WU YANG v. DAYUAN INTERNATIONAL DEVELOPMENT LTD AND OTHERS

HCCW 103/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 103 OF 2015

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D E C I S I O N

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Introduction

1.  I have before me summonses issued pursuant to Order 23, rule 1(1)(a) of the Rules of the High Court, Cap 4A (“RHC”) by respectively (i) the 2^nd, 3^rd, 5^th and 6^th Respondents (ii) the 4^th Respondent for the Petitioner to provide security for costs up to the stage of discovery in the sums of HK$16,105,972.40 and HK$4,178,402 respectively within 14 days of the date of this order failing which the petitions be dismissed as against the relevant respondents. In both cases the grounds of the application are the same: the Petitioner is resident outside the jurisdiction, namely, the Mainland.  The only asset he has in Hong Kong is his 30% shareholding in the Company and his entitlement to that is an issue in the proceedings.  Further, the Company is private and there is no available market for the shares.

2.  RHC Order 23 rule 1(1)(a) provides:

“(1) Where, on the application of a defendant to an action or other proceeding in the Court of First Instance, it appears to the Court-

(a) that the plaintiff is ordinarily resident out of the jurisdiction, or

...

then if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action or other proceeding as it thinks just.”

3.  The power to order security is discretionary, but it will normally be granted if one of the 4 categories of case specified in the sub-rule are shown to apply unless the plaintiff, or in this case the petitioner, can demonstrate that there is a high probability of the claim succeeding^[1]. However, this exception presupposes that the claim is sufficiently simple that it can fairly readily be demonstrated to the court on an interlocutory application that is not be its nature concerned with the merits of the substantive issues, that the petitioner is likely to succeed and it would thus be unfair to impose on him the burden of providing security.  As Rogers VP put it in Sunchase International Group (China) Ltd v Vincor Group of Companies (Investments) Ltd ^[2]:

“It is not the function of the court, when faced with an application for security for costs, to make a preliminary run at deciding the ultimate success or failure of the claim. The Judge has approached this on the basis that the plaintiffs have a bona fide claim. He has also approached it on the basis that the defendants have a bona fide defence. Mr Wong today says that the Judge should have come to the additional conclusion that the plaintiffs had a substantial chance of success. I do not see that that was the Judge’s function in a case like this. In a simple case that may be so, but here the defendants are contesting the plaintiff’s claim and there is no way that the Judge could resolve that contest at this stage.”

4.  The present case is anything but simple.  On 19 July 2016 the Petitioner’s application to strike out various paragraphs of the Defence, which had been listed for hearing at a 4-day case management conference, was withdrawn as a result of my observations about the suitability, or rather lack thereof, of the issues for resolution on an interlocutory basis ^[3].  Instead I made directions for the Petition to proceed to an 8-week trial commencing in September of 2017.  The relative strengths of the parties’ cases are not, therefore, a material consideration and it will suffice to summarise the Petitioner’s case.

5.  The Company has three registered shareholders: The Petitioner who holds 30% of its shares, the 2^nd Respondent, which holds 69.99% of its shares and the 3^rd Respondent which holds the remaining 0.01%.  The Company was formed to hold its principal asset, namely, an indirect interest in an oilfield in Angola, known as “Block 18”, which the Petitioner says is highly profitable.  The interest is held as follows:

(1)  By Dayuan through a direct 70% shareholding in another Hong Kong company, the 8^th Respondent, China Sonangol International Holding Ltd (安中國際石油控股有限公司) (“CSIH”), which in turn has a 45% shareholding in a Cayman Islands company called Sonangol Sinopec International Ltd (“SSI”).

(2)  SSI has a 50% interest in Block 18.

(3)  CSIH was and still is an investment holding company.  It uses Dayuan’s registered office as its registered office and does not have an independent operation.

6.  The Petitioner is not the beneficial owner of the shares registered in his name.  It is his pleaded case that he holds them on trust for Rockland United Finance Services Limited, a company incorporated in the British Virgin Islands, which is owned by the Petitioner and Mr Wang Rui.

