 2007. The same asserted that the defendant had borrowed from the plaintiff sums totalling HK$8,430,000 which he refused to repay. 11.The defendant, then acting in person, filed an affirmation exhibiting the 1997 judgment instead of filing a defence. The plaintiff applied for default judgment and the same was entered on 3 October 2007. 12.A month later, on 8 November 2007, the Mainland court handed down its judgment (“the 2007 Judgment”). The judgment held that the plaintiff had no rights in the Garden and lacked locus standi to pursue the claim in trespass and its claim was thus dismissed. The time for the plaintiff to appeal has long expired. 13.The plaintiff did not enforce the default judgment for 2 years. Upon being served with a statutory demand in May 2009, the defendant applied to set aside the default judgment. Upon granting the application, the learned Master directed the plaintiff to amend the statement of claim to reflect its proper case. 14.By its amendment on 23 March 2010, the plaintiff pleaded that it was the “contractual developer” of the Garden. The defendant, being its employee or agent in the Garden, appropriated monies for the purpose of applying for certificates of ownership and payment of tax for the owners of the Garden units but such purpose was not fulfilled. Despite demand, the defendant failed to account to the plaintiff. (This claim will be referred to as “the misappropriation claim”.) The plaintiff prayed for return of RMB 7 million odd, damages for conversion and breach of duty, accounts and enquiry. 15.A month later, the defendant took out the present application. In his affirmation in support, the defendant admitted withdrawing money from the sale proceeds and management fees to defray various costs, including those for tax and certificates of ownership. The defendant claimed that since the plaintiff did not have rights in the Garden, it was not in a position to question how the defendant withdrew and applied the money. THE APPLICATION TO STRIKE OUT 16.The defendant bases his application on the ground of res judicata, i.e. that the issues or claims herein have or could and should have been raised and adjudicated upon in the actions in which the 1997 and 2007 Judgments were issued. The defendant also relies on the ground that the plaintiff’s action is frivolous, vexatious and an abuse of process. 17.To see whether this application is sustainable, one needs to understand the 2 Mainland Judgments and the amended statement of claim. THE 1997 JUDGMENT 18.The claim was by various shareholders of PDD (“claimants”) against other shareholders (including the defendant in this case) and the plaintiff in this case. The Property Company was the third party. The claimants alleged that the defendant and other shareholders abused their position by transferring all rights of PDD in the Garden to the plaintiff. The claimants asked for: (i) confirmation that they and PDD were investors and developers of the Garden, and that they had purchased the lawful right to use the land and ownership of the Garden; (ii) an order that the plaintiff do stop misrepresenting itself as the investor and developer of the Garden; (iii) audit of PDD’s accounts; (iv) an order for restitution of profits and agency fees of PDD misappropriated by the defendant shareholders. In the course of the proceedings, the claimants amended its claim to seek confirmation that PDD had the only lawful operating rights over the Garden. 19.The judgment dated 26 March 1997 (“the 1997 Judgment”) held that:
20.The 1997 Judgment effectively ruled that rights and interests in the Garden belonged to the Property Company and not the plaintiff. THE 2007 JUDGMENT 21.The plaintiff in the present case was the claimant in the 2007 Action. The present defendant, one Leung Shu Ming and PDD were the defendants there and the Property Company was the third party. 22.The claim of the plaintiff was, amongst others, that the defendants trespassed the management office of the Garden, on 2/F north suite and carried out decoration. The plaintiff sought an order that the defendants do immediately cease its trespass, withdraw its security force and reinstate the north suite of the office and pay damages. 