Kan Wai Chung and Others v. Hau Wun Fai and Others

CACV 43/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 43 OF 2012

(ON APPEAL FROM HCA NO. 811 OF 2010)

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BETWEEN

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Before: Hon Chu JA, Lam JA and Barma JA in Court

Date of Hearing: 20 December 2012

Date of Handing Down Judgment: 7 February 2013

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J U D G M E N T

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Hon Chu JA:

1.I agree with the Judgment of Barma JA.

2.The appeal is allowed to the extent that the order striking out the plaintiffs’ claim and dismissing the action is set aside.  There is also an order nisi that the Defendants pay the Plaintiffs their costs here and below, to be taxed on party-and party basis, save that the Plaintiffs’ costs of preparing the hearing bundles for the appeal be disallowed.

Hon Lam JA:

3.I have the benefit of reading the Judgment of Barma JA and I agree that the appeal should be allowed for the reasons given.

Hon Barma JA:

The appeal

4.This is an appeal by the Plaintiffs against the order of Poon J dated 6 February 2012, by which he:-

(1)   allowed the Defendants’ appeal against the order of Master R Lai dated 11 October 2010 refusing to strike out the Plaintiffs’ claim;

(2)   ordered that the default judgment entered by the Plaintiffs against the Defendants on 30 October 2010 should be set aside; and

(3)   ordered that the Plaintiffs’ claims against the Defendants should be struck out, and the action dismissed.

The order for striking out was made on the grounds that the Plaintiffs were prevented from pursuing these proceedings by reason of issue estoppel, or alternatively that their bringing of these proceedings constituted an abuse of process in the sense described in Henderson v Henderson (1843) 3 Hare 100.

The background to the Plaintiffs’ claim

5.In these proceedings, the Plaintiffs, all of whom are male indigenous villagers of a village in the New Territories, claim damages against the Defendants, who are partners in a firm of solicitors, for conspiracy and malicious falsehood.  The factual background to the claim is as follows:-

(1)   The Plaintiffs were respectively the registered owners of Sections C, J, H, E and L of Lot 482 in DD 94, in Hang Tau, New Territories.  The 5^th Plaintiff was also the registered owner of section A of Lot 485 in DD 94.  As male indigenous villagers, they were each entitled to build a house on their land, in accordance with the Government’s Small House Policy in relation to New Territories land.

(2)   In about 1993, three companies – Wang Kee and Company Limited (“Wang Kee”), Keeprofit Limited (“Keeprofit”) and Barbican Capital Investment Limited (“Barbican”) entered upon a joint venture project to develop small village houses in Hang Tau.  Sino Favour Development Limited (“Sino Favour”) was incorporated as a corporate vehicle for the project.  It was owned as to 40% by Wang Kee, 10% by Keeprofit and 50% by Barbican.

(3)   During 1994, Sino Favour entered into agreements (“the Development Agreements”) with 21 male indigenous villagers, including the Plaintiffs, to acquire their rights to build small houses on Lots 482 and 485.  Each of the agreements provided for Sino Favour to be responsible for construction works, bearing all the costs of construction, while the villagers would be responsible for obtaining necessary government approvals for the construction of a small three-storey house on the land of which they were respectively the registered owners.  The Development Agreement provided for each of the villagers to be paid HK$200,000 by way of guaranteed profits, to be paid in stages, and the villagers agreed to hold their respective pieces of land as bare trustees for Sino Favour.

(4)   Under the joint venture arrangements, Barbican was to provide land which it owned as its capital contribution to the project.  However, Barbican was unable to obtain the necessary Government permission for development on its land, and in May 1996, it agreed to relinquish its interest in Sino Favour, and transferred its shareholding to Wang Kee and Keeprofit at a nominal consideration.

(5)   Thereafter, in 2003, Sino Favour brought in a new joint venture partner, Shiny Develop Limited (“Shiny Develop”), for the first phase of the project, under which 10 houses were to be built.

(6)   The 10 houses were completed in about January 2005, and certificates of compliance were issued in respect of the lots.  In April 2005, a premium was paid to remove the restriction against alienation of the property, and between April and June 2005, Sino Favour and Shiny Develop entered into agreements for the sale and purchase of the houses that had been built with third party purchasers.  The Defendants acted as the solicitors for Sino Favour and Shiny Develop in relation to these sales.

(7)   The Plaintiffs say that they were unaware of the sales of the houses, and that the houses were sold without their knowledge and consent.  They say that in the case of the 1^st and 3^rd Plaintiffs, the sale documentation by which houses were sold by these Plaintiffs was executed by purported attorneys on their behalf, in whose favour they had never in fact executed powers of attorney.  In the case of the 2^nd, 4^th and 5^th Plaintiffs, it is said that they never authorised the Defendants to act as their solicitors in respect of such sales, and never signed the sale and purchase agreements that purport to bear their signatures, which must therefore have been forgeries (or involved a misuse of their signatures on other, originally blank, documents).  Further, all the Plaintiffs say that the attestation and interpretation clauses in the various sale and purchase agreements to which they were apparently parties were untrue and therefore amounted to forgeries, as the 2^nd and 3^rd Defendants never attested the Plaintiff’s signatures, and none of the agreements were interpreted to the Plaintiffs.  The Plaintiffs also claim never to have received any of the consideration payable under the sale and purchase agreements.