7.  The background and the disputes that have led to the presentation of this Petition are described more fully in my decision dated 4 June 2013 in HCMP 2143 of 2011, which was an application for the production of documents made pursuant to section 152FA of the Companies Ordinance,Cap 32.  At risk of over simplifying the issues the principal dispute concerns why US$434,250,000 in dividends received by CSIH was not passed on to the Company and then distributed as dividends.  In short the 2^nd, 3^rd, 5^th and 6^th Respondents (which I shall describe as the “New Bright Parties”, which is how they are commonly referred to in these and the related proceedings, which I am about to describe) say that CSIH was required to finance various project for the Angolan Government as a quid pro quo for the allocation to SSI of its 50% interest in Block 18.  The Petitioner says that this explanation is bogus and the New Bright Parties and those behind them have syphoned of the profits for themselves.

8.  The New Bright Parties have issued three sets of proceedings seeking rectification of the Company’s register of members so as to remove the Petitioner’s name (“Rectification Proceedings”):

(1)  HCA 2295/2015: Writ issued by New Bright and Tian Qiao on 2 October 2015 against Beiya Industrial (Group) Co (“Beiya”)[4], the Petitioner and Dayuan;

(2)  HCMP 2456/2015: Originating Summons issued by Lo and Fung on 2 October 2015 against Beiya, the Petitioner and Dayuan;

(3)  HCMP 2934/2015: Originating Summons issued by Sam Pa on 6 November 2015 against Beiya, the Petitioner and Dayuan.

9.  In short the New Bright Parties say that the Petitioner came to be registered as a member of the Company, which is incorporated in Hong Kong, without complying with various applicable requirements of Mainland law. It is not necessary to describe the complex and highly contentious grounds on which the New Bright Parties put their case.  It is, however, relevant that the New Bright Parties rely on the same grounds as a defence in the present Petition.  The Petition and the Rectification proceedings are to be tried together.

10.  The Petitioner contests the security for costs applications on the following grounds:

(1)  The Petitioner’s claim has very strong merits.

(2)  The Petitioner has substantial assets within the jurisdiction;

(3)  The Rectification Proceedings are effectively a counterclaim to the Petition and it would be unjust to make an order for costs, which prevents the New Bright Parties’ claims being defended.

(4)  The quantum is inflated.

I will deal with each of these in turn.

Merits of the Petitioner’s claim

11.  As I have already explained the strength of the Petitioner’s claim is a material consideration if it can readily be demonstrated that the claim’s prospects of success are sufficiently strong that the prejudice to the Petitioner caused by requiring him to provide security outweighs the risk of the New Bright Parties succeeding and encountering difficulty enforcing a costs order in their favour.  As the Court of Appeal emphasises in Sunchase International this consideration is relevant in a simple case.  This is not a simple case.  The Petitioner is inviting the court to do what Rogers VP expressly disapproves of in Sunchase International: making “a preliminary run at deciding the ultimate success or failure of the claim.” ^[5]  This I decline to do.

12.  I do not accept Ms Linda Chan SC’s submission that where a plaintiff has a genuine and strong case this is a strong factor against ordering security.  Either a case is straightforward and amenable to ready assessment of the prospects of a party’s case being made out at trial or it is not.  If it is not, as in the present case, the court should not embark on the intermediate course of determining whether it is “genuine and strong”; a term which invites further argument about where the dividing line is to be found separating the “genuine and strong” and the merely bona fide arguable.  To adopt such an approach would merely be to encourage the escalation of argument about the merits of a party’s case, which decisions such as Sunchase International and Porzelack^[6] are intending to discourage.

13.  I accept that the Petitioner has demonstrated a bona fide claim, but the consequence of that is neutral in the sense that the court should not assume that either party is more likely to be successful than the other.

Substantial Assets with the Jurisdiction

14.  The Petitioner says that his interest in the Company has substantial value including a right to receive dividends, which has been denied him as a result of the various matters, which form the unfair prejudice on which he relies.  Given the nature of the Respondents’ defence in relation to the profitability of CSIH it is difficult to assess even on a preliminary basis what the Company is worth.  For present purposes I accept that given the apparent profitability of Block 18, which represents the ultimate economic interest of the Company, a 30% interest in the Company is probably worth in excess of the amount of the security for costs that is sought.

