Two bites of the cherry? Res judicata and abuse of process

On 1 June 2021, the Hong Kong Court of First Instance handed down another lengthy Judgment in the long-running dispute among certain members of the prominent Lo family.

On the applications of HSBC Trustee (the "Trustee") and Dr KS Lo ("KS"), the Court struck out large portions (the "Offending Paragraphs") of Mr Lu Lo ("Lu")'s Statement of Claim ("SOC").

The Court did so on the basis of (i) res judicata, (ii) abuse of process and (iii) collateral attack against a previous judgment handed down by the Court in May 2019 (the "Prior Judgment") in the high profile Madam Lo v HSBC Trustee case (which we previously wrote about here).

Both KS and the Trustee obtained the full relief they sought.

The case will be of particular interest (and comfort) to trustees and other trust office holders who are faced with repeat allegations and court proceedings arising from the same factual matrix.  Of particular note is the fact that, although the plaintiff in the two sets of litigation was different, the Court found them to be privies and the judgment in the first set of proceedings prevented a second beneficiary from running "highly similar claims" against the same trustee.  In addition, it was an abuse of process to sue a witness from the first proceedings.

Background

The present action was commenced by Lu against, among others, the Trustee and KS (in his capacity as an appointor of the Trust). In the Offending Paragraphs, Lu made various claims and allegations which the Trustee and KS alleged were in effect the same as the claims already dismissed in a previous action commenced by the family matriarch, Madam Lo against the Trustee (and other parties) ("Madam Lo's Actions").

The factual background to Madam Lo's Actions is summarised in our previous blog post. The Court handed down a judgment in May 2019 dismissing all of Madam Lo's claims. Madam Lo's appeal was subsequently dismissed by the Court by consent, with costs to the Trustee.

In February 2018, Lu commenced the present proceedings ("Lu's Action"). Many of the claims and issues overlapped with the claims in Madam Lo's Actions. The overlapping claims include allegations that (i) the Trustee breached its duties by failing to take reasonable steps to preserve the Trust's alleged controlling shareholding in Great Eagle or its value; (ii) the Trustee breached its duties by failing to vote its Great Eagle shares in favour of the reappointment of Lu as director of Great Eagle at Great Eagle's 2017 AGM; and (iii) the Trustee placed itself in a position of conflict by acting as trustee of the KSL Trust, a trust established by KS over his personal assets (the "Overlapping Claims").

After the Prior Judgment was handed down, the Trustee and KS applied to strike out Offending Paragraphs in the SOC on the grounds of (i) res judicata, (ii) abuse of process and (iii) collateral attack against the Prior Judgment. The Court found in the Trustee's and KS's favour on each ground, and in doing so, surveyed the law on these areas.

Res Judicata

There are two species of res judicata, namely cause of action estoppel and issue estoppel:

• Cause of action estoppel prevents a party to an action from asserting or denying, as against the other party, the existence or non-existence of a particular cause of action, the existence or non-existence of which has been determined by a court of competent jurisdiction in previous litigation between the same parties (or their privies).
• Issue estoppel arises where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided, and in subsequent proceedings between the same parties (or their privies) involving a different cause of action to which the same issue is relevant, one of the parties (or their privies) seeks to re-open that issue.

Res judicata was only relevant to the Trustee's strike-out application but not KS's – since KS was not a party to Madam Lo's Actions.

In determining whether there was res judicata in the present action, the Court considered (i) whether Lu's Action raised causes of actions and/or issues already decided in the Prior Judgment; (ii) whether the Prior Judgment was a final decision; and (iii) whether Lu was a privy of Madam Lo. The Court answered all these questions in the affirmative.

There was cause of action estoppel, because the extent of the overlap between the causes of action and/or issues decided in the Prior Judgment and those raised in Lu's Action was substantial. The factual scenario (or the factual basis) giving rise to claims was the same in Madam Lo's Actions and Lu's Action. There was also issue estoppel, as the Court was satisfied that the issue that was previously litigated and determined was so fundamental and cardinal that the decision could not stand without it.

The Prior Judgement was clearly final, all the more so after Madam Lo abandoned her appeal.