(8)   In these circumstances, the Plaintiffs claim that the Defendants were guilty of conspiracy to injure them by selling their property without their knowledge and consent, and of malicious falsehood by falsely representing to the purchasers that the Plaintiffs had agreed to the sale and purchase of their houses, and to have suffered damage in respect of the value of their property of which they have thereby been deprived.

The issues arising on this appeal

6.In order to succeed on this claim, the Plaintiffs must establish that they had a beneficial interest in the houses that were sold.  If they did not, they could suffer no loss or damage.  As I understand their case, they assert that they did, because their declaration of trust in favour of Sino Favour under the Development Agreement is invalid and unenforceable by reason of illegality, as to uphold it would involve a misrepresentation (as to their being beneficial owners of the land on which their respective houses were built) having been made to the Government in order to obtain permission to build such houses.

7.The Defendants’ main contentions are that:-

(1)   as a result of decisions made in earlier proceedings between the Developers (as plaintiffs) and the Plaintiffs, Barbican and Tsang Wai Kee Wilkie (“Wilkie Tsang”) (the controlling shareholder of Barbican) (as defendants) concerning the small houses (HCA 1517-1521/2005), in particular a decision and order of Deputy Judge Saunders (as he then was) dated 12 August 2005, and a later decision and order of Reyes J dated 1 September 2009, the issue of whether or not the Plaintiffs had any beneficial interest in the houses of which they were the legal owners had been determined against the Plaintiffs so as to give rise to an issue estoppel against them, thereby preventing them from seeking to relitigate the same issue in these proceedings; and

(2)   alternatively, the bringing of the present proceedings amounts to an abuse of process in the Henderson v Henderson sense on the part of the Plaintiffs, who had sought to join the Defendants as third parties in the earlier proceedings, on the basis that the Plaintiffs could and should have brought their present claims against the Defendants by way of third party proceedings in HCA 1517-1521/2005.

8.Before us, the Defendants also raised a number of further grounds for suggesting that the Plaintiffs’ claims against them should be struck out, for reasons other than those adopted by Poon J.  I will deal with these further grounds later in this judgment, after dealing with the two principal arguments that were advanced.

The history of the earlier proceedings

9.Before examining the issue estoppel and Henderson v Henderson abuse of process arguments advanced by the Defendants more closely, it is necessary to set out the reasons for and procedural history of the earlier proceedings.  These can, for present purposes, be summarised as follows:-

(1)   In about mid-2005, the Developers having entered into contracts for the sale and purchase of the small houses developed in the first phase of the project, they discovered before such contracts were completed that, notwithstanding the declarations of trust that had been made by the Plaintiffs, the Plaintiffs had purportedly entered into provisional sale agreements in respect of the same houses under which they were to sell the houses to Barbican at what was alleged to be a gross undervalue, and had given Barbican irrevocable powers of attorney in respect of the houses, without the knowledge or consent of the Developers, and had registered the provisional sale and purchase agreements against the houses, thereby creating an impediment to the completion of the Developers’ sales to their own purchasers (all of whom were unrelated bona fide third parties).

(2)   As a result the Developers brought HCA 1517-1521/2005 against the Plaintiffs and Barbican (five separate actions being brought against each of the 1^st to 5^th Plaintiffs respectively, in all of which Barbican was joined as a defendant).

(3)   Because of the urgency of the situation, with the Developers’ sale and purchase contract to the unrelated third parties being due (or overdue) for completion, the Developers applied ex parte to Hartmann J (as he then was) on 2 August 2005 for injunctions to prevent the Plaintiffs from disposing of or in any way dealing with their respective houses without the consent and knowledge of the Developers, orders to vacate the registrations at the Land Registry of two provisional sale and purchase agreements and a power of attorney (all in favour of Barbican) in respect of each house, and injunctions against Barbican to prevent it from claiming any interest in the houses under those provisional sale and purchase agreements or powers of attorney.  Hartmann J granted the order sought.

