Chan Kong v. Chan Li Chai Medical Factory (Hong Kong) Ltd and Others

CACV 128/2010 &
CACV 237/2010
(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 128 and 237 OF 2010

(ON APPEAL FROM HCB NO 690 OF 2009)

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J U D G M E N T

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Hon Yuen JA:

1.I have had the benefit of reading Hon Lam JA’s judgment in draft and I agree with it. The appeals will therefore be dismissed with costs to the Respondents, to be taxed if not agreed.

Hon Lam JA:

2.We have two appeals before us.  In CACV 128 of 2010, what I shall call the Main Appeal, the Appellant appealed against the order of Barma J of 14 May 2010 adjudging the Appellant to be a bankrupt on the petition of the Respondents.  In CACV 237 of 2010, the Appellant appealed against the order of Barma J of 14 October 2010 dismissing his application for a stay of the bankruptcy proceedings.  I shall call this the Stay Appeal.

3.The petition of the Respondents was based on the Appellant’s failure to pay a debt in the sum of $72,500 which was the subject matter of a Statutory Demand issued by the Respondents on 8 August 2008.  The debt was the liability of the Appellant under a gross sum costs order made by the Court of Appeal on 12 June 2008.  The Statutory Demand had been duly served and the Appellant acknowledged service on 1 September 2008.  The Appellant’s application to set aside the Statutory Demand was refused by Poon J on 18 September 2008.  The Petition was issued on 15 January 2009.

4.The background leading to the costs order of $72,500 was fully set out in the judgment of the Court of Appeal in CACV 161 of 2006 of 11 September 2008. It should be read together with the earlier judgment of 19 September 2007 and the later judgment of 12 November 2008 in the same appeal.  The costs order was made against the Appellant because of his requests for adjourning the appeal on two separate occasions in order to enable him to put his pleadings in order in terms of his case based on the Chinese Partnership Ordinance [“the CPO”] with a view to persuade the Court of Appeal to reverse the decision of Saunders J in striking out his action in HCA 4104 of 2001.  As Yuen JA said at paras 23 and 24 of the judgment of 11 September 2008, but for such requests for indulgence, the Court of Appeal would have determined the appeal by reference to the existing pleadings and the costs of the adjournment should be regarded as the price the Appellant must pay for such indulgence.

5.It does not matter that subsequently the Appellant did not make good use of the adjournment and his failure to honour his undertaking to the Court of Appeal to file a proper draft by 12 August 2008 led to the dismissal of his appeal.  The sum of $72,500 was the price he had to pay for the indulgence he had already been given and it has nothing to do with the underlying merit of his case in HCA 4104 of 2001.  His applications for leave to appeal to the Court of Final Appeal were rejected by the Court of Appeal on 12 November 2008 and the Appeal Committee of Court of Final Appeal on 6 April 2009 respectively.

6.In the Main Appeal, the Appellant set out his grounds of appeal in three documents,

(a)  Notice of Appeal dated 10 June 2010;

(b)   Supplementary Notice of Appeal dated 29 July 2010;

(c)  Further Supplementary Notice of Appeal dated 20 December 2010.

7.Broadly speaking, these documents attacked the bankruptcy order by reference to the following, which the Appellant said the learned judge had erred in holding that they did not constitute proper reasons for dismissing the petition,

(a)  The order of the Court of Appeal was obtained by fraud and perversion of the course of justice;

(b)   The Appellant’s claim in HCA 1186 of 2009 as a cross-claim against the Respondents;

(c)  The substance of the Appellant’s claim in HCA 4104 of 2001 had not been rejected by the court.

8.In addition, in his Further Supplementary Notice of Appeal, the Appellant contended that the bankruptcy order is inconsistent with two earlier dicta of the Court of Appeal in respect of his claim based on constructive trust.  He also attempted to re-open the striking-out of his claim in HCA 4104 of 2001 by Saunders J by reference to some dicta of the Court of Appeal.

9.As explained above, the costs order of the Court of Appeal was made against the Appellant on account of his own requests for indulgence made to the court.  His assertions of fraud and perversion of the course of justice had nothing to do with these requests for indulgence.  None of the allegations had any bearing on the defective state of his own pleadings when he appeared before the Court of Appeal in CACV 161 of 2006.  There is simply no merit in his suggestion that the costs order was obtained by fraud or perversion of justice.

