November 07 2017
In Far Wealth Ltd v Lo Ki Mou(1) the High Court dismissed the proceedings as an abuse of process because the plaintiffs could have protected their position by way of a counterclaim in prior proceedings commenced against them by the defendants. While fact specific, it is clear from the judgment that the court was exercising a wide discretion based on the "underlying objectives" of the court rules (adopted as part of the civil justice reforms in April 2009). The decision will be welcome in many quarters and seen as a proportionate response in situations where a party may try to seize a tactical initiative by launching multiple proceedings. As a result, the plaintiffs will have to raise their claims in a counterclaim to the defendants' prior action which arises out of a dispute involving the sale and purchase of property.
Two vendors (who were cousins and the two individual defendants in this case) entered into provisional sale and purchase agreements for the sale of two shops located on Argyle Street (a well-known commercial area in Hong Kong). The plaintiffs (the purchasers) paid deposits totalling HK$8 million. The transactions were not completed because the purchasers alleged that the vendors had failed to answer their requisitions as to title satisfactorily and allegedly made a fraudulent misrepresentation.
The vendors commenced court proceedings by way of a vendor purchaser summons, pursuant to Section 12 of the Conveyancing and Property Ordinance (Cap 219).(2) The vendors claimed that they had satisfactorily answered the purchasers' requisitions and proved good title. In addition to seeking damages for alleged repudiation of the agreements, the vendors sought declarations:
The purchasers subsequently issued a writ of summons endorsed with a statement of claim,(3) seeking declarations that the agreements had been rescinded or, alternatively, were not enforceable. The purchasers also sought orders for repayment and a declaration that they were entitled to liens over the properties in respect of the deposits. The purchasers alleged that the vendors (through their agent) had falsely represented that one of the cousins had sufficient authority to sign the agreements on the other's behalf.
The vendors applied to strike out the purchasers' statement of claim (and, effectively, the entire action) without prejudice to the purchasers' right to file a counterclaim in the vendors' action. A master (a High Court judicial officer) struck out the purchasers' action on the grounds of abuse of process.
The purchasers appealed and the appeal was dealt with by way of a new hearing before a High Court judge.(4)
The court considered the legal principles relevant to the exercise of its power to strike out proceedings as an abuse of process under the High Court Rules and its inherent jurisdiction.(5)
The court noted that a party is not automatically required to bring a counterclaim as opposed to separate proceedings under the High Court Rules.(6) However, regard must be had to the underlying objectives of the High Court Rules when deciding whether to strike out a claim based on a multiplicity of proceedings. Relevant considerations included:
The court noted that this was not a case where the same party had committed an abuse of process by commencing two or more sets of proceedings based on the same (or substantially the same) causes of action or seeking the same relief.
However, the court held that the underlying objectives in this case would be met only by there being a single set of proceedings encompassing all of the issues between the parties. The court also considered that the wide jurisdiction pursuant to Section 12(1) of the Conveyancing and Property Ordinance meant that the purchasers' claim for misrepresentation could be made in the vendor purchaser summons' procedure.(8) There was also the point that the vendors intended to convert their vendor purchaser summons into a writ action and, therefore, the purchasers could counterclaim in that action.
In light of these points and, in particular the underlying objectives, the court concluded that it was right to strike out the purchasers' action and dismiss the appeal.
The general problem with parties commencing a multiplicity of proceedings is nothing new in Hong Kong – for example, a plaintiff commencing two or more sets of proceedings raising the same (or substantially the same) issues between the same parties. It could also be that a defendant chooses for a number of reasons to pursue its own claim against a plaintiff by way of separate proceedings rather than a counterclaim – for example, seeking to avoid a perception of being attacked, similarly wanting to go on the attack or simply trying to stretch a plaintiff's resources and seize a tactical initiative. It is difficult to know whether any of these were at play in the proceedings in this case.
In Hong Kong, the vendor purchaser summons procedure is commonly used, and with increased frequency during peaks and troughs in the property market. The case helps to clarify the court's wide jurisdiction, pursuant to Section 12(1) of the ordinance, to consider any question "arising out of or connected with" any contract for the sale or exchange of land. This includes dealing with issues of misrepresentation or rescission under the vendor purchaser summons procedure.
While defendants, in these circumstances, are not automatically required to bring their claims by way of counterclaim, they run a risk that separate proceedings may be struck out as an abuse of process. Therefore, the case has some important implications for strategies which defendants might adopt in pursuing their own claims under the vendor purchaser summons procedure. The clarification of the court's jurisdiction (pursuant to Section 12 of the ordinance) should make it more difficult for defendants to justify separate proceedings, unless they can show a good reason why a counterclaim cannot be pursued as a matter of law or procedure.
Where a defendant has its own claims against a plaintiff, there is often (as a matter of practice) little to be lost by proceeding by way of a counterclaim.
What also comes across in this case is the increased scrutiny that the courts give to a multiplicity of proceedings between the same parties, together with the importance placed on the underlying objectives of the rules.(9) Indeed, in the circumstances of this case, the court appears to have gone out of its way to avoid a mechanistic approach to the exercise of its discretion – choosing instead to focus on principles such as cost-effectiveness, expedition, proportionality and procedural fairness. Notably, the vendors' action was well advanced compared with the purchasers' action and it is difficult to see what procedural prejudice the purchasers might suffer in having to proceed with their claims by way of a counterclaim.
For further information on this topic please contact Michael Maguiness or David Smyth at RPC by telephone (+852 2216 7000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(4) The judge was sitting as a deputy judge, being one of a number of senior solicitor practitioners invited to deputise in the Court of First Instance of the High Court of Hong Kong in 2017. The judge is also the general editor of Chitty on Contracts (Hong Kong Specific Contracts) 5th edition; interestingly, Chapter 21-383 is cited in the judgment (at paragraph 23).
(8) In this case, the purchasers suggested there was a real risk that their claim for rescission (based on an alleged fraudulent misrepresentation) might fall outside the scope of the procedure for the vendors' action, in light of Section 12(1) of the Conveyancing and Property Ordinance (Cap 219). However, the judge disagreed, taking a more purposive and commercial approach (not dissimilar, for example, to when determining whether a claim for misrepresentation falls within the scope of the words "arising out of or in connection with" in an arbitration clause).
(9) Matters may not have been helped by the purchasers' apparent reliance on a 19th century English case (Stooke v Taylor (1880) 5 QBD 569) that took second place to the contemporary "underlying objectives".
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