(4)   On 12 August 2005, the return day for the injunctions granted by Hartmann J, the Developers and Barbican appeared before Deputy Judge Saunders.  For reasons which are not entirely clear, no copy of the summons before Deputy Judge Saunders was available at the hearing of the appeal.  However, it appears from the skeleton argument filed for the purpose of that hearing that the Developers sought a continuation of the injunctions granted ex parte by Hartmann J, to amend their writs and add Wilkie Tsang as an additional defendant in each of the actions, and to have the actions consolidated or heard together.  In addition, the Developers sought orders for sale authorising them to sell units in the five houses that were the subject of the proceedings pursuant to RHC Orders 29 and 31 and section 25A of the High Court Ordinance (Cap 4) “on the basis that [the Plaintiffs, Barbican] and Wilkie Tsang [did] not have any interest in them”.  In the skeleton argument of Mr C Y Li, who appeared then for the Developers (and appeared before us for the 1^st, 3^rd and 4^th Defendants), it was submitted that such an order should not be regarded as draconian as there was nothing to suggest that any of the Plaintiffs, Barbican or Wilkie Tsang could have claimed any proprietary interest in the small houses, whereas by contrast, the Developers would suffer irreparable damage if they were not able to complete the sales of the houses under the sale and purchase agreements into which they had entered.

(5)   The Plaintiffs (who were the first defendants in the earlier proceedings) did not attend at the hearing before Deputy Judge Saunders, although it seems that they were served with the applications made at that hearing.  Following fairly extensive submissions, Deputy Judge Saunders was persuaded to make orders for sale permitting the Developers to sell or complete the sale of the houses “on the basis” that “the [Plaintiffs] are just the bare trustees of the [Developers] holding the legal title [to the houses] on trust for the [Developers]”.  There was, however, also an undertaking on the part of the Developers to hold a sum of HK$2,500,000 (representing the proceeds of sale) through their solicitors (the Defendants) as stakeholders.

(6)   Thereafter, on 16 December 2005, the Plaintiffs filed their defence and counterclaim in the earlier action, in which they counterclaimed for amounts allegedly due to them under the Development Agreements, but did not suggest that there was any problem with such agreements or that they had a beneficial interest in the small houses.

(7)   The earlier proceedings then seem to have been put on hold for a period.  Eventually, on 6 February 2009, the Developers applied for summary judgment under RHC Order 14, and for orders for the release of the HK$2,500,000 which was being stakeheld by their solicitors, the Defendants.

(8)   On 19 February 2009, the Plaintiffs’ solicitors informed the 2^nd Defendant that the Plaintiffs would join the Defendants as Third Parties in the Developers’ action against them, and on 25 February 2009, a Third Party Notice in the earlier proceedings was issued by the Plaintiffs against the Defendants.  This Third Party Notice was, however, issued without leave, contrary to RHC Order 16 r. 1(2).  Notwithstanding this, the Defendants filed grounds of opposition to the Third Party Notice on 25 March 2009.  Subsequently, however, the Defendants opposed the third party proceedings on the ground that they had been brought without leave.  In the event, on 18 March 2010, the Plaintiffs issued a summons in the earlier proceedings seeking leave to join the Defendants as third parties.  The summons was returnable on 26 May 2010.

(9)   In the meantime, the Developers’ application for summary judgment and release of the stakeheld moneys was heard by Reyes J on 1 September 2009.  In a short judgment, Reyes J granted the relief sought.  So far as the Plaintiffs were concerned, he held that they could not claim a proprietary interest in the sum stakeheld, saying (at paragraph 4 of his judgment):-

“The [Plaintiff]’s pleadings at best counterclaim for the payment of money and damages. The counterclaims are purely personal. [Their] defences and counterclaims do not raise any or any viable issue of a proprietary interest traceable into the monies held by the stakeholder.”

(10) So far as the intended third party proceedings were concerned, having initially indicated (through their solicitors) on 31 March 2010 that they did not propose to appear at the hearing of the application for leave to join the Defendants as third parties in the earlier proceedings, the Developers indicated on 16 April 2010 that they had changed their minds and would appear, and then on 28 April 2010 made it clear that they would oppose the grant of leave.  Faced with this, the Plaintiffs’ solicitors wrote to the Developers’ solicitors on 4 May 2010 (with a copy to the Defendants’ solicitors) to say that the Plaintiffs would, in the light of the Developers’ opposition, withdraw their application for leave to join the Defendants as third parties, and instead bring fresh proceedings against them, so as to save time and costs and to enable the disputes to be resolved as expeditiously as possible.  Thereafter, on 12 May 2010, the Plaintiffs applied for leave to withdraw their summons of 18 March 2010, and were granted such leave on 20 May 2010.  Shortly afterwards, on 2 June 2010, the Plaintiffs issued the writ in these proceedings.

(11) Thereafter, the Plaintiffs applied to amend their Defence and Counterclaim in the earlier proceedings.  The application was heard by Fung J on 7 June 2010.  On 17 June 2010, Fung J refused leave to make some of the amendments applied for, including allegations seeking to impeach the Developer’s title to sell the houses, and complaining of forgery in relation to the sale and purchase agreements and powers of attorney used in the sales by the Developers to their purchasers.  However, an amendment alleging that the Development Agreements were illegal and contrary to public policy was allowed.

(12) The earlier proceedings were eventually settled.

