Remedy Asia Ltd v. Yick Shing Contractors Ltd
Read the full judgment text of HCCT 4/2012 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 26 June 2014 before Hon Au J in Chambers.
Construction Law – Litigation funding – Champerty and maintenance – Equitable assignment – Locus standi – Limitation periods – Abuse of process – Stay order – Joinder of parties. The plaintiff, a litigation funder, sued for debts assigned by liquidators of a subcontractor company against the defendant contractor. The defendant applied to strike out the claim alleging champerty, lack of proper party, time-barred claims, and abuse of process. The court held the assignment deed fell within the 'access to justice' exception to champerty and maintenance, thus valid. However, as the assignment was equitable, the liquidators must be joined to complete the title to sue, and the court stayed the proceedings until their joinder. Regarding limitation, the court construed payment clauses and held payment obligations arose on issue of final certificates, meaning claims were made within limitation periods. The defendant’s assertion that the claims were vexatious based on admitted payments was rejected, given genuine disputed amounts remain. The defendant's strike out applications were dismissed except for stay pending joinder. Costs were partially awarded to the plaintiff.
Legal issues: Champerty and maintenance · Whether Liquidators must be joined due to equitable assignment · Time-barred nature of claims under Subcontracts · Vexatious and frivolous claims due to alleged admitted payments
Outcome: Defendant's striking out applications dismissed except for stay of action pending joinder of True Light through the Liquidators.
Cites 4 cases
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HCCT 4/2012 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 4 OF 2012 ------------------------
------------------------ J U D G M E N T ------------------------ A. INTRODUCTION 1.This is the defendant’s application to effectively strike out the plaintiff’s claims or part of the plaintiff’s claims. 2.The principal bases of the application are that the plaintiff’s claims are tainted with champerty and maintenance, the plaintiff lacks the proper locus to sue, the plaintiff’s claims are time-barred, and/or that some of the claims are vexatious and an abuse of process. B. THE CLAIMS AND THE PLAINTIFF 3.Yick Hing Construction Co Ltd (“Yick Hing”) was the main contractor of two Government contracts (respectively “Contract A” and “Contract B”) for landslip prevention works for slopes. 4.Yick Hing subcontracted both contracts to its sister company Yick Shing Contractors Ltd (“Yick Shing”). 5.Yick Shing then further subcontracted Contract A and Contract B to True Light Civil Contractors Ltd (“True Light”) under two respective subcontracts (respectively “Subcontract A” and “Subcontract B”). 6.It is True Light’s case that its works under Subcontract A commenced on 1 September 2003 and were completed on 15 March 2007. 7.It is also True Light’s case that its works under Subcontract B commenced on 3 September 2004 but the contract was terminated wrongfully by Yick Shing on 18 April 2006. True Light says if Subcontract B had not been so wrongfully terminated, it would have been completed by 15 March 2007. 8.On 18 October 2006, True Light was wound up by a winding up order made by the court. On 20 August 2007, liquidators (“Liquidators”) were appointed for True Light. 9.By a deed of assignment (“the Assignment Deed”) executed on 9 November 2011, True Light through the Liquidators assigned to the plaintiff (Remedy Asia Ltd) all the rights in, title to, and interest in all debts (“the Indebtedness”) due to it from Subcontracts A and B. The plaintiff is in the business of litigation funding and recovery. 10.It is also provided under the deed that True Light shall permit the plaintiff to, among others, initiate and conduct any proceedings regarding such right and interest in the Indebtedness against Yick Shing or Yick Hing. 11.On 11 October 2011, Harris J granted leave for the Liquidators to enter into the Assignment Deed. 12.In February 2012, the plaintiff commenced the present action against Yick Shing as the defendant claiming for the Indebtedness. Parties have since filed their respective pleadings (which have been amended more than once). 13.As the pleadings now stand, the plaintiff claims for:
14.By its summons dated 6 November 2012, the defendant seeks to strike out the plaintiff’s claims, saying that they disclose no reasonable cause of action, are frivolous or vexatious, or are otherwise an abuse of process. 15.As I mentioned, the bases of the applications are in gist that:
16.I now turn to look at each of these grounds in support of the summons. C. THE STRIKING OUT APPLICATIONS C1. Champerty and maintenance 17.It is not disputed that if the Assignment Deed amounts to champerty or maintenance, it is void and unenforceable. If so, the plaintiff could not have validly obtained the right to bring the present claims. 18.Mr Parker for the defendant submits that the Assignment Deed does amount to champerty or maintenance. As I understand it, counsel’s arguments can be summarised as follows. 19.First, he says the various clauses in the Assignment Deed show that it is not an outright or absolute assignment of the Indebtedness by True Light (acting through the Liquidators) to the plaintiff. This is so as (counsel submits) True Light through the Liquidators retains substantial control over the recovery of the Indebtedness under various clauses of the Assignment Deed. For example:
20.If it is not an outright assignment, Mr Parker says the plaintiff could not rely on one of the exceptions to champerty and maintenance where in insolvency cases, it is permissible for liquidators (or trustee in bankruptcy) to sell proceeds of a claim or a chose in action. In Hong Kong, this power has also been enshrined in 199(2)(a) of the Companies Ordinance (Cap 32), whereby liquidators have the right to sell, among others, a chose in action or assign proceeds of the successful prosecution of a cause of action and that would not be caught by the principles against champerty and maintenance (see Re Cyberworks Audio Video Technology Ltd [2010] HKLRD 1137, paragraphs 4-11 per Harris J). As the assignment is not an absolute one in the present case, the fact, says Mr Parker, that the companies court has approved the entering into the Assignment Deed is neither here nor there for the present purposes. In support of the proposition that it has to be an outright or absolute assignment of a chose in action or its proceeds under s 199(2)(a) in order to avoid being tainted with champerty and maintenance, counsel relies on the Technical Manual for Official Receivers and Liquidators (“the Technical Manual”) issued by the UK Insolvency Service, particularly at paragraphs 31.9.97, 31.9.106[2]. 21.Second, if the plaintiff cannot rely on the exception to champerty and maintenance under a purported s 199(2)(a) sale or assignment, the Assignment Deed is clearly, Mr Parker further submits, a champerty and maintenance, as it is an arrangement amounting to the “trafficking of litigation” and an “officious intermeddling” of the litigation by the plaintiff. 22.In determining whether an assignment is an absolute one or not, the question that the court has to ask is, has the assignor unconditionally transferred to the assignee for the time being the sole right to the debt in question as against the debtor. If so, the assignment will be absolute, but if the debtor cannot tell whether to pay the assignor or the assignee without examining the state of accounts between them, it will not be[3]. 23.Applying the above test, I accept Mr Parker’s submissions that, given the terms of the Assignment Deed, the assignment is not an absolute assignment, since it is provided therein that the interest in the Indebtedness (which is the subject matter of the assignment) does not vest in the plaintiff at the time of the Assignment Deed. Under clause 3.2(vii)[4], the interest would only so vest in the plaintiff after the plaintiff has paidTrue Light 55% of the recovered Indebtedness. In the premises, looking at the terms of the Assignment Deed, the debtor (Yick Shing) cannot be sure whether making a payment to the plaintiff in a purported discharge of the Indebtedness would in fact legally discharge its liability under the Subcontracts. For example, if Yick Shing pays the Indebtedness to the plaintiff, and the plaintiff fails to pay True Light the said 55%, it appears that True Light might still be able to bring a claim against Yick Shing for the Indebtedness, since under the terms of the Assignment Deed, the interest in the Indebtedness has not yet passed to the plaintiff and should still remain with True Light. 24.In the premises, the next question that I need to consider is whether the arrangement embodied in the Assignment Deed amounts to champerty and maintenance as understood by the law. 25.The law of champerty and maintenance has been recently revisited by the Court of Final Appeal in Unruh v Seeberger (2007) 10 HKCFAR 31. After looking at the historical development of the law and the relevant authorities, Ribeiro PJ has laid down what the principles and scope of the law are as understood in modern times. 26.In this respect, the effect of Ribeiro PJ’s observations[5] can be summarised as follows[6]:
27.Applying these principles, in my view, the fundamental questions that I need to consider are firstly whether the arrangement under the Assignment Deed falls into one of the established exceptions, and if not, then secondly whether it results in such officious intermeddling of litigation or trafficking of litigation that oppresses Yick Shing or endangers the integrity of the judicial process. 28.The following are relevant to the above consideration:
29.In light of the above evidence and context, I accept that the arrangement falls within the “access to justice” exception as summarised by Ribeiro PJ in Unruh[9]. As a result, the arrangement is not prohibited by the law of champerty and maintenance. 30.Moreover and alternatively, given the matters summarised in paragraph 28 above, I agree with Mr Pennicott that the arrangement under the Assignment does not amount to such “officious intermeddling” in the litigation in the sense that it results in oppression of Yick Shing so as to be caught by the principles against champerty and maintenance[10]. There is also nothing to show that the integrity of the judicial process is therefore endangered by reason of the arrangement. Further, it is important to note that any recovery of the Indebtedness by way of the present action (which is only made possible through the involvement of the plaintiff) would also benefit the general creditors of True Light. When all these are looked at as a whole, I do not regard the arrangement is so against any public policy that they should be prohibited. 31.The position that the arrangement should not be prohibited by the law of champerty and maintenance is further underlined by my conclusion below that True Light should be joined as a party in the action. 32.Yick Shing thus fails under this ground to seek to strike out the claims[11]. C2. The assignment is an equitable assignment and the Liquidators need to be joined to bring the claims 33.S 9 of the Law Amendment and Reform (Consolidation) Ordinance (Cap 23) (“LARCO”) provides as follows:
34.Mr Parker says, given that the Assignment Deed is not an absolute assignment, it does not satisfy s 9 of LARCO. As such, as a matter of law, the assignment is only an equitable assignment, and the title to sue is not complete unless and until True Light acting through the Liquidators are also joined as a party[12]. 35.As True Light has not been joined as a party, the present action stands (Mr Parker further submits) to be stayed unless and until True Light acting through the Liquidators is so joined. 36.Mr Pennicott does not dispute the above legal propositions. Counsel only contends that the Assignment Deed is an absolute assignment. I have already concluded above that the assignment is not an absolute assignment. I therefore reject Mr Pennicott’s arguments. 37.Further, Mr Pennicott says the Liquidators have by now waived clauses 31(B)(iii) and 6.3 of the Assignment Deed. If the complaint of the non-absolute nature of the assignment is related to these clauses, the waiver has remedied the problem. However, the reason I have concluded that the assignment is not an absolute one is principally because of the effect of clause 3.2(vii). The waiver therefore would not assist Mr Pennicott’s arguments. 38.In the premises, True Light acting through the Liquidators should be joined as a party to complete the title to sue. 39.I understand that the Liquidators have indicated that they are prepared to be so joined[13], I therefore would stay this action until and unless True Light acting through the Liquidators is formally joined as a party. C3. The claims are time-barred 40.Mr Parker contends that the claims made under Subcontracts A and B are time-barred. The arguments run as follows:
41.With respect to Mr Parker, I am unable to agree with his submissions. My reasons are as follows. 42.Mr Parker’s arguments that the claims for outstanding payments under both Subcontracts have expired are premised on his submissions that (a) the relevant obligations under the Subcontracts arose each time when True Light applied for such payments, and (b) thus, in light of the evidence (the invoices) showing these interim payment applications, the cause of action for any alleged breach of payment obligations (save for the $5.2m) have long expired before the date of the writ. 43.On the other hand, Mr Pennicott submits that, on a proper construction of the relevant clauses, the payment obligation of the entire contract sums under the Subcontracts arose at the time when the final certificates for the Subcontracts were issued. The final certificates were issued on 29 January 2007 (for Subcontract A) and 18 March 2009 (for Subcontract B)[15]. The limitation period for the respective cause of action would only start to run at the earliest from these dates. The claims are therefore not time-barred at the time of the writ. 44.These rivalry contentions turn on the construction of relevant clauses of the Subcontracts. In this respect, I agree with Mr Pennicott’s interpretation. 45.Clause (8) of the Subcontracts[16] relates to payment terms and provides relevantly as follow:
46.At the same time, clause (9) provides as follow:
47.On the express wording of clause 8(2), I agree that it imposes a payment obligation on Yick Shing to pay True Light the total project sum (after deducting Yick Shing’s administrative charge of 18%) 5 days after it has received the same from Geotechnical Engineering Office (practically the Employer). This amounts to the payment obligation of the entire contract sum under the respective Subcontract. 48.Of course, this payment obligation of the contract sum is subject to any deductions Yick Shing has made under clause (8)1 if True Light has applied for interim payments. That however does not affect or alter the nature of clause (8)2 where the contractual payment obligation of the contract sum is imposed on Yick Shing. 49.This construction of the meaning of clause 8(2) is in my view reinforced by the following:
50.In the premises, I agree with Mr Pennicott that both Subcontracts provided for (a) True Light to apply for and receive interim or on-account payments, and (b) a final accounting process to take place after completion of the work (ie, at the time of the issue of the final certificate)[18]. These payments arrangements mirror GCC clauses 78 and 79[19] of the Main Contracts. 51.I therefore accept that the claims are not time-barred as the relevant dates of the cause of action under the Subcontracts are the dates of the respective final certificate issued under them. 52.Given my above conclusion, it is not necessary for me to decide on Mr Pennicott’s alternative contention that, even if each payment on account gave rise to a different cause of action for limitation purposes, there is persuasive authority to suggest that a further and separate cause of action will arise when there is final certificate, account or reconciliation process provide for the contract concerned[20]. Suffice to say that I think there are good merits in Mr Pennicott’s contention, and in that premises, it is clearly arguable that the plaintiff’s claims are not time-barred and, given the facts pleaded at paragraph 82 of the Re-Amended Reply and Defence to Counterclaim and Counterclaim to Counterclaim (“RARDC”) in relation to the final accounts, the question can only be fully resolved at trial. The claims should therefore also not be struck out now on this basis. 53.In relation to Yick Shing’s further arguments that any claims brought under Subcontract B are time-barred at the time of the amendments, I would reject them for the following reasons:
54.For all the above reasons, I am not satisfied that the plaintiff’s claims are time-barred. This ground for striking out must also fail. C4. Clear evidence of payments not admitted by plaintiff 55.It is part of Yick Shing’s defence that it has paid True Light $25,535,000. See paragraphs 12 and 13 of the Amended Defence and Counterclaim. 56.Under this ground of striking out, Yick Shing says there is irrefutable evidence (in the form of copies of invoices from True Light and copies of the cheques meeting those invoices from Yick Shing)[23] to show that it has paid the said $25,535,000 to True Light under Subcontract A. 57.However, the plaintiff only admitted at paragraphs 33-34 of the RARDC that $8 million-odd has been paid, but not admitting the rest of those sums. 58.Mr Parker therefore submits that it is vexatious and frivolous and an abuse of process for the plaintiff to maintain a claim for payment of a balance of only $8 million as opposed to $25,535,000. 59.There is nothing in this point. 60.The allegation of the non-admission of the payment of $25,535,000 arises in the pleadings in the following manner. 61.Paragraphs 12 and 13 of the Amended Defence and Counterclaim plead as follows:
62.In reply to these two paragraphs, the plaintiff pleads at paragraphs 33 and 34 of the RARDC as follows:
63.Thus, what the plaintiff has been saying in its Amended Statement of Claim and the RARDC is that Yick Shing has provided through its solicitors (Massie & Clement) to True Light a table setting out what Yick Shing says were the payments (thus “alleged payments” as pleaded at paragraph 33 of RARDC). The plaintiff however only admits that only $8,103,500 out the alleged payments had in fact been paid by Yick Shing. 64.On the other hand, as pointed out by Mr Pennicott, the plaintiff has further in paragraph 56 of the RARDC pleaded as follows:
65.Thus, it is the plaintiff’s further pleaded case that, even if the alleged payments of $25,535,000 had been made, Yick Shing still owed True Light some $15 million odd under Subcontract A[24]. There is thus still at least a triable issue on the claim for these $15 million odd outstanding payments. 66.In the premises, I do not accept that the claims in relation to Subcontract A are vexatious and frivolous and an abuse of process as contended by Mr Parker even if Yick Shing’s payments of $25,535,000 are indisputable. 67.I would therefore also refuse this ground for striking out. D. CONCLUSION 68.For the above reasons, Yick Shing has failed in its striking out summons save its application to stay the action pending the joining of True Light as a party. 69.I will therefore dismiss the striking out applications but order that, subject to further orders, the action be stayed unless and until True Light acting through the Liquidators is formally joined as a party. To avoid any doubts, the stay shall be automatically lifted when True Light is so joined. 70.Yick Shing is only successful in one of its applications. Having taken into account all the circumstances of the applications, in particular that some significant court time was spent on the arguments on the nature of the assignment, I think it is just to order (on a nisi basis) that the plaintiff shall have two‑thirds of the costs of the summons, to be taxed if not agreed, and to be paid forthwith. The cost order shall become absolute 28 days from today unless any of the parties applies to vary it by summons. 71.I further direct that (a) any applications to vary the costs order nisi or for leave to appeal (if necessary) shall be made before me, and (b) save as to the applications in (a), all future applications in relation to these proceedings, including the application for joinder (if any), shall be made to the Judge in charge of the Construction and Arbitration List.