15.  As Lord Donaldson MR explains in The Alpha ^[7] “it is prima facie unjust that a foreign plaintiff, who by virtue of his foreign residence is more or less immune to the consequences of an order for costs against him, should be allowed to proceed without making funds available within the jurisdiction against which such an order can be executed.”  If a petitioner has assets within Hong Kong against which a costs order can be enforced, he will not be immune to the consequences of such an order and an order for security for costs will not be made as it is unnecessary.  The Petitioner says that this is the position of the present case.  However, as the authorities which I am about to consider demonstrate the court has regard to the nature of the assets and the ease with which they can be realised when assessing if an order for security should be made.  Monies standing to the credit of a petitioner in a bank in Hong Kong can readily be enforced against and represent the strongest example of the presence of assets which render an order unnecessary.  Realisation of shares in a private company is more problematic.

16.  In Lu Jun v Yu Qi & others^[8] (“Astrotec”) the company, Astrotec, which was the subject of the unfair prejudice petition was the holding company for interests in 3 Mainland joint-venture companies operating industrial gas fields.  Barma J (as he then was) held that the evidence demonstrated that Astrotec received substantial income from these ventures and was likely to do so in the foreseeable future.  Barma J held that the petitioner’s shares in Astrotec constituted a valuable asset within the jurisdiction “that could provide a means of recoupment ... of any costs that they may ultimately be awarded in these proceedings”^[9].  This was the principal reason why the judge declined to order security for costs.

17.  In Re Charter View Development Limited^[10] a similar argument was advanced before Kwan J (as she then was).  In paragraph 10 Kwan J found:

“The most up-to-date accounts of the Company placed before the court are the audited accounts for the year ended 31 December 2004. According to the accounts, as at that date, there were accumulated losses of $9,635,387. There were no assessable profits for the Company for the years of 2003 and 2004. The only assets are non-current assets being investment representing the costs on acquisition of landed properties with a value of $7,205,678. Current liabilities stood at $16,840,165, of which $16,810,165 was the amount due to directors. According to the audited accounts, the Company is balance sheet insolvent.”

This led the judge to conclude in paragraph 26:

“The petitioner has pointed to its shares in the Company, and its shares in various other private companies as assets available for execution. I agree with Mr Maurellet that these shares in private companies are not satisfactory, because it cannot be said that they would certainly be available for costs. The value of shares in such private companies is difficult to ascertain on the available evidence, if not doubtful, and it is uncertain if a buyer could readily be found for such shares.”

18.  This distinction between the two cases lies in my view in the evidence as to the financial position of the respective companies.  In the former Barma J found that Astrotec had, and was likely to have in the foreseeable future, substantial income.  Although the judge does not say it, he seems to have proceeded on the basis that given Astrotec’s certain and attractive financial position it was likely the petitioner’s shares could comfortably be realised for sufficient monies to settle any adverse costs order.  For reasons that are apparent from the passages from the judgment I have quoted, in Charter View Kwan J reached the opposite conclusion.

19.  An important consideration is that it is notoriously difficult to realise shares, particularly a substantial shareholding, in what is in effect a private equity company.  Kwan JA recognised this in her later judgment in Re Tanyuen Investments Limited ^[11] as did Yuen JA in the Estate of Chan Hay Shun ^[12].  In the present case it is a central part of the Petitioner’s case that the audited accounts for the years 2008 to 2013, in which the auditors have inserted substantial qualifications, are fundamentally unreliable.  It is difficult to see how in these circumstances it can realistically be argued that realising such value as the shares have is going to be straightforward, even assuming that the Petitioner defeats the claim for rectification, but fails to prove unfair prejudice.  Of course, if he were to loose on rectification the shares would not be available to satisfy any adverse costs order. 

20.  In my view realisation of the Petitioner’s interest in the Company is likely to prove sufficiently problematic that it is not a grounds for declining to order security for costs.

The Cross-claim

21.  There are a number of issues common to both the Petition and the Rectification Proceedings and it is largely for this reason that they are to be tried together.  In broad terms these concern the basis on which the Petitioner came to hold share in the Company and the parties’ understandings about the Company’s role in relation to Block 18 and, in particular, whether it was purely commercial or intended to advance State interests by facilitating what the New Bright Parties characterise as “social projects”, which was a qui pro quo for the award of Block 18 to SSI.