(13) As for these proceedings, the Defendants applied by summons dated 10 July 2010 to strike out the Plaintiffs’ claims.  The application was dismissed by Master Lai on 11 October 2010.  Thereafter, default judgment was entered against the Defendants on 30 October 2010.  This led to the appeals to Poon J.  As I have noted, Poon J allowed the appeal against Master Lai’s order, struck out the claims and set aside the default judgments.

10.The Plaintiffs now appeal to this court.  Before us, they were represented by Mr Keith Lau, while Mr C Y Li SC and Ms Zabrina Lau appeared for the 1^st, 3^rd and 4^th Defendants, and Mr K M Chong and Ms Emma Wong appeared for the 2^nd Defendant.

Issue estoppel

11.I shall deal first with the argument based on issue estoppel.  As to this, it was common ground between the parties that in order for an issue estoppel to arise, three conditions have to be satisfied, namely:-

(1)   The issue raised in the two sets of proceedings is the same (“the Issue Requirement”)

(2)   That issue must have been determined with finality in the earlier proceedings (“the Finality Requirement”)

(3)   The parties to the two sets of proceedings must be the same, or where they are not, the party in the second set of proceedings must be the privy in interest of the party in the earlier set of proceedings (“the Privity Requirement”).

12.Poon J held that all of these requirements were satisfied here:-

(1)   As to the Issue Requirement, he held that the same issue arose in both the earlier proceedings and these proceedings as in both proceedings, the Plaintiffs were alleged to be bare trustees for the Developers, with no beneficial interest in the properties.

(2)   As to the Finality Requirement, he held that the question of whether the Plaintiffs were bare trustees for the Developers had been determined against the Plaintiffs on the merits and with finality in the hearing before Deputy Judge Saunders on 12 August 2005, and that Reyes J and Fung J had (in the later applications heard by them) proceeded on the basis that the Plaintiffs were bare trustees for the Developers.

(3)   As to the Privity Requirement, he held that there was a sufficient degree of identity between the Defendants (who had been intended Third Parties in the earlier proceedings) and the Developers (whose solicitors they were) to be regarded as privies in interest.

13.Although the Plaintiffs’ Notice of Appeal took issue with each of these findings, Mr Lau made it clear in his skeleton argument and submissions before us that Poon J’s findings as to the Issue Requirement and Privity Requirement were not challenged, so that the only question arising on the appeal so far as the issue estoppel argument was concerned was if the issue of whether or not the Plaintiffs had a beneficial interest in the houses in question had been determined against them on the merits with the necessary degree of finality in the previous proceedings.  Mr Lau submitted that it had not, having regard in particular to the following matters:-

(1)   The application before Deputy Judge Saunders was for interlocutory relief, and not for a final determination of any of the issues in the earlier proceedings.

(2)   The hearing before Deputy Judge Saunders took place at a very early stage in the proceedings, before the issues had been defined by pleadings and at a hearing at which the Plaintiffs were absent, and for which they had filed no evidence.

(3)   Having regard to the state of the evidence before him, Deputy Judge Saunders could only have been seeking to strike a balance between the interests of the various parties – that of the Developers in being able to complete the sale and purchase agreements they had entered into without challenges as to their title to the houses; that of the purchasers under such agreements (who were innocent third parties); and that of the Plaintiffs, Barbican and Wilkie Tsang in the houses or their value.

(4)   As appeared from the transcript of the proceedings before him, the Deputy Judge was clearly concerned about the position of the Plaintiffs, Barbican and Wilkie Tsang, and was anxious to ensure that nothing was done which would prejudice them.

(5)   While Barbican and Wilkie Tsang (who had appeared at the hearing before Deputy Judge Saunders) did not oppose the making of an order enabling the sales to the purchasers from the Developers to go through, arrangements were made to have the proceeds stakeheld with a view to later determination of their rights to such proceeds.  It could not have been the intention of the Deputy Judge to put the Plaintiffs (who had not appeared, and who had not yet put forward their case by way of a pleaded defence) in any worse position.

(6)   The order made was therefore one which sought only to enable the sales to go through without finally determining the respective rights of the parties to the previous proceedings.

(7)   The Developers had failed to disclose to the Deputy Judge that there must be serious doubts as to the validity of the Development Agreements on the grounds of illegality or public policy.

(8)   Even if the effect of Deputy Judge Saunders’ order was to prevent the Plaintiffs from later claiming title to the houses which were sold pursuant to it, this did not extinguish other potential remedies available to them, such as a proprietary claim to the sale proceeds on the basis of their beneficial interest in the houses, or for a personal claim for damages for the loss of or damage to their interest in the houses.  It followed that the order could not have the effect of finally determining the issue as to the Plaintiffs’ beneficial interest in the houses, as to do so would necessarily have barred these other remedies as well, but this had not happened.

(9)  Reyes J’s later order was premised on the form of the pleadings as they then stood, in which the Plaintiffs had not yet counterclaimed against the Developers for any proprietary relief, and had (up to that point) confined themselves to personal claims arising out of the Development Agreements, and not on the basis that any claim on the Plaintiffs part to be beneficially interested in the houses had been previously determined against them.