10.Apparently, the Appellant had difficulty in accepting responsibility for the failure in pleading his case properly notwithstanding what Yuen JA said at paras 15 to 17 of the judgment of 11 September 2008,

“15. Before we deal with the draft Re-Re-Amended statement of claim, we should say a word about the importance of pleadings. It is well-established that pleadings need to be clear - because pleadings are the foundations on which the rest of the action stand. The reason why parties to litigation must ensure that the real issues in dispute are defined in advance in the pleadings is so that there is an unambiguous framework for the many interlocutory steps that follow in an action, such as discovery of documents, interrogatories and witness statements, as well as for the conduct of the trial itself. A statement of claim should make it clear to the reader what the plaintiff’s cause of action is, and it should set out the material facts which provide the basis for him to pursue that cause of action. It is not adequate for a plaintiff just to set out his story extensively and then to allege a number of breaches of rights for which he claims relief. Put another way, it should not be left to the reader to guess how the dots should be connected.

16. The more complex the facts and the more complicated the claim, the more important it is for the pleader to get it right. That is because the more obtuse the pleading, the more capacity there is for genuine misunderstanding or specious opportunism. And the more blind alleys are left in a pleading, the more expensive and time-consuming the litigation will be.

17.   Although an unrepresented litigant may not be expected to use legal terminology, that does not relieve him of the need to comply with the rule that pleadings have to be clear.  A litigant in person cannot simply pour out his story and ask the court to sort out his legal rights because he himself is ignorant what rights may have been breached or how.  A pleading cannot be like a set of instructions to the judge as if he were the unrepresented litigant’s counsel.  That is not the function of the court in an adversarial system.  Having said that, a court is entitled in the exercise of its discretion to be a little more lenient to an unrepresented litigant in giving him an opportunity to get things right.”

11.His allegations directed, as they were, against the Respondents and their lawyers were simply attempts to shift the burden of pleading his case onto their shoulders.  In a nutshell, he blamed them for striking out his claim whilst, according to him, they should have known what wrongs they had committed. This is not how our legal system works.  A plaintiff bears the responsibility for pleading his case intelligibly before he can expect his opponent to answer. If he fails to do so, his opponent is entitled to apply for the striking out of his claim.

12.The Appellant made very serious allegations without proper evidential basis.  In his Notice of Appeal dated 10 June 2010, at para 1(b)[1] under Section A, he even alleged that his own solicitor and counsel deceived Saunders J and perverted the course of justice by not advancing three material facts regarding the claim under the CPO before the learned judge.

13.Quite apart from the lack of proper evidential basis for making such serious allegations, it can readily be demonstrated that these allegations had no bearing on the costs order made by the Court of Appeal in CACV 161 of 2006. By the time when the case was heard in the Court of Appeal, the solicitor and counsel did not represent him.  The Appellant acted in person in the appeal.  Thus, he was at liberty to put forward whatever he wanted to rely upon before the Court of Appeal.  But, as explained by Yuen JA, he had to do it in accordance with our rules of pleadings and this was the difficulty he faced.  Realizing his difficulty, he sought the adjournments which led to the costs order.

14.Thus, it is not open to him to contend, as he did at para 2 under Section A of his Notice of Appeal, that his problem was occasioned by fraud and perversion of justice on the part of the Respondents.

15.The foundation of his allegations of fraud and perversion of the course of justice seems to be based on three propositions, see para 1 under Section A of his Notice of Appeal.  The three propositions were as follows,

(a)  The CPO was in operation in Hong Kong between 1911 and 1972.  The Appellant asserted that during that period the law of perpetuities did not affect trust created by Tongs;

(b)   The judgment of Rogers VP in CACV 1115 of 2000.  The Appellant asserted that His Lordship ruled that Hong Kong Chan Li Chai and the two pieces of landed properties were trust properties of the two Tongs;

(c)  By reference to the Business Registration of Hong Kong Chan Li Chai, the Appellant asserted that it was also registered under the CPO and the two Tongs were the partners of it.

16.There are problems with these assertions.  Whilst it is correct that the CPO was in operation between 1911 and 1972, a closer examination of the CPO shows that it could not assist the Appellant in overcoming his difficulty with the law of perpetuities.  The starting point is that there could not be a trust of property which infringes the rule against perpetuities.  Thus, by virtue of the nature of Tong with perpetual beneficial ownership accruing to different owners from time to time, such a trust is not permitted by law.  In respect of landed properties in the New Territories, this position is altered by Section 13 of the New Territories Ordinance.  However, we are not dealing with land in the New Territories.  The Appellant had to resort to other means to escape from the effect of the law as to perpetuities.