23.The defence in that action was that the suit premises were not developed by the plaintiff but by the defendant and PDD, a matter which had been confirmed by the 1997 Judgment. The plaintiff did not enjoy the rights of development. Further, the suit premises had been purchased by Leung Shu Ming. PDD was formed subsequently and had nothing to do with the dispute. 24.The Mainland court held that the plaintiff had first to prove that it was the rightful owner of the suit premises. The court examined the 1997 Judgment and held that because the court had held that the 1991 agreement signed between the plaintiff and the Property Company had been declared void, the court would not accept that agreement produced by the plaintiff as evidence. The court further held:
25.The claim in trespass was thus dismissed on the ground that the plaintiff could not prove that it had the locus standi and direct interest in the dispute. THE PLAINTIFF’S CASE 26.In paragraph 1 of the amended statement of claim, the plaintiff pleaded that it was the “contractual developer” of the Garden. What that meant was not clear on the face of the pleading. 27.The amended statement of claim went on to plead that the defendant was the employee, servant or agent of the plaintiff in the Garden. In the course of the development between January 2000 and November 2006, the plaintiff entrusted the defendant with money for various purposes, including paying the Dongguan Government for obtaining certificates of ownership for the individual units in the Garden. In breach of his duty, the defendant failed to so apply the money or give an account to the plaintiff. 28.Subsequent to the issue of the present summons, the defendant has asked the plaintiff for further and better particulars in July 2010 (i) as to the source and nature of the money entrusted to the defendant; and (ii) “whether the money was (or represented) the sale proceeds of (or monies otherwise generated by) the units of [the Garden], of which the right of use of land and right of sale of commodity housing belonged to [the Property Company], as received by the defendant from the respective purchasers thereof.” 29.The plaintiff flatly refused to provide the further and better particulars on the ground that the answers were for preparation of the defence only. 30.It was only in the affirmations of Ms Chow that she clarified her case. The plaintiff claimed that as a result of her continued investment and development of the Garden and cooperation with the Property Company, she had acquired some rights and interests (“the undefined interests”). She never expressly defined those rights and interests except in the legal opinion of her Mainland lawyer. I will come back to that later on. 31.Despite the 2 Judgments, the Property Company had, confirmed the validity of its agreement with the plaintiff in 1991. By a document dated 28 November 2007 (“the Written Confirmation”), the Property Company confirmed, amongst others, that:
32.By an authorization letter dated 20 December 2007 (“the Authorization Letter”), the Property Company appointed Ms Chow of the plaintiff as the person in charge of the Garden to deal with its daily matters. The validity period was for one year from 20 December 2007 to 19 December 2008. 33.The plaintiff signed sale and purchase agreements as “agent” for the Property Company. It also received proceeds of sale from purchasers. It said it was entitled to do so because of its agreement with the Property Company. 34.The plaintiff, however, did not explain how it “entrusted” the monies to the defendant. The defendant, on the other hand, stated that the Office would receive all sale proceeds and monies for application for certificates and taxes and pooled them together. The defendant would withdraw money therefrom. The money never passed through the plaintiff’s hands. 35.The plaintiff accepted the advice of its then legal advisers in the Mainland that it was not easy to overturn the 1997 and 2007 Judgments and decided not to appeal against either of them. The plaintiff claimed that neither Judgment dealt with the issue of whether it had the undefined interests. RES JUDICATA? 36.The general statement of principle can be found in the case of Ray Chen v. Wan Ching Lam & another , HCA 4582 of 2001, Ma J (as he then was).