(10) Fung J’s order in relation to the amendments did not proceed on the basis that such a claim to a beneficial interest in the houses had been previously decided against the Plaintiffs.  In fact, by allowing the Plaintiffs to amend their Defence & Counterclaim to plead illegality and breach of public policy in respect of the Development Agreements, Fung J was implicitly recognising that this issue had not been finally determined – had he been of the view that it had been finally determined against the Plaintiffs, there would have been no basis for allowing the amendment to be made.

14.For the Defendants, Mr Li SC and Mr Chong submitted that:-

(1)   It was plain that Deputy Judge Saunders was concerned with the fact that the Plaintiffs were registered as the legal owners of the houses, and that he was anxious to ensure that any order permitting the sale of the houses was made on a proper basis, and that he was ultimately satisfied that the Plaintiffs had no valid claim to the houses.

(2)   The wording of Deputy Judge Saunders’ order of 12 August 2005 constituted an express ruling that the Plaintiffs were no more than bare trustees of the houses for the Developers.

(3)   The purpose of the application was to obtain an order to sell the houses – relief which by its nature was final, since it would mean that no claim to the houses could thereafter be made by the Plaintiffs.

(4)   The Plaintiffs had chosen not to attend the hearing, or to file evidence in respect of it, notwithstanding having been served with notice of it.  Nor did they appeal against the order made.

(5)   Indeed, the Plaintiffs’ Defence & Counterclaim in the earlier proceedings relied upon the validity of the Development Agreements and sought damages for their alleged breach by the Developers.

(6)   The subsequent orders of Reyes J and Fung J were premised on the 12 August 2005 order having been final and having been determined after full argument and on consideration of the merits.

(7)   Further, even if the hearing before Deputy Judge Saunders had been an interlocutory hearing, this did not prevent an issue estoppel from arising (see M & R Marketing Systems Inc v Tse Mee Shuen & others (unreported, HCA 1598/2001, CFI, Chu J, 13.12.2001).

15.In my view, the order made by Deputy Judge Saunders did not determine the issue of whether or not the Plaintiffs had any beneficial interest in the houses finally, so as to render it capable of giving rise to an issue estoppel which can be relied upon against the Plaintiffs in the present action.  This is for a number of reasons.

16.First, it seems to me to be necessary to ascertain the nature of the hearing before Deputy Judge Saunders – i.e., whether it was an interlocutory hearing (at which the court would not be asked or required to make any final determination as to the rights of the parties (i.e. the Developers, the Plaintiffs, Barbican and Wilkie Tsang) to any beneficial interest in the houses), or whether it was one at which final relief was sought, whether after a trial or some other summary process.  Had the summons before Deputy Judge Saunders been placed before us, this might have provided useful information in attempting to answer this question.  Notwithstanding that it was not, I am satisfied that the hearing before Deputy Judge Saunders was interlocutory in nature, and that in those circumstances, the orders that he made cannot be regarded as having the necessary degree of finality to give rise to an issue estoppel.

17.The relevant applications before the court on 12 August 2005 were for the continuation of the interlocutory injunctions granted ex parte by Hartmann J, and for orders pursuant to RHC Order 31 (which permits the court to order the sale of property where that is necessary or expedient for the proceedings before it) to enable the houses to be sold by the Developers to their purchasers and pursuant to section 25A of the High Court Ordinance (Cap 4) (which enables a person to be appointed to execute any conveyance or instrument where the execution of such conveyance or instrument has been ordered by the court).  The application for the continuation of the injunctions was clearly interlocutory in nature.  The order under RHC Order 31 could also have been made on an interlocutory basis, and in my view it was.  It is clear, I think, that it was made without full consideration of the merits of the respective parties’ cases.  As for the associated order made pursuant to section 25A of the High Court Ordinance, this was necessarily of the same nature as the order for sale under RHC Order 31, to which it was merely ancillary.  The making of the orders therefore did not determine the issue of whether or not the Plaintiffs had any beneficial interest in the houses with finality.

18.In coming to this conclusion, I have had regard to a number of factors:-

(1)   The matter that needed to be dealt with urgently was whether or not (and if so, how) the Developers should be enabled to complete the sales of the houses to their purchasers so as to give the purchasers good title to them.  While it was natural for the Deputy Judge hearing the application to be concerned as to any potential claim on the part of other parties (such as the Plaintiffs) to the houses, his concerns were clearly assuaged by the submissions made by Mr Li SC (who then appeared for the Developers) as to the existence of a declaration of trust by the Plaintiffs in favour of the Developers in the Development Agreements, which suggested that the Developers had a strong case.  In those circumstances, it is understandable that the Deputy Judge should have taken the view that it would be right, having regard to the interests of the innocent purchasers under the sale and purchase agreements entered into by the Developers, to allow those sales to be completed if at all possible.