17.He relies on the CPO.  The CPO was enacted in 1911.  The background and some relevant provisions of it were set out in the judgment of Yuen JA in CACV 161 of 2006, 19 September 2007, paras 17 to 19 and 24.  At that stage, Yuen JA referred to what argument the Appellant might advance and what would be a matter for debate in the future in terms of such argument at paras 20 and 21 of that judgment.  Her Ladyship further noted that there was (as things stood before the court at that stage) a want of proof that the Tongs in question were registered under the CPO.  As noted by Her Ladyship at para 24, the CPO was repealed in 1971 as being obsolete in that in the 35 years before its repeal only one such partnership had been registered and no such partnership was still in existence.

18.In this appeal, we have heard further submissions on the effect of the CPO.  In its preamble, the CPO was described as “an ordinance to provide for the registration of Chinese Partnerships, and to enable partners therein to register and thereby to limit their liability.” There was no reference to the rule against perpetuities.

19.Prior to the enactment of the ordinance, the courts had to deal with cases of Chinese partnerships, including businesses run in the names of Tongs, by reference to the Partnership Ordinance 1897 and there were difficulties in reconciling the manner in which Chinese partnerships were organized with the law: see Li Po Kam v Li Ling Shi (1908) 3 HKLR 170; Reuter, Brockelmann & Co v Tung Lok Tong (1090) 4 HKLR 37 p 50-51; The Tung Sang Wing Firm v Chow Chun Kit (1910) 5 HKLR 238.  The CPO was enacted against such background[2]. Viewed in that light, the CPO was clearly a piece of legislation dealing with the problems in terms of partnership law as opposed to problems arising from trust law.  There is nothing to indicate that the rule against perpetuities, a matter of trust law, was considered in the enactment of the CPO. 

20.In the definition section, section 2, it provided for the possibility of a family tong being registered as a partner.  The effects of such registration were as follows,

(a)  In a case where a tong was registered as a partner, it would be regarded as one person and only one member of the tong could be registered as a representative who should be the only person who could take part in the management of the business: s 4(2) and s 5(9);

(b)   The liability of a partner was unlimited in respect of assets in his possession connected with the registered partnership.  Beyond that, his liability would be limited to such proportion of the debts and obligations as his interest in the registered partnership bears to the total interest of all the partners, whether registered or unregistered: s 5(1) and (3);

(c)  The names of other members of the tong were to be disclosed to the Registrar of Companies and registered.  The liability of such members were likewise limited, s 4(3);

(d)   The liability of unregistered partner was unlimited, s 5(2);

(e)  If a member of the tong other than the registered representative took part in the management of the business he shall be personally liable to an unlimited extent, s 5(9);

(f)  A registered partnership would not be dissolved by the death, or bankruptcy, or succession or retirement of a partner, s 6(1);

(g)  Subject to the provisions of the CPO, the Partnership Ordinance 1897 and the rules of equity and of common law would be applicable to the partnership, s 7. 

21.As there was no provision in the CPO excluding the operation of the rule against perpetuities, it remained applicable by reason of Section 7.  In other words, though the CPO enabled a Chinese partnership (whether in the form of a tong or otherwise) to operate in certain respects not in accordance with the Partnership Ordinance, it did not enable a trust to be set up or recognized without any regard to the rule against perpetuities in terms of Hong Kong law.

22.Thus, for those members of a Tong who had beneficial interests at the time when the partnership was registered, their names should have been disclosed and registered.  They could take their interest and limit their liabilities in the partnership in accordance with the provisions of the CPO.

23.However, for those members who did not have any beneficial interests at that time, they could not rely on the acquisition of any beneficial interests by virtue of his lineage from the focal ancestor as it would be a matter of a trust which infringed the rule against perpetuities.  As explained above, the CPO solved the problems of the existing members of a Tong in terms of their unincorporated interest as partners.  But it did not solve the problems of future members of the Tong as a matter of trust law.