Although Lu was not a party to Madam Lo's Actions, the Court found that Lu was Madam Lo's privy – and therefore there was res judicata between him and the Trustee. Lu was in privity of interest with Madam Lo for the following reasons: (i) Lu had the same direct and parallel interest in the relevant subject matters in Madam Lo's Actions as that of Madam Lo; (ii) Lu was closely involved in the preparation and conduct of Madam Lo' s Actions, such that he may be fairly be said to be, as a matter of substance and reality, a co-plaintiff in those proceedings; and (iii) it was fair and just to bind Lu to the outcome of Madam Lo's Actions when he chose to stand by and allow Madam Lo to fight her battle. There was a sufficient degree of identification between the two to make it just to hold that the decision in Madam Lo's Action should be binding on Lu. In particular, the Court had regard to undisputed evidence which showed that Lu was closely involved in the preparation and conduct of Madam Lo's Actions, such that he was effectively in the position of a co-plaintiff in those proceedings. Such evidence included (i) Madam Lo's cross-examination showed that she had difficulty following the developments in Madam Lo's Actions and had to rely on others for assistance; and (ii) Madam Lo relied significantly on Lu. It was particularly telling that she asked the Trustee's counsel to direct his questions to Lu when she did not know the answer.

In light of the above, the Court struck out those Offending Paragraphs identified in the Trustee's application.

Abuse of process

The Court further held that, even if the doctrine of res judicata was not engaged for whatever reason, the Offending Paragraphs should still be struck out on the ground of abuse of process.

This was because Lu could and should have raised the Overlapping Claims in Madam Lo's Actions, but he had not. Lu had the same direct and parallel interest as that of Madam Lo in the relevant subject matters in Madam Lo's Actions. In light of his close involvement in the preparation and conduct of Madam Lo's Actions, he also knew full well that decisions on the part of the Trustee with which he disagreed, such as its decision not to purchase additional Great Eagle shares and to act as trustee of the KSL Trust, would form the subject matter of the trial in Madam Lo's Actions. In the circumstances, if Lu wished to advance his own claims against the Trustee, he could easily have done so by joining in Madam Lo's Actions as a co-plaintiff. However, Lu "sat on his hands" and waited until February 2018 (ie the eve of the trial of Madam Lo's Actions) to commence the present proceedings, knowing full well that his own claims involved the same essential factual matrix and many of the same legal issues, the same factual witnesses and documentary evidence, and claims for the same reliefs.

The Court found that it was manifestly unfair to the Trustee and plainly constituted unjust harassment for the Trustee to have to defend itself twice against highly similar claims, even though it already put all of Madam Lo's children on notice of Madam Lo' s Actions, with the intention of preventing this very scenario from happening. It would also bring the administration of justice into disrepute if the Overlapping Claims in the present proceedings were allowed to proceed, in that it would constitute a collateral attack on the Prior Judgment.

Further, as regards KS, the Court found that although KS was only a witness in Madam Lo's Action, the current proceedings were still an abuse of process as against him. The abuse of process doctrine can be invoked by non-parties, including witnesses, to the prior litigation.

The rationale for this is obvious. From a public interest perspective, duplication of proceedings is a waste of precious court time and resources. That is in addition to the risk of inconsistent findings which threaten to bring the administration of justice into disrepute. From a private interest perspective, it is highly vexatious and oppressive to KS: not only in terms of time and costs, but also in that the "dry-run" of the claim in the prior proceedings (for example by the plaintiff's ability to cross examine him as a witness) affords the plaintiff an opportunity to refine his case and work around any defence, evidence or explanation that the witness (now the defendant in the subsequent action) has put forward.

Collateral attack

It may also be abusive for a party to initiate legal proceedings which constitute a collateral attack upon a final decision made against that party by another court of competent jurisdiction where the party had full opportunity to contest the decision, if the pursuit of the same issue in the new proceedings would result in manifest unfairness or bring the administration of justice into disrepute amongst right-thinking people.

For the same reasons as those set out above, the Court found that the Offending Paragraphs also constituted a collateral attack upon the Prior Judgment, and again were abusive,

Conclusion

In summary, the Court found that Lu's decision to advance the Overlapping Claims constituted a clear abuse of process, and the Offending Paragraphs of the SOC should be struck out both against the Trustee and against KS.

This judgment highlights how the conduct of a non-party in a prior action can give rise to privity – and therefore make any decision in the prior action binding on such party if he/she attempts to take a second bite of the cherry by commencing fresh proceedings on the same factual basis.