FORM PASS LTD v. CHONG PAK CHIU

HCA574/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.574 OF 2002

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J U D G M E N T

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1. I have before me at this hearing an application to determine what steps should be taken in relation to the 25 original invoices that had been produced in my court as Exhibit D-1 during the hearing of the trial of the action. The police have requested the court to release these 25 original documents into the police custody so that they can carry out investigation, especially in relation to an allegation of forgery in respect of these documents.

2. Before me today both Mr Yuen, for the Government as well as Mr MacKenzie-Ross, for Mr Chong (the plaintiff in the Counterclaim) submit that there should be an unconditional release to the police so that the police can carry out their statutory duties. Mr Kui, for the defendants in the Counterclaim in particular for Mr Leung, has made submissions to the court that the release to the police should be on terms and he suggested certain restrictions on the use the police can make of thes documents. I can see no basis whatsoever for the court to impose these conditions. Nor do I believe that the court has jurisdiction to impose these conditions. The police are carrying out their statutory duties and they require the documents in order to carry out their statutory duties.

3. If the documents had been returned by the court in the normal way after a trial to the party who produced them, that is to the defendant Mr Leung, I can see no basis for Mr Leung to resist the police seeking custody of these documents nor would he be in a position to impose terms on the police. I think it is a ridiculous suggestion to contend that the court should exercise its powers or discretion by imposing terms on the way the investigation should be carried out.

4. I therefore reject such submission and I order that the 25 original invoices in the form of Exhibit D-1 should be given unconditionally to the police.

5. For the purpose of identification, I direct that my clerk Ms Shirley Lau should sign her name on the reverse corner of each document, so that in case there is further proceedings taken she will be able to identify these documents as being throughout under custody and control.

Representation:

Mr K.C. Kui, instructed by Messrs T.H. Wong & Co.,for the Plaintiff (by Original Action) & the Defendant (by Counterclaim)

Mr David MacKenzie-Ross, instructed by Messrs Andy Choi & Co.,for the Defendant (By Original Action) & the Plaintiff(By Counterclaim)

Mr Kenneth K.L. Yuen, GC of Department of Justice,for the Applicant (HK Police)

HCA574/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.574 OF 2002

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J U D G M E N T

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1. I have an application before me for amendment of the pleading and this is at the beginning of a trial which has been fixed some time ago. The proposed amendment is to add paragraph 10(a) of the Defence to Counterclaim which reads :

"Paragraph 23 of the Counterclaim is denied because the money drawn on the bank account of Kin Yip by the 1st and 2nd Defendants was due to business transaction and settlement of debt for goods sold and delivered."

2. It is to be noted that the main dispute, that is now before this court, is by Mr Chong Pak Chiu ("Mr Chong"), the plaintiff in the counterclaim, against Form Pass Limited and Mr Leung Kwok Hung ("Mr Leung"). The case of Mr Chong is that large sums of money, totalling well over $5.5 million pleaded in paragraph 23 of the counterclaim (at page 17 of the bundle), consisting of 16 cheques in the name of Form Pass Limited (totalling $5 million), one cheque in the name of Mr Leung (for the sum of $169,000 odd) and five cheques in cash (totalling $500,000) were all withdrawn from the bank account of Kin Yip and received by Form Pass Limited and Mr Leung.

3. It is not in dispute that these sums had been paid out and had been received by the defendants in the counterclaim. The burden therefore is squarely on the defendants to justify these payments in order for any trial to proceed. Any allegation that these payments had been received legitimately for a legitimate purpose, and/or with the agreement and/or with the knowledge of Mr Chong, must be clearly pleaded and clearly particularized. Now this was obviously not done. There was merely a general denial, and that general denial can be seen in paragraph 10 of the Defence to Counterclaim :

"Paragraphs 23 to 25 of the Counterclaim are denied. The 2nd Defendant avers that in fact the Defendant had made complaints to the Independent Commission Against Corruption ('ICAC') and Police alleging 2nd Defendant misappropriate his money. But after investigations of ICAC and Police, these complaints were found groundless."

4. So far as paragraph 10 is concerned, there was no allegation (no positive allegation and that is what it comes down to as the defendants are relying on a positive allegation) that these payments, although admittedly received, were for legitimate purposes, were with the specific knowledge and consent of Mr Chong. It is said to me that in the Witness Statement you can find the material. But first of all, in the Witness Statement you cannot find all the material. Secondly, even if the Witness Statement contained some material, that is not sufficient. The pleadings must contain the proper allegations. It is for the pleadings to define the scope of the dispute, not the other way round.