37.In Harvest Good Development Limited v. Secretary for Justice & others [2007] 4 HKC 1, Hartmann J said, at para 99,
38.The doctrine applies equally to matters that were resolved or dismissed in proceedings outside Hong Kong but which the same party attempts to raise afresh in a Hong Kong action: Wee Soon Kim Anthony v. UBS AG Hong Kong Branch, HCA 2005 of 2004; China North Industries Investment Ltd and another v. Ronald Chum & others CACV 321 of 2006, at paras 46-55. 39. On its face, the misappropriation claim was made by an employer against an employee. Mr Chong submits that it was not necessary to demonstrate that the plaintiff was a “contractual developer” or had title in land. He conceded that paragraph 1 of the amended statement of claim was irrelevant. It was only necessary to prove that the defendant was an employee and that he had misappropriated the money entrusted to him. 40.If Mr Chong’s submission is correct, the present cause of action had never been adjudicated upon because:
41.However, that was not the end of the story. The defendant argued that the misappropriation claim could or should have been raised and adjudicated upon in the 2007 Action. The plaintiff explained that the documents were voluminous and she had not yet been able to work out the accounts properly to sue in misappropriation by the time it commenced the 2007 Action. It was also the plaintiff’s belief that the misappropriation claim did not involve land use rights of the Property Company anyway. 42.To start with, one should ascertain the cause of action in the 2007 Action. The phrase “cause of action” has been defined to mean “simply a factual situation the existence of which entitles one person to obtain from the Court a remedy against another person.” per Diplock LJ in Letang v. Cooper [1965] 1 KB 232, 242; Hong Kong Civil Procedure 2011, para 15/1/2. 43.In the writ (起訴狀) for the 2007 Action, the section under “事實和理由” set out how the plaintiff came to sign the 1991 agreements, how PDD was appointed as agent to sell the Garden units, how the plaintiff invested and developed the Garden pursuant to the 1991 agreements, how the plaintiff employed the defendant as General Manager of the Garden, how the defendant misappropriated the plaintiff’s assets (隨意侵佔原告之資產), how the defendant failed to provide accounts for auditing purpose despite repeated requests. The plaintiff also expressly pleaded that up to March 2007, it had in hand statistical data that the defendant had misappropriated huge sums of sale proceeds to the extent of RMB 7 million odd and had not returned to the plaintiff; it intended to launch a claim in the High Court of Hong Kong. The plaintiff went on to plead the facts as to how the defendant and one Leung Shu Ming in collusion forcibly trespassed the office on the 2nd floor of the north suite without consent of the plaintiff, denied the plaintiff access and set up security guards. The defendant even posted up notices to state that it was he who terminated Ms Chow’s directorship, thereby defaming Ms Chow. The defendant even engaged decorators to renovate the office in the north suite, directly altering the premises in which the plaintiff enjoyed rights. The plaintiff pleaded that it guakao the Property Company to develop the Garden, so all unsold units there should lawfully belong to the plaintiff. The plaintiff prayed for:
44.It can immediately be seen that the facts there included all those necessary for the misappropriation claim but the plaintiff deliberately left out the resultant remedies from its prayer for relief. 45.Why it was deemed necessary to sue in Hong Kong was not clear. There was no suggestion that the PRC Courts had no jurisdiction over this claim, whether included as part of the 2007 Action or as a separate one. According to the 1st legal opinion of the defendant’s Mainland lawyer,
Since the principal sales, the sales office and receipt of proceeds took place in Dongguan and the principal for sales (i.e. the Property Company) was also in Dongguan, the legal opinion stated that the Dongguan Court had jurisdiction. 46.The plaintiff could have proceeded in the same 2007 Action, or by a separate action.
47.Or there could be a separate action for the misappropriation claim which could be consolidated with the 2007 Action.
Because the 2 actions would be of the same kind, i.e. tort, the Dongguan People’s Court could, once the defendant confirmed his agreement in writing, consolidate them. 48.The plaintiff’s Mainland lawyer, on the other hand, merely stated that:
He did not state that the Mainland Courts had no jurisdiction in an employer’s claim over breach of duty by an employee or why it could not be included in the 2007 Action. 49.Further, the RMB 7 million which the plaintiff suspected the defendant of having misappropriated was strikingly similar to the RMB 7,121,278.60 which the plaintiff is now claiming. Even if the exact amount misappropriated was not clear, the plaintiff could still have included the misappropriation claim in the 2007 Action and seek to amend the amount when the exact figure was known. (The PRC Court had power to allow amendment to a plaintiff’s claim as can be seen from the 1997 Action.) 50.Moreover, the relief prayed for in the 2007 Action was more than just trespass. It included damages for defamation (nothing to do with land) and economic loss. There was nothing to bar the joinder of the misappropriation claim. 51.In my view, the plaintiff could and should have included the misappropriation claim in the 2007 Action. 52.The plaintiff tries to impress upon this Court that the misappropriation claim was different in nature from the 2007 Action. It relies on the undefined interests occurring after the 1997 Judgment. If the plaintiff is to commence a new action for the misappropriation claim in the Mainland, basing on the 2 Judgments, no court in the Mainland will have jurisdiction to entertain it. According to the plaintiff’s Mainland lawyer:
The plaintiff had invited the Property Company to join as plaintiff in the 2007 Action but the invitation was declined. The plaintiff believed that the Property Company is unlikely to agree to be joined as a plaintiff in a new action. The plaintiff is likely to lose in the new Mainland action. 53.This begs the question of why the PRC courts have no jurisdiction and will dismiss the new claim. An examination of the undefined interests will reveal the answer. Here is how the plaintiff’s Mainland lawyer described those undefined interests:
54.I have doubts as to whether Article 58 can be applied in the way the lawyer described. That Article deals with the position between contracting parties, i.e. the plaintiff and the Property Company (and maybe the Mainland Authority) when a contract is nullified. It does not say how the plaintiff can go from there to make an employee liable. 55.Be that as it may, it can be seen from the legal opinion that the plaintiff cannot avoid relying on the facts pleaded in the 2007 Action to establish the undefined interests. 56.The undefined interests were not really new interests. In the 2007 Action, the plaintiff pleaded that 原告取得土地後，即依約進行了投資開發建設. Despite that, the Court still held that it had not established any right, whether in title, to manage, or to sell.