24.The Appellant is not able to produce any records regarding the registration of Hong Kong Chan Li Chai under the CPO.  The registration under the Business Regulation Ordinance does not constitute evidence proving its registration under the CPO.  Nor could the judgment of Rogers VP in CACV 1115 of 2000 be evidence of such registration.  His Lordship (as did Judge Carlson in DCSA 15 of 1997) only analysed the matter from the undisputed position of the parties in that case.  It is not known what evidence had been placed before the court in that case.  Whilst it may be fair to say that those acting for Hong Kong Chan Li Chai did not dispute or may even have alleged that the partnership was registered under the CPO in that case, it must also be recognized that the issues involved in that stamp duty appeal are quite different from those in HCA 1186 of 2009 (and HCA 4104 of 2001).

25.In any event, the Appellant told us that he was born in 1949.  He could not have been a beneficiary at the time when Hong Kong Chan Li Chai conducted its business in Hong Kong in the 1920’s with the acquisition of the two properties in question.  Thus, even if it had been registered under the CPO, the Appellant could not have been registered as a member of the Tong in the 1920’s.

26.That being the case, even assuming that Hong Kong Chan Li Chai had been registered under the CPO, it could not assist him.

27.The foregoing analysis also addressed his contentions that he had a serious and genuine cross-claim in HCA 1186 of 2009 and the substantive merit of his claim of constructive trust had not been rejected.  For reasons given above, quite apart from his failure to plead his case properly, there is no merit in his case based on the CPO.

28.In addition, the relevant procedural history of the matter is as follows:

(a)  the substantive merit had nothing to do with the costs order made in CACV 161 of 2006;

(b)   before the Respondents are required to answer his substantive claims and before the court can adjudicate upon such claims, the Appellant had to plead his case properly;

(c)  He persistently failed to put forward a proper Statement of Claim despite the following:

(i)  his writ was issued in 2001;

(ii)  the materials he now relied upon were available to him (and his lawyers) at all time;

(iii)   indulgence had repeatedly been given to him;

(d)   his appeal against the striking-out had been dismissed by the Court of Appeal on his own failure to comply with his undertaking to lodge a draft revised re-re-amended Statement of Claim; and

(e)   the Appeal Committee of the Court of Final Appeal refused leave to appeal further.

29.In these circumstances, as Barma J correctly pointed out in his judgment, the attempt to re-litigate the claims in HCA 1186 of 2009 is an abuse of process.  Those claims should and could have been pursued in HCA 4101 of 2001.  Any attempt to re-litigate in such circumstances is caught by the principles discussed by the Chief Judge (as Ma CJ then was) in Chiang Lily v Secretary for Justice  [2009] 6 HKC 234 at paras 57 to 63.

30.The Appellant referred to the judgment of Rogers VP in CACV 1115 of 2000 and the judgment of Yuen JA in CACV 161 of 2006, 19 September 2007 and contended that the bankruptcy order made by Barma J and the striking-out of his claim by Saunders J were inconsistent with these judgments. 

31.It must be stressed that this appeal is not a proper occasion for the Appellant to re-open the striking out of his claims in HCA 4104 of 2001.  For the reasons set out in the various judgments in CACV 161 of 2006, his claim was struck out in the circumstances mentioned above.

32.With regard to the alleged inconsistency between these judgments and the bankruptcy order of Barma J, the highest that one can derive from these judgments is that if the Appellant had properly formulated his claim based on the CPO in HCA 4104 of 2001, he might have been able to litigate that in that action.  But the fact remains that he had failed to do so despite generous allowance given to him to put his pleadings in order.  Once this is appreciated, there is no inconsistency between these judgments and the making of a bankruptcy order based on his liability under the costs order made by the Court of Appeal in CACV 161 of 2006.

33.There is no merit in the Main Appeal and Barma J was correct in making the bankruptcy order.

34.Turning now to the Stay Appeal, in a sense it is academic given my conclusion on the Main Appeal.  In any event, it is well established that an appeal by itself should not be a sufficient ground for granting a stay.  In the present case, the appeal of the Appellant is demonstrably without merit and it would not be right to grant any stay in any event.  Further, in the context of a bankruptcy order, whilst the court may, in appropriate circumstances, grant a stay of some specific procedural steps after the making of the order, the court would not stay the bankruptcy order generally without imposing any condition, see Re Chow Shun Yung HCB 5334 of 2004, 10 June 2005; Re David Buxbaum HCB 7637 of 2004, 16 Sept 2005.

35.I will therefore dismiss both appeals.

Hon Au J:

36.I agree.

The Debtor (Appellant) appeared in person

Mr Jonathan Chang, instructed by Rowland Chow, Chan & Co, for the Creditors (Respondents)