5. At this late stage, instead of picking up the hint of the court that the defendants are in a terrible position, and if they wish to proceed on the basis that they said - they would like to proceed, that is, to challenge Mr Chong's allegation and to say that all these payments were perfectly legitimate and with knowledge, so on and so forth - and there are 22 different payments; instead of picking up the court's hint and come up with an appropriate amendment, and then seek the leave of the court to grant the amendment at this late stage, possibly on terms, what I have is the proposed paragraph 10(a) which I have just read out. The proposed amendment is totally inadequate in the circumstances.

6. In the Kettlemen case of the House of Lords, it has been clearly stated that this is now a different regime and that at the trial or at a late stage of proceedings, the court would not tolerate amendments that in the old days would be granted when the courts were much more lenient towards amendments for various reasons. The times have changed, and now it is the pressure on the court or the pressure on litigants and amendments often are not allowed which could have been made or should have been made a long time ago. So I have not the slightest doubt that in this case paragraph 10(a) of the proposed amendment must be rejected, and therefore the application of the defendants to amend the Defence to Counterclaim is dismissed with costs.

Representation:

Mr H.C. Kui, instructed by Messrs T.H. Wong & Co., for the Plaintiff (By Original Action) and the Defendants (By Counterclaim)

Mr Lee Wing Kin, instructed by Messrs Andy Choi & Co., for the Defendants (By Original Action) and the Plaintiff (By Counterclaim)

HCA574/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.574 OF 2002

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Coram: Hon Waung J in Chambers

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J U D G M E N T

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1. This is an application for security for costs made by the defendants in the counterclaim against the plaintiff in the counterclaim. The counterclaim has arisen as a result of the plaintiff bringing an action for injunction to restrain nuisance by the defendant in the main action, the defendant being Chong Pak Chiu ("Mr Chong").

2. The result of the proceeding, having started, is that the defendant, Mr Chong then counterclaims against the 1st and 2nd defendants in the counterclaim the 1st defendant in the counterclaim, being the plaintiff in the action, Form Pass Limited, and the 2nd defendant in the counterclaim, Mr. Leung, being a principal shareholder of the plaintiff company. Mr Chong alleged in the counterclaim that he had been cheated by the company and Mr Leung of a large sum of money (going back many years) and the substance of that allegation in the counterclaim can be seen in paragraphs 23 and 25 of the defendants' counterclaim at page A17 of the bundle. It refers to 22 cheques amounting to a total sum of $6 million. That is the substance of the complaint of being cheated by the defendants of the large sums.

3. There had been acrimonious steps taken in these proceedings and no doubt the trial is going to be troublesome. Trial Date has been set and is coming on before me in early August with five or six days set aside for the Trial.

4. The defendants in the counterclaim, that is, the company and Mr Leung, are seeking against Mr Chong, the plaintiff in the counterclaim, security for costs in the sum of something like $600,000 to $700,000, divided into past costs, costs of preparation for the trial from now until the trial and the costs of the actual trial itself. I will go a little bit further into the details of the quantum at a later stage.

5. To resist the application, a number of points had been raised by the plaintiff in the counterclaim, Mr Chong. The first point is that the application is made late. I can dispose of it very quickly. The application is not made early, it is made not however so late, that the court should not contemplate it. The rules are fairly wide, and it allows the court to make the order at anytime. I do not think that there is a good reason because of the timing to refuse the application.

6. It is said, secondly, that the chances of the defendant winning the case and therefore having to recover the costs is slim. That is to say, Mr Chong thinks that he is going to win. It is impossible in a case such as this one for so much depends on details and in particular about details of 25 transactions going back sometime ago for the court, without minute examination, to come to any firm view as to what are the chances of Mr Chong winning it. Taking a broad view and have looked at the papers, particularly the report of the expert, it seems to me that there is no way this court will be able to say that Mr Chong has a strong chance to win. So I do not think prospect of success is a reason for refusing the order.

7. A third and somewhat unusual point was taken in resistance. It is said that even if Mr Chong should lose the counterclaim, having regard to the past conduct of the defendants in the counterclaim, it is very likely that the court would deprive the winning defendants in the counterclaim of the costs of counterclaim. Of course, it is possible but what is the basis of this assertion. In fact, having regard to the circumstances of the case and having looked at the papers, at the moment no court can possibly and confidently say that it is likely to happen. It seems to me that it is very unlikely to happen. It is very rare for a court having found one party to be right then because of their past conduct (either leading to the litigation or in the course of litigation) deprive them of the fruit of their success, namely the costs of the counterclaim. So I do not think that this 3rd unusual point helps Mr Chong.

8. Finally the point taken against the making of the order is that the order if made would stifle the proceedings. I, of course, accept that the court, in special circumstances would have regard to the financial position of the plaintiff, especially his inability to raise any money to meet the security for costs order and therefore having his claim stopped in total. But the facts of this case do not come anywhere near to such a situation. The affidavit of Mr Chong on this can be found at page C45 of the bundle, at paragraph 6(vi) where he says this :

"As far as financial situation is concerned, balancing the need for livelihood and that for litigation, I can only afford to put in a sum of HK$100,000 (of course I pray that opposite side's application be dismissed)."

He said earlier at paragraph 3 that he comes to Hong Kong to earn a living because the nature of the trade, and he says he has little education and that in Shenzhen, he earns as little as $1,000 per month. Nowhere did he say what is his total financial position; nowhere did he say what are his assets, what are his liabilities, what did he pay to his solicitors for this litigation, how much is left after he paid, or that his resources are such that he cannot raise any money and that therefore if security for costs of more than $100,000 is ordered, then he had to drop the claim and that his claim therefore would be stifled. I think paragraph 6 is carefully drafted and drafted in such a way that the court cannot possibly conclude that there will be a stifling of the counterclaim. I therefore do not believe that there is factual basis for this submission that the application of security for costs is stifling in nature.

9. It remains therefore only to consider the key and only relevant issue which requires a decision by this court today, namely the quantum of security for costs. I have looked at the skeleton bill of the defendants in the counterclaim, at page C21, plus the additional documents, that is, the counsel's fee note, and I must say for an action of this kind and for the level of representation that is before me, $737,000 is grossly excessive and is in no way justified. Mr Chong has said in the affidavit that the proper figure for the costs at the trial (at C45 at paragraph 6(ii)) should be $220,000, made up of $100,000 for the solicitors and $120,000 for the barrister with the breakdown of $40,000 for the brief and $20,000 a day for the refresher.

10. In my view, that figure of $220,000 seems to be about right. But that, of course, is a figure that would include not just a counterclaim but also the claim, if one has to apportion the claim and the counterclaim and a proper apportionment of 2/3 for the counterclaim and 1/3 for the claim, then the proper costs for the trial of counterclaim would be somewhere around $140,000 or $150,000. There remains the question of how much would be the proper costs for all the work done from the very beginning up to the trial (excluding the trial itself) but including the preparation work? That question was explored in the course of the submission, and it seems to me that one must not try to go into a detailed analysis of counsel's fee note (most of which included matters that should not be allowed or related to the claim only, and in any event are excessive). But taking a broad view, if the proper costs for the trial alone of the counterclaim is $140,000 or $150,000, I believe that the proper costs to be allowed for the counterclaim from the beginning up to trial should be no more than $100,000, and certainly it would be a sum less than the costs of the trial. In my view, therefore the total reasonable security for costs that should be allowed, to give proper protection to the defendants in the counterclaim, should be no more than a sum of $250,0000.

11. The only question left to consider is whether and to what extent I should make a further allowance for the fact that, for example, Mr Chong might succeed in part of his claim. The figure of $300,000 was mentioned as a sure win out of these large number of transactions. I think on the whole, it seems to me wrong to make further allowance in the circumstances. I have looked at the case in a round. I have examined what ought to be a fair sum to give proper protection to the defendants in the counterclaim. It seems to me that, in the circumstances, $250,000 should be the proper sum to order and I therefore so order that sum as security to be given within 21days.

Representation:

Mr Kui Hung Cheung, instructed by Messrs Joseph P.K. Pang & Co. for the Defendants (By Counterclaim)

Mr Lee Wing Kin, instructed by Messrs Andy Choi & Co., for the Plaintiff (By Counterclaim)