Mr Ian Pennicott, instructed by Messrs Cheung & Lee, for the plaintiff Mr Timothy Parker, instructed by Messrs Massie & Clement, for the defendant [1] Meaning effectively any sums recovered by the action net the costs. [2] Counsel also relies on Ruttle Plant Ltd v Secretary of State for Environmental Food and Rural Affairs No 2 [2008] EWHC 238 (TCC) at paragraph 44, and In re Oasis Merchandising Ltd [1998] Ch 170(CA) at 177E-H to support the submissions that the chose in action must either be assigned outright or, alternatively, a floating interest in any fruits of litigation sold with the liquidator carrying on litigation, but not a halfway house, to avoid being caught by the prohibition against champerty and maintenance. [3] See: Chitty on Contracts (31st ed), paragraphs 19-012 and 19-013. [4] Which provides that the plaintiff shall “make payments to an account to be nominated by the Assignor of the Assignor’s entitlements under clause 3.2(vi) forthwith upon the Assignee’s or its agents’ receipt of any amounts recovered by the Assignee. For the avoidance of doubt, the balance of any part of the Indebtedness recovered by the Assignee shall vest in the Assignee only after payment to the Assignor of the prescribed amount.” [5] See Unruh, at paragraphs 75-104. [6] These are largely the same as the summary helpfully provided by Mr Pennicott in his skeleton, which I agree and respectfully adopt. [7] The affirmation was filed in support of the Liquidator’s application before Harris J for leave to enter into the Assignment Deed. See also the witness statement of Karlson at paragraphs 5-7, and the witness statement of Arboit WS at paragraphs 4‑5 filed for the trial of the action. [8] See also section C4 below. [9] See paragraph 95 in particular, where Ribeiro PJ emphasized the fundamental nature of the right to have access to justice as enshrined in article 35 of the Basic Law and warned against the disallowance of meritorious claims which can only be pursued by third party support on the ground of champerty and maintenance. [10] It is worthy to note that, as pointed out by Ribeiro PJ in Unruh at paragraph 86 that the prohibition of maintenance and champerty is a matter of public policy and involves a “value judgment” that certain conduct should be considered “officious intermeddling” in someone else’s litigation or “trafficking in litigation” which deserves to be made unlawful, and that “officious intermeddling” in litigation should be discouraged in particular where it results in oppression of the person against whom the action is brought and possibly if it may result in the general encouragement of litigiousness. [11] It is pertinent also to note that maintenance or champerty do not constitute a defence to an action on the claim that is maintained, or a ground for staying such an action. See: Campbells Cash and Carry v Fostif [2006] 80 ALJR 1441at paragraphs 81-82, and Unruh, at paragraph 95. [12] See Three Rivers District Council v Bank of England (No 1) [1996] QB 292 at 313F; Walter & Sullivan v J Murphy & Sons [1955] 2 QB 584; Brandt’s Sons & Co v Dunlop Rubber Co [1905] AC 454 (HL); Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1 (HL). [13] See the 3rd Affirmation of Mr Karlson, paragraph 26. [14] Yick Shing has provided a schedule of all the payments it says Yick Hing has received under Subcontract A. See Hearing Bundle [11/3067]. [15] See paragraph 82 of the Re-Amended Reply and Defence to Counterclaim. [16] The terms of Subcontract A and Subcontract B for present purposes are the same. [17] See Hearing Bundle [12/2778-0074 and 2778-0116], which effectively provide that the interim payments shall not be more than 90% of the estimated value of the works. [18] See also clauses (8)4, (9)3 and (15) (“Party B” 2) of the Subcontract A. [19] In particular clause 78(1) provides that “Within 60 days of the date of issue of the certificate of completion in accordance with Clause 55 for any Works the Contractor shall submit to the Engineer a statement of final account for such Works showing in detail the value in accordance with the Contract of the work done in accordance with the Works Order together with all other sums which the Contractor considers to be due to him under the Contract. The statement shall be accompanied by invoices, receipts, and other documents as may be required by the Engineer.” [20] See Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [2005] 1 WLR (CA) 3850 at paragraphs 16, 23, 50, 55-60 per Dyson LJ. [21] It is also pertinent to note that even when Yick Shing amended its defence and counterclaim in January 2013 after it had consented to the plaintiff’s amendments to bring in the Subcontract B claims, it did not seek to plead any limitation defence to any claims under Subcontract B. It was only soon after the hearing on 25 April 2013 concerning the striking out summons, when Mr Pennicott raised the point that no limitation defence had been made to the Subcontract B claims, Yick Shing then amended the pleadings again to include a limitation defence to Subcontract B claims. [22] See: Sun Focus v Tang Shing Bor [2012] 1 HKLRD 738 at paragraphs 10-15 per Fok JA (as the Permanent Judge then was), affirmed in Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd [2012] 4 HKLRD 474 at paragraphs19-22 per Kwan JA. [23] See Affidavit of Edward Yuen at paragraphs 28-32, and the table and evidence of payments exhibited to it. [24] The calculations have been set out in Annex 38AA as referred to in paragraph 56 of the RARDC. Please refer to HCMP2543/2014 for the relevant appeal(s) to the Court of Appeal. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCCT 4/2012