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In KP Financial Services Limited v Li Ka Man & Others  HKCU 1618, a money lender (“Lender”) sought to enforce the repayment of loans made to the borrowers. The Lender was met with a counterclaim that the loan documents used to effectuate the loan were unenforceable. This gave the Lender potential claims of professional negligence against a third-party law firm who acted for them in respect of the loan transactions. The Lender therefore commenced third party proceedings against the third-party law firm to determine the validity of the loan documents as between all parties in question.
Third-party notices are governed by Order 16 of the Rules of the High Court, and under r 1(1)(c) a defendant may serve a third-party notice. With regards to this rule, the third-party law firm put forward several arguments contending that the parties should exchange pleadings, as it would be in principal highly unfair for them to be dragged into litigation without clear knowledge of the allegations being made against them.
However, the Hong Kong Court of First Instance declared that the purpose of this provision is to ensure the relevant question or issue will be determined once and for all amongst the plaintiff, the defendant and the third party, thereby avoiding multiplicity of proceedings on the same point with possibly different results. If the loan agreements are ultimately found by the court to be valid and binding on the Lender and the borrowers, there will be no need for the Lender to make any claim against the third-party law firm. Since the Lender is not making any claim for remedies, it is only natural that a statement of claim is not required to be served. As such, the HKCFI held that the third-party law firm was not entitled to an exchange of pleadings when a third-party notice had been served under Order 16 r 1(1)(c).
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