(2)   No submissions were made which suggested (as is now suggested by the Plaintiffs) that there might be some question as to the legality or enforceability of the Development Agreements.

(3)   The proceedings were at a very early stage – the hearing was the return date of the ex parte application made before Hartmann J, just 10 days after the proceedings had been issued, and no pleadings had been filed by any of the defendants in those proceedings.

(4)   Notwithstanding that they had notice of the applications, the Plaintiffs had not appeared or filed evidence in relation to the applications.

(5)   Steps were taken to preserve the proceeds of sale by having them paid into court – this must have been done with a view to the question of entitlement to them being determined at a later stage.

19.Second, and in my view, importantly, in making the orders that he did, Deputy Judge Saunders was only required to consider whether or not, at that early stage of the proceedings, the orders enabling the sales of the houses to go through should be made.  While this would necessarily mean that any claim to the houses themselves could no longer be pursued by the Plaintiffs, Barbican or Wilkie Tsang, it does not follow that it was necessary or appropriate to determine once and for all, for all purposes, the question of whether or not the Plaintiffs had any beneficial interest in the houses that might give rise to a right to some other remedy.  As Mr Lau pointed out, quite apart from any proprietary claim to the houses themselves, the Plaintiffs could have asserted a proprietary claim to the proceeds of sale, or simply relied on a personal claim in respect of the loss and damage caused to them as a result of the sale of the houses in which they had a beneficial interest.  There being no need to determine those matters at the stage of the hearing before Deputy Judge Saunders, it cannot have been his intention to make a final ruling on an issue that would have been dispositive of these matters (which were not before him) as well.

20.I therefore do not think that Deputy Judge Saunders’ entirely proper concern to assess the apparent strength or otherwise of the Developers’ case meant that the decision he made was a final one in the sense required to give rise to an issue estoppel on the question of whether or not the Plaintiffs had a beneficial interest in the houses.  Nor do I think that the nature of the orders granted (in particular the order authorising the sale of the houses) determined that issue with finality against the Plaintiffs.

21.Further, I do not think that the terms of the order provide much assistance to the Defendants in this respect:-

(1)   If, as I think, the hearing was an interlocutory one, so that the orders made were likewise interlocutory in nature, it does not seem to me that the terms of the orders could somehow convert what was only interlocutory into something that had the quality of finality required for the purposes of the issue estoppel argument.

(2)   In any event, it seems to me that the use of the phrase “on the basis that”, in the context of the statement that the Plaintiffs had no beneficial interest in the houses, suggests that Deputy Judge Saunders was proceeding on the basis of an assumption for the purposes of making the order that he did, rather than on his having finally determined that matter.

22.Although reliance was placed on the fact that the order made would mean that the houses would be sold, and that this would bar any attempt by the Plaintiffs to lay claim to the houses themselves, I do not think that this goes far enough to give rise to the necessary degree of finality needed for an issue estoppel.  As I explained in paragraph 19 above, the issue was relevant also to the other remedies which the Defendants might claim if they were able to show that the Development Agreements were illegal or contrary to public policy and thus void, and these remedies were not dealt with or disposed of at the hearing before Deputy Judge Saunders.

23.As for the Plaintiffs’ failure to attend at the hearing on 12 August 2005, or to appeal against the order made, this cannot transform what was an interlocutory hearing at which no final determination as to the issue of the Plaintiffs’ beneficial interest (if any) in the small houses into one in which the issue was decided with finality.  Nor can the Plaintiffs’ omission, in their Defence & Counterclaim as originally filed, to take the illegality/breach of public policy point, have that effect.

24.As to the later decisions of Reyes J and Fung J, I do not think that these were, as the Defendants suggest, premised on the decision of Deputy Judge Saunders having finally determined the issue of whether or not the Plaintiffs had a beneficial interest in the houses.

25.So far as the Decision of Reyes J is concerned, it is clear from paragraph 4 thereof that his conclusion (in paragraph 3 of the Decision) that the Plaintiffs could not claim a proprietary interest to the proceeds of sale which had been stakeheld was based, not on the proposition that the matter had been finally determined against the Plaintiffs by Deputy Judge Saunders, but on the fact that in their pleading as it then stood, there was only a personal claim for the payment of monetary damages, without any suggestion of a proprietary interest in the proceeds of sale held by the stakeholder.  The reference to illegality being irrelevant (in paragraph 8 of the Decision) does not assist the Defendants here either.  It would seem that in that paragraph, Reyes J was focussing on a suggestion that it was somehow illegal for the houses to have been sold by the Developer to their purchasers, and it does not seem that the present contention that the Plaintiffs seek to put forward, that it was the Development Agreements that were void for illegality, had yet been raised or focussed upon.

26.The order made by Reyes J, releasing the stakeheld monies to the Developers thus only had the effect of shutting out a proprietary claim against those monies.  But it did not, in my view, finally determine the issue with which we are concerned, so as to shut out a personal claim for losses of the nature that is now sought to be advanced.