22.  As the Petitioner correctly points out the authorities demonstrate that where both parties can, by virtue of cross-claims, be regarded as “attackers” the court takes this into account in deciding how its discretion should be exercised.  Barma J’s decision in Astrotec is an example.  The court’s approach is usefully summarised in the decision of Ma J (as the Chief Justice then was) in paragraph 26 of Brand Farrar Buxbaum LLP v Samuel-Rozenbaum Diamond Ltd ^[13]:

“... it should not be forgotten that the judgment creditor is at least also as much an ‘attacker’ or plaintiff. I refer here to the same facts and matters set out in para.19 above. In these circumstances, where both parties can be regarded as ‘attackers’ or plaintiffs, in my view, this is a legitimate factor to take into account in the exercise of discretion. In Samuel J Cohl Co v Eastern Mediterranean Maritime Ltd (The Silver Fir)[1980] 1 Lloyd's Rep 371, both the plaintiff and defendant were ordered to provide security for costs to each other since both were resident outside the jurisdiction. If that had been the situation in the present case, I might then well have considered making a similar order. It would, in other words, be entirely fortuitous that the judgment creditor was resident within the jurisdiction.”

23.  Although the Petitioner commenced proceedings sometime before the New Bright Parties and the 4^th Respondent and it is not, therefore, fortuitous that the Petitioner finds himself as the party susceptible to an application for security for costs, it remains the case that it would be artificial given the way the disputes between the parties have developed to view the Petitioner solely as an attacker.  Even if he were to be prevented from prosecuting his claims, he could not be prevented from relying on at least part of his present case as a defence to the Rectification Proceedings and this, in my view, is relevant to the exercise of this Court’s discretion to order security and justifies reducing what might otherwise be ordered to reflect the degree of overlap.

Quantum

24.  The amount of security sought is substantial. The Petitioner has raised a miscellany of objections to the quantification of costs.  They amount to this:

(1)  the bill of costs do not break down the costs so as to exclude the costs attributable to the Rectification Proceedings;

(2)  no allowance has been made for cost orders against the New Bright Parties and the 4^th Respondents;

(3)  the New Bright Parties and the 4^th Respodents do not need separate representation;

(4)  the New Bright Parties costs are massively inflated;

(5)  the 4^th Respondent’s role is secondary and his costs estimate is also inflated.

25.  The court in assessing the amount of security takes a broad brush approach^[14]. The court does not expend time trying to assess with precision what might be recovered on taxation.  If it did in a case such as the present it would involve considerable work and work of a sort normally conducted by a taxing master.  The court does, however, aim to assess roughly what might be recoverable on a party and party taxation for work done by suitable counsel and solicitors competent to handle the type of litigation in question^[15].

26.  I shall deal first with the New Bright Parties’ costs.  They have divided the costs into 2 parts.  The first deals with the period up to 13 November 2015 and the second the estimate of future costs.

	Up to 13 November 2015
(1)	Solicitors profit costs: 4,504,918
(2)	Counsel: 5,444,240
(3)	Disbursements: 1,751,764.40
	Post 13 November 2015
(4)	Solicitors profit costs: 3,295,050
(5)	Counsel: 1,110,000

         

27.  The bill of costs has clearly not been prepared with a view to helping the court assess what might be recoverable on a party and party basis.  The rates are not what would be recoverable on a party and party basis and the bill includes items like the costs of the present application that should not have been included.  In addition many of the profit cost items look substantially inflated, for example, item 16 in part 1 of the bill is 136 hours (a total of HK$897,600 in fees) for the partner in charge, Edmund Chong, “perusing and considering from time to item documents listed in the Petitioner’s bundles for hearing of the injunction (4,081 pages at 2 minutes a page).”  That, of course, is 8.3 hours for reading a bundle consisting of 250 pages.  Quite why it was necessary for Mr Chong to sit reading at an extremely leisurely rate every documents in the hearing bundles is nowhere explained.  It is very difficult to believe that this item is genuine.  What it betrays is the unreliability of the bill and an indifference to conducting the case cost effectively. 

28.  The bill of costs is exhibited to the affidavit of Fung Ki Yuen dated 29 December 2015, which, as is conventional, starts by saying that the contents is within Mr Fung’s knowledge as true or if not within his knowledge, true to the best of his information, knowledge and belief.  I appreciate that costs draftsmen when preparing bills do not necessarily break down the time costs in the way they were categorised and billed.  They will cast the bill so that it presents costs in a manner consistent with the approach adopted by taxing masters when assessing them and with a view to justifying a total close to the time costs actually incurred. However, that does not justify fabricating items.  I think it is inherently highly unlikely that Mr Chong spent well in excess of three working weeks reading the hearing bundles for the injunction application or spent the amount of time claimed for many of the other items.  It may be that the total claimed is what the New Bright Parties were billed, but I think it reasonable to assume that the amount they were charged was very considerably in excess of Li & Partners’ time costs.  For Li & Partners to put in evidence a bill containing descriptions, which were known to Mr Chong and Mr Fung to be as inaccurate as those in the bill before me, was highly misleading and is unacceptable.