57.The Written Confirmation and Authorization Letter would not assist the plaintiff. The former merely confirmed an existing state of affairs before its date – the same state of affairs asserted before the Mainland Court. The latter stated the plaintiff to be the agent of the Property Company but if that were so, why would it not be the disclosed principal who should sue the defendant? 58.The so called lack of jurisdiction was really a comment that the matter was res judicata in the Mainland. There was no merit in the new claim. 59.If the plaintiff were to proceed in Hong Kong, parties are agreed that PRC law will apply. Thus, the same result as the 2007 Judgment will be reached. The plea of “contractual developer” was actually relevant. The plaintiff cannot avoid going into the history to show how that status was created and hence the undefined rights accrued. She had deliberately understated her case in the pleadings and unreasonably refused to give particulars to avoid the attack of res judicata. 60.In summary, I am of the view that the present claim could and should have been litigated in the 2007 Action. It was an abuse of process for the plaintiff to now seek to resurrect that Action in a different jurisdiction. She should not be permitted to rely on her own deliberate decision not to include the present claim in the 2007 Action to bypass the unfavourable ruling in the 2007 Judgment. 61.If I am wrong, I have considered the alternative application for dismissal or stay of proceedings. DISMISSAL OR STAY OF PROCEEDINGS ON THE GROUND OF FORUM NON CONVENIENS 62.The defendant claims that the 廣東東莞人民法院 is the available forum having competent jurisdiction which is clearly and distinctly the natural and appropriate forum for the trial of this action. 63.The 3-stage test for stay on the ground of forum non conveniens is well-known:
Stage (I) The natural and appropriate forum for the trial 64.“Appropriate” in this context means the forum that has the most real and substantial connection with the action: Pei Zheng Middle School v. China Pui Ching Education Foundation Ltd, CACV 262 of 2005. Such connecting facts include not only factors affecting convenience or expense (such as availability of witnesses), but also other facts such as the law governing the relevant transaction and the place where the parties respectively reside or carry on business. 65.Where jurisdiction in Hong Kong has been founded as of right (as in this case, against the defendant who is a Hong Kong resident), the burden of proof is on the defendant: The Peng Yan [2009] 1 HKLRD 144. 66.The factors connecting the claim to Hong Kong are: that the plaintiff is a Hong Kong entity; that the main witnesses Ms Chow and the defendant are Hong Kong residents. 67.It is not clear whether or not the employment contract was made in HK or the Mainland. It is irrelevant anyway because the subject matter of the dispute is not the validity of the employment contract or the terms therein but the breach of duty of the employee. 68.The plaintiff suggests that because 400 units were sold in Hong Kong, that constituted a connecting factor to Hong Kong. I disagree because no dispute arose out of those sales and purchases. 69.The factors connecting the claim to the Mainland range from applicable law to witnesses and the substance of the claim. 70.The plaintiff conceded, correctly in my view, that the applicable law is that of the Mainland. 71.The likely witnesses either reside in the Mainland (the 2 accounting clerks) or spend a lot of time there (Ms Chow and the defendant). 72.On the evidence, the defendant was specifically employed by the plaintiff for the sales of the Garden. The Mainland Authority and the Property Company from which the plaintiff allegedly derived rights and interests in the Garden are in the Mainland. The parties’ transactions and dispute over rights took place in the Mainland. The entrustment of the cash to and receipt thereof by the defendant allegedly took place at the Garden. The monies were to be applied for obtaining certificates of ownership and paying tax in the Mainland. Books of account used to be kept by the clerks at the Office. Cash not properly applied by the defendant should be returned to the plaintiff in the Mainland. The alleged breach of duty was therefore committed in the Mainland. (This is different from the duty of the plaintiff to keep proper accounts as a Hong Kong company in order to fulfill its responsibility to shareholders and the Inland Revenue Department.) If the money is not accounted for, the loss is suffered in the Mainland. 73.One head of claim is conversion, which is a tort that applies to chattels as opposed to money. No chattels are involved and so it is not necessary to consider where the conversion occurred. 74.The connecting factors are overwhelmingly with the Mainland. Accordingly, Hong Kong is not the appropriate forum from the point of view of the trial. The Dongguan People’s Court is clearly and distinctly more appropriate than Hong Kong. Stage (II) Deprivation of juridical advantage 75.A juridical advantage may be a significant cause of action, a substantive remedy or a procedure available in one jurisdiction and not the other. A juridical advantage may be that there is realistically no fair trial abroad if the local proceedings were stayed. See Hong Kong Civil Procedure 2011, Vol 1, para 11/1/12B. 76.The plaintiff relies on the same point as under Stage (I) – that there is a real likelihood that the Mainland court will decline to entertain the plaintiff’s action for the absence of the Property Company without recognizing the plaintiff’s undefined rights and without trying the present causes of action. 77.The plaintiff seeks to argue by that by proceeding in Hong Kong, it can avoid the PRC procedure of having to join the Property Company and sue in its own right. According to the legal opinion of its Mainland lawyer,
It was based on (一) that the 2007 Judgment dismissed the plaintiff’s claim. 78.Even if the plaintiff were correct, who had what rights are matters of substantive law. It would be PRC law that is applicable and the plaintiff can hardly escape the same consequence as to lack of rights despite her continued investment in the Garden. 79.The plaintiff also submits that the quality of justice offered by the Hong Kong court and the real possibility of receiving substantial justice in Hong Kong instead of in Mainland China are strong juridical advantages which the plaintiff will be deprived of if this action is stayed in favour of the Mainland courts. Since the plaintiff suggests that there is lack of substantial justice in the Mainland, it must assert candidly and support his allegations with positive and cogent evidence: Bayer Polymers Co. Ltd. v. Industrial and Comemrcial Bank of China, Hong Kong Branch [2000] 1 HKC 805, 808G-809C; Duan Qi Gui v. Upper Like Investments Ltd, CACV 320/2007, at para 33-34. This the plaintiff has failed to do. 80.The plaintiff is unable to show that it will suffer juridical disadvantage if the trial were to take place in Hong Kong. Stage (III) Balance of advantages of (I) against disadvantages of (II) 81.Given that the defendant passes the Stage (I) test but the plaintiff cannot pass the Stage (II) test, the balance is clearly in favour of a stay of proceedings in favour of the Dongguan People’s Court. CONCLUSION 82.I find that res judicata does apply to the present case and it will be an abuse of process to relitigate the issues. Accordingly the amended statement of claim is struck out and the claim is dismissed. Alternatively, this claim should be stayed in favour of the Dongguan People’s Court which is the available forum having competent jurisdiction and is clearly and distinctly the natural and more appropriate forum for the trial of the action. 83.I also order, nisi, that the plaintiff should bear the costs of the defendant. There shall be summary assessment of costs on the papers on 8 April 2011 at 9:30 am. No attendance is required. The defendant shall file and serve his statement of costs by 1 April 2011. The plaintiff shall file and serve its grounds in opposition by 6 April 2011. 84.I thank counsel for their able assistance.
Mr K.M. Chong and Mr Aidan Tam, instructed by Messrs Solomon C. Chong & Co., for the plaintiff Mr David W.K. Tang, instructed by Messrs Hui & Lam, for the defendant |
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