27.As for the Decision of Fung J, I again do not think that Fung J premised his decision to disallow the proposed amendment relating to the Developers’ title to sell the houses and the allegations of forgery on the view that the matter had been finally disposed of by the order of Deputy Judge Saunders.  It seems to me that this is clear from the first sentence in paragraph 38 of Fung J’s Decision, where he expressly does not deal with the question of issue estoppel or res judicata.  Rather, he took the view (without serious demur from the Plaintiffs’ then counsel) that there was no point in pursuing such an amendment when the houses had in fact already been sold.

28.On the other hand, it seems to me that by allowing the amendment in relation the Development Agreements being illegal and contrary to public policy, for the reasons he explained in paragraphs 31 to 37 of his Decision, Fung J was necessarily proceeding on the basis that this argument had not been finally determined, and that the Plaintiffs were not shut out from seeking to pursue it.  Had he thought that the argument was the subject of an issue estoppels, Fung J would have disallowed this amendment on the grounds that it was useless or immaterial, or had no prospects of success.

29.Thus, quite apart from the fact that these later decisions did not proceed on the basis that the issue of beneficial ownership had been finally determined by Deputy Judge Saunders, the Decision of Fung J as to the illegality/public policy amendment shows the contrary.

30.Finally, I do not think that the decision of Chu J (as she then was) in the M & R Marketing Systems case assists the Defendants’ argument.  The situation there was that an interlocutory application having been made and failed, it was renewed when there had been no material change of circumstances.  It was in those circumstances, which are far removed from those in the present case, that Chu J held that the second application was barred by reason of res judicata.

31.For the foregoing reasons, I do not think that the Finality Requirement was satisfied in this case, with the result that no issue estoppel arises in relation to the question of the Plaintiffs’ beneficial interest in the houses, such as would bar them from bringing their claim against the Defendants in these proceedings

Abuse of process

32.Turning to the question of Henderson v Henderson abuse of process, it was the Defendants argument that any claims that the Plaintiffs might have against them in relation to the sale of the small houses could and should have been litigated in the earlier proceedings, by way of a third party claim against the Defendants.  The Defendants pointed to the fact that the Plaintiffs had in fact tried to bring third party proceedings without leave, and thereafter had applied for leave, but not proceeded with that application. Mr Li and Mr Chong both submitted that the Plaintiffs would not be able to claim against the Developers in the present proceedings as the claim against them would amount to an abuse of process on this basis, and it would be incongruous if the Defendants could nonetheless be sued, when they were merely the solicitors for the Developers, and were their privies in interest – the more so when it must be likely that the effect of permitting the action to proceed against the Defendants would be that the Developers would be brought in by way of third party proceedings at the instance of the Defendants.

33.I do not think that this argument assists the Defendants either. The essence of the Henderson v Henderson abuse of process lies in the fact that it is an abuse and vexatious for a litigant to seek to vex a party twice, making it generally incumbent on him to bring forward all his claims in a single set of proceedings.  The principle was stated thus by Wigram V-C in Henderson v Henderson (at page 115 of the judgment):-

“… 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. …”

34.More recently, in Johnson v Gore Wood & Co (a firm)[2002] 2 AC 1, Lord Bingham, after reviewing the authorities in detail, said (at p. 1A-E):-

“… But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppels, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. … The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. … 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. …”

35.Lord Millett expressed similar views (at pp. 58D-60A) going on to observe (at p. 60A-C):-

“The rule in Henderson v Henderson … cannot sensibly be extended to the case where the defendants are different. There is then no question of double vexation. It may be reasonable and sensible for a plaintiff to proceed against A first, if that is a relatively simple claim, in order to use the proceeds to finance a more complex claim against B. On the other hand, it would I think normally be regarded as oppressive or an abuse of process for a plaintiff to pursue his claims against a single defendant separately in order to use the proceeds of the first action to finance the second, at least where the issues largely overlap so as to form, in Sir Janes Wigram V-C’s words, at p. 115, ‘the same subject of litigation’.”

36.In the present case, it is I think important to have regard to the procedural history of the earlier proceedings, as set out in paragraph 9 above, and in particular at sub-paragraphs (8) and (10) of that paragraph.  From this, it appears that although the Plaintiffs did have it in mind to bring the Defendants into the earlier proceedings as third parties, their initial attempt to do so was flawed, as they issued a Third Party Notice without leave, when leave was required.  The Defendants objected to this, and in consequence the Plaintiffs applied for leave to issue their Third Party Notice against the Defendants.  When that application eventually met with resistance from the Developers (who were the plaintiffs in the earlier proceedings) apparently on the ground that this would cause delay or disruption to the progress of their claim, the Plaintiffs decided to withdraw their application for leave to issue their Third Party Notice, and to proceed against the Defendants by way of separate proceedings instead.  They then promptly did both of these things, issuing the writ in these proceedings less than two weeks after the withdrawal of their application in respect of the Third Party Notice.  Throughout, the Plaintiffs kept the Defendants (and the Developers) informed of their intentions.