29.  The bill is not presented in a way, which allows the court to take into account the cross-claim and identify those costs which are referable to dealing with issues that arise only by virtue of the Petition as opposed to those that overlap with the Rectification Proceedings.

30.  Taking into account the overlapping issues, the unreliability of the bill of costs and what, to put it charitably, is the disregard revealed by the bill to conducting the litigation cost effectively, I order security up to the completion of discovery of HK$1,500,000.

31.  I accept that the 4^th Respondent is entitled to separate representation if he wishes, although I would expect responsible solicitors to protect their client’s interests to ensure that so far as possible the 4^th Respondent’s legal team has not duplicated work done by the New Bright Parties’ legal team and to liaise with them to this end.

32.  The 4^th Respondent’s bill is better than that produced by New Bright Parties as it at least uses the rates recoverable on taxation, however, this serves to illustrate the artificiality of the bill prepared by Li & Partners for the New Bright Parties, because it includes items of work carried  out at a time when Li & Partners also acted for the 4^th Respondent and the rates are materially lower than those included in the New Bright Parties’ bill: in the case of Edmund Chong HK$4,000 per hour rather than HK$6,600.  It does, however, include profit costs (see item 7 on page 27 that go beyond discovery) and like the New Bright Parties’ bill is not susceptible to division according to the issues.  I order that the Petitioner provides security in the sum of HK$750,000 up to the end of discovery in respect of the 4^th Respondent’s costs.

33.  I will make a costs order nisi that the Petitioner pay half the New Bright Parties’ costs of the application to reflect what I consider to be the entirely unsatisfactory bill of costs.  I will also make a costs order nisi that the Petitioner pays the 4^th Respondent’s costs.

HCCW 103/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) NO 103 OF 2015

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AND

HCMP 2934/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2934 OF 2015

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AND

HCMP 2456/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2456 OF 2015

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AND

HCA 2295/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2295 OF 2015

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(HEARD TOGETHER)

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D E C I S I O N

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1.  The petitioner and the 2^nd, 3^rd, 5^th and 6^th respondents (“New Bright parties”) have issued summonses which came on before me for hearing on 19 July 2016:

(i) The petitioner sought to strike out various paragraphs in Defence of the New Bright parties in the unfair prejudice Petition HCCW 103/2015.

(ii) The New Bright parties seek to stay the Petition pending determination of HCA 2295/2015, HCMP 2934/2015 and HCMP 2456/2015 (together “Rectification Proceedings”), which concern rectification of the Company’s share register and removal of the petitioner as a member of the Company, which is the 1^st respondent in the Petition, with the consequence that he would no longer have locus to pursue the Petition.

(iii) The petitioner seeks to strike out HCA 2295/2015.

(iv) The petitioner seeks to strike out HCMP 2456/2015.

(v) The petitioner seeks to strike out HCMP 2934/2015

2.  Shortly before the summonses were due to be heard solicitors for the New Bright Parties wrote to my clerk at the instigation of counsel suggesting that rather than deal with the principal application, namely, the Petitioner’s strike out applications, which they suggested following filing of submissions by the parties (including counsel for the 4^th Respondent), were obviously unsuitable for summary determination, the court make directions for a speedy trial of the Rectification Proceedings.

3.  The one thing that the parties agreed in their voluminous submissions was that the test for striking out paragraphs of the Defence and the three actions was that it was “plain and obvious” that they are unsustainable. My preliminary view having read the written submissions and the most relevant evidence was that it was not obvious that the actions would fail; which is not to say that I thought the New Bright parties’ case was strong.  This was partly because of the complexity of the issues and also because it was my preliminary view that given certain unusual features of the background to the business venture that the Company undertook it was probably necessary to hear evidence before the defences could be safely and properly adjudicated.