37.I do not think that, in these circumstances, it can be said to be a misuse or abuse of the process of the court for the Plaintiffs to have proceeded as they did.  Throughout, it was clear that they wished to bring claims against the Defendants.  Their attempt to do so in a procedurally improper manner (by the issue of a Third Party Notice without leave) was objected to, as was their later attempt to put the matter on a proper procedural footing.  The Defendants were never properly parties to the earlier proceedings at all, and it cannot, in my view, be said that they are in any real sense being vexed twice by the bringing of the present proceedings against them.

38.Moreover, I do not think that it can be said that the Plaintiffs could and should have brought their claims against the Defendants as part of the earlier proceedings.  Given the opposition that they were met with when they tried to do so, it would I think be unreasonable to hold their failure to do so against them.

39.I am therefore of the view that there was not, in this case, any abuse of process in the Henderson v Henderson sense, and that it was not appropriate to strike out the Plaintiffs’ claim on this basis either.  The fact that the Plaintiffs would not be able to bring the present claim against the Developers does not, in my view, assist the Defendants, who are not the Developers, and who have not been previously sued by the Plaintiffs.  Nor does the possibility that the Defendants might seek to bring in the Developers in these proceedings make any difference – if this happens, it would be as a result of the Defendants’ decision, and not at the behest of the Plaintiffs.

Other arguments raised by the Defendants

40.Mr Chong, for the 2^nd Defendant, also contended that the decision of Poon J should be upheld on the following bases:-

(1)   The Plaintiffs had, by their conduct in the earlier proceedings, in particular their failure to contest the hearing before Deputy Judge Saunders or to appeal against his order, and by confining their claim to a monetary claim, abandoned any proprietary interest they may have had in the houses.

(2)   The Plaintiffs’ claim in these proceedings amounted to a collateral attack on the judgment of Reyes J, in that they were seeking to reopen the question of who was entitled to the proceeds of sale of the houses.

(3)   The Plaintiffs could not establish that the alleged conspiracy or malicious falsehood had caused them any loss, since the loss of their interest (if any) in the houses flowed from the order made by Deputy Judge Saunders, and not anything done by the Defendants.

41.Mr Li, for the 1^st, 3^rd and 4^th Defendants, also contended that it was not open to the Plaintiffs, having relied on the Development Agreement for the purposes of their Defence & Counterclaim in the earlier proceedings, to now turn around and claim that it was invalid by reason of illegality or public policy.

42.I do not think that any of these points, whatever their ultimate merits, are such as to demonstrate that the Plaintiffs’ claim is plainly and obviously unarguable, so as to justify striking out the Plaintiff’s claim. They can, of course, be raised by way of defence by the Defendants in these proceedings, for determination in due course, should the Defendants be minded to pursue them.

Disposition and costs

43.I would therefore set aside the order striking out the Plaintiffs’ claims and dismissing this action.  However, so far as the order setting aside the default judgments is concerned, it seems to me that this should stand, and that the Defendants should be permitted to pursue such defences as they may wish to put forward in answer to the Plaintiffs’ claims.  Mr Lau did not, I think, seriously suggest otherwise, whether in his written or oral submissions.

44.So far as costs are concerned, these should follow the event, and I would therefore make an order nisi that the Defendants are to pay the Plaintiffs’ costs here and below, to be taxed on the party and party basis, but that there are to be excluded from such costs the Plaintiffs’ costs of preparation of the bundles for this hearing.

45.The reason for the latter part of the costs order nisi which I have proposed is that the bundles for this hearing were, in my view, prepared without any consideration on the part of those responsible for their preparation as to what documents were actually required for the purposes of this appeal.  A total of 19 box files of documents were included in the appeal bundles – four so called “Core Bundles”, and 15 other bundles (one bundle each of court documents, correspondence and transcripts and 12 bundles of exhibits to various affirmations).  With the exception of a small number of documents from three of the bundles of exhibits and the correspondence bundle, none of the other documents were referred to before us, although some extracts from the transcripts were referred to in Counsels’ skeleton arguments.  When asked to explain the state of the bundles, Mr Lau was able only to say that when his instructing solicitors had asked for input from those acting for the Defendants, none was forthcoming.  This does not, however, excuse the solicitors responsible for preparation of the bundles from their obligation to actively consider what documents are actually needed for the purposes of the appeal, and I therefore think it right that the cost of preparation of the bundles should be disallowed entirely.

Mr Keith Lau, instructed by Fung Wong Ng & Lam, for the Appellants/Plaintiffs

Mr C Y Li SC, leading Ms Zabrina Lau, instructed by Y S Lau & Partners, for the 1^st, 3^rd and 4^th Respondents/1^st, 3^rd and 4^th Defendants

Mr K M Chong and Ms Emma Wong, instructed by Ho, Tse, Wai & Partners, for the 2^nd Respondent/2^nd Defendant