4.  When the hearing commenced I indicated this to counsel and asked whether the petitioner would be content with directions for a speedy trial of both the Petition and the Rectification Proceedings.  This was the subject of some debate in particular in relation to whether or not it was better to deal only with certain of the issues of liability only at a first trial, which the New Bright parties, supported by Mr Jat for the 4^th Respondent, suggested would be quicker and more efficient.  The hearing was adjourned for the parties to consider this further.  Having heard the parties further on this subject I am not satisfied at this stage that it is advantageous to divide up the issues on liability in an attempt to separate the narrower issues raised in the Rectification Proceedings from the complaints of unfair prejudice, because I consider that, insofar as I can assess the matter at this stage, some of the latter factual issues may inform the determination of the Rectification Proceedings. 

5.  I will make the following directions for the further conduct of the various proceedings:

(i) The Rectification Proceedings be heard with the Petition (the proceedings I shall refer together as “Proceedings”).

(ii) There be no order on the New Bright Parties’ summons to stay the Petition.

(iii) There be no order on the Petitioner’s 4 strike out summons.

(iv) The parties exchange lists of documents in their possession, custody or power relevant to the issues in the Proceedings by 5:00pm on 28 October 2016.

(v) There be inspection 14 days thereafter or within such other period as the parties agree in writing.

(vi) The parties exchange witness statements by 5:00pm on 27 January 2017.

(vii) The parties exchange reply witness statements by 5:00pm on 24 March 2017.

(viii) The parties exchange expert reports on matters relating to issues of the Law of the People’s Republic of China or accounting issues by 5:00pm on 28 April 2017.

(ix) The experts meet to agree evidence and areas of dispute by 5:00pm on 12 May 2017.

(x) The experts finalise a joint report identifying (a) matters and issues that they agree and (b) matters and issues in dispute with a brief summary of their respective positions in respect of each relevant matter and issue by 5:00pm on 16 June 2017.

(xi) The trial be set down for hearing commencing 11 September to 29 September 2017 (3 weeks), 9 October to 20 October 2017 (2 weeks) and 30 October to 17 November 2017 (3 weeks).

(xii) There be liberty to apply

6.  So far as costs are concerned the New Bright parties were content for the costs of their application to be costs in the cause of the Rectification Proceedings, which given how matters have developed I consider fair and I so order.  The 4^th Respondent was not a party to that application.

7.  The costs of the strike out applications were more contentions.  Both the New Bright parties and the 4^th Respondent ask for their costs of the applications.  They say that although the strike out applications have not been determined it is clear that they should not have been brought and it is not appropriate to leave the liability for those costs to be dependent on the outcome of the Rectification Proceedings. 

8.  I have not determined the strike out applications and any view I express in respect of them is preliminary and based on my reading of submissions and evidence without the benefit of hearing counsel.  However, what is clear is that applications to strike out pleadings or actions fall to be assessed by reference to a clear and high test: whether it is plain and obvious that the case attacked is unsustainable[1]. This test connotes that not only can a summary determination be made summarily about the prospects of success, but that the answer is fairly obvious.  Any application which produces a 3 or 4 day time estimate, lengthy submissions and citation of over 50 cases invites the suggestion that the one thing that is plain is that the answer is not obvious.  I accept that there may be cases that are at their heart straightforward, but that in order to understand them it is first necessary to understand their context and dispose of peripheral arguments.  But that being said if a test that involves assessing whether a claim or defence is plainly and obviously unsustainable is to be applied in a way consistent with its language, it necessarily involves, in my view, an initial common sense assessment of whether it is suitable for a strike out application.  It seems to me that it is doubtful that this one was.  As I explained at the outset, in addition to its general complexity I have reservations about whether or not the issues can be determined on affirmation evidence alone.

9.  I accept that a certain amount of the work done for the hearing will not be wasted as the arguments I should have heard will have to be addressed at the trial.  It seems to me that viewed in the round a fair costs order is that the costs of the strike out applications be the 2^nd to 6^th respondents costs in the cause of the Rectification Proceedings.

10.  The 1^st, 2^nd and 7^th respondents costs of attendance in respect of all the applications shall be costs in the cause. 

HCCW 103/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 103 OF 2015

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DECISION ON COSTS

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1.  This is the petitioner’s application for costs of an urgent ex parte on notice application to be paid by the 1st, 2nd, 3rd, 4th, 5th, 7th and 8th respondents (“the respondents”). The respondents made the application at about 5:30 pm on Friday, 10 April 2015 before me as the duty judge.

Background

2.  The history of the matter started with an ex parte application made by the petitioner before A Chow J on 23 March 2015.  The learned Judge granted various injunctions and orders on the application.  Amongst the injunctions and orders were a preservation order preserving certain dividends declared for the 8th respondent (“the preservation order”) and an injunction restraining the dealing with or disposal of such dividends (“the dividends injunction”).  There was a disclosure order directed to the 4th, 5th, 6th and 8th respondents requiring disclosure on how the dividends had been used (“the disclosure order”).  The disclosure order had to be compiled with within three working days.

3.  On 26 March 2015, the respondents applied ex parte on notice to the petitioner before A Chow J for discharge of the preservation order and dividends injunction.  A Chow J adjourned the application to 2 April 2015 and postponed the running of time for the disclosure order to that day.  Owing to the Easter holidays, the time for compliance with the disclosure order would only expire on Friday 10 April 2015.

4.  The parties appeared before Anthony Chan J on 2 April 2015.  The respondents had not filed evidence yet.  They chose to defer the application to discharge the preservation order and dividends injunction to a future date after they had filed evidence to support the application.

5.  They, however, pursued the application to discharge the disclosure order there and then.  They failed.  Anthony Chan J also refused to grant further extension for compliance.  Hence, this order had to be compiled with on or before Friday, 10 April 2015.

6.  The respondents then applied ex parte on notice in the late afternoon on 10 April 2015.  They asked for:

(1)  extension of time for compliance with the disclosure order until the final determination of the respondents’ substantive discharge application and the petitioner’s application to continue the injunction order;

(2)  alternatively, the respondents do have leave to appeal to the Court of Appeal against the Order by Anthony Chan J made on 2 April 2015 (“Respondents’ appeal application”) insofar as it related to the disclosure order; and

(3)  execution of the disclosure order be stayed until the final determination of respondents’ appeal application or any renewed application to the Court of Appeal for leave to appeal against the 2 April 2015 Order or any further order.

7.  The application was supported by an affirmation the contents of which run to 26 pages and written submissions of over 22 pages.  There were also some 20 box files of documents relevant to the application.

8.  The application came before me as the duty judge at about 5:30 pm on that day.  I adjourned it sine die.  I alsogranted liberties for the parties to enquire with the clerks of Anthony Chan J and A Chow J on Monday 13 April 2015 and see whether either of the learned Judges was in a position to hear the application.  I did not grant any interim extension.  I told Mr Mok, SC, leading counsel for the respondents that if he could get a retrospective extension of time on a future date, that would purge any breach of the disclosure order by the respondents.

9.  The respondents, instead of pursuing the application for extension of time or stay of execution pending appeal, chose to comply with the disclosure order.  They e-mailed the compliance documents to the petitioner’s solicitors at 11:53 pm on 10 April 2015.  Assuming that the compliance documents constituted proper compliance, the respondents had complied with the order.  They did not require any extension of time or stay of execution.

10.  It seems that the petitioner’s solicitors were only aware of the compliance in the following morning.  They sent out an e-mail on Saturday 11 April 2015 at 9:53 am to the solicitors for the 2nd, 3rd and 5th respondents (who appeared to be representing the respondents in complying with the disclosure order).  They said in their e-mail:

“…

In light of your letter and attachments, can you please advise your clients’ position in relation to their summons issued yesterday for time extension/leave for appeal (‘Summons’)? Both ourselves and counsel have been and will continue to prepare on the basis that your clients are pursuing the Summons next Monday. This will obviously incur much more costs than if we are solely dealing with the costs of the Summons (if your clients are no longer pursuing the Summons).

Can you therefore advise your clients’ position as soon as possible? Thank you.”

11.  The solicitors for the 2nd, 3rd and 5th respondents responded by an a-mail also on 11 April at 1:39 pm as follows:

“Thank you for your email. The Summons has not been formally issued. In any event, in the light of the disclosure made yesterday, we have to revisit this matter and will not be seeking to go to court on Monday.”

12.  The petitioner’s solicitors then replied by e-mail also on 11 April at 2:09 pm as follows:

“Thank you for confirming that you will not be seeking to go to Court on Monday and informing that the Summons was never issued.

Even though the Summons was never issued, your clients’ ex-parte application was heard before the Honourable Chan J yesterday with notice to us, and we (including counsel) have been preparing for hearing on Monday.  Substantial costs have been incurred by our side which arose out of your clients’ ex-parte application.  This will need to be dealt with, whether by agreement, or in absence of which, we will need to trouble the Court.  Please confirm that we will be dealing with this issue of costs between ourselves (KWM and Li & Partners) first on Monday.”

13.  The solicitors for the 2nd, 3rd and 5th respondents replied on Monday 13 April and asked for proposal on costs.  This issue was not resolved.  Hence, the petitioner made this application.

The dispute

14.  The petitioner now asks for costs of and occasioned by the ex parte application up to the morning of Monday 13 April 2015 to be paid by the respondents forthwith on an indemnity basis to be summarily assessed with certificate for two counsel.

15.  The respondents agree that they should pay costs for the application to be assessed with certificate for two counsel.  But they disagree that the petitioner should have costs after the compliance by the respondents of the disclosure order at 11:53 pm on 10 April.  In any event, they do not think their liability should continue beyond the confirmation by the e-mail of the solicitors for the 2nd, 3rd and 5th respondents sent out on 11 April at 1:39 pm.  They also say that the party and party taxation should apply.

Cut-off time for costs

16.  Mr Lam, counsel for the petitioner submitted that the respondents only indicated positively in the morning of 13 April that their application for extension of time would not be pursued, hence, they should bear the costs incurred by the petitioner for the application up to that date.

17.  However, I think Mr Lam’s submission is factually incorrect.  The e-mail from the solicitors of the 2nd, 3rd and 5th respondents sent out at 1:39 pm on 11 April already said that the summons for the application had not been issued and in the light of the disclosure made on 10 April, the respondents would not be going to court on Monday, 13 April.  The reply by the petitioner’s solicitors at 2:09 pm on the same day demonstrated an understanding that the application would not be pursued in the meantime as they were then seeking to resolve only the question of costs with the respondents’ solicitors.

18.  Mr Lam also submitted in his reply submissions that there was no clear and unequivocal statement by the respondents that they would not pursue the application.  He further submitted that it was up to the respondents to make their stance clear.  If there was any uncertainty, the petitioner was amply justified to continue to prepare on the basis that the application had not been abandoned and that if it was renewed at any time shortly, the petitioner would have to prepare to meet it.

19.  I must say that such attitude in conducting litigation is too passive and lacks a reasonable sense of co-operation between the legal representatives of the litigants.

20.  If there is anything emanating from the other side that is equivocal or uncertain and the petitioner’s solicitors need an urgent clarification of the same, they should not just send out an enquiry and wait for the clarification.  They should be more proactive.  They should chase for the answer, if need be, by phone.

21.  In this case, when they were aware in the morning of Saturday, 11 April that the respondents’ solicitors had sent over the documents for compliance with the disclosure order in the previous night, their immediate query was whether they should continue with their preparation to oppose the application. They thought that perhaps they only had to deal with the costs of the summons if the respondents were no longer pursuing the summons.  They then sent out their enquiring e-mail at 9:35 am to which they got a reply at 1:39 pm.

22.  The enquiry sent out at 9:53 am obviously needed an urgent answer.  I cannot tell why the respondents should have taken more 3½ hours to answer it.  But I think the petitioner’s solicitors, when sending out the e-mail at 9:53 am, should have at the same time picked up the phone and repeated the enquiry verbally.  If the other side could not give an immediate answer, then the petitioner’s team of lawyers could continue with their preparation.  But if there was an immediate and clear answer that the application would not be pursued anymore, then the preparation should stop there and then save the matter of costs.  If there should be any worry that verbal communication leaves no proof, a confirmation by e-mail could follow immediately afterwards.

23.  Since the petitioner’s solicitors did not seek an urgent verbal answer to their query at 9:53 am on 11 April, I would only allow the petitioner’s costs for preparing the opposition up to 9:53 am on 11 April and I so order.

Scale of taxation

24.  Mr Lam submitted for the petitioner that there are some special or unusual features in this application that warrant taxation on the indemnity scale.  The first feature is that the application is an abuse of the process of the court.  The second is a self-engineered urgency.

25.  I have been referred to Hong Kong Civil Procedure 2015, vol. 1 §62/App/12; Choy Yee Chun (the representative of Chan Pui Yiu) v Bond Star Development Ltd [1997] HKLRD 1327; Chu Hung Ching v Chan Kam Ming [2001] 1 HKC 396; KJ V KMLM (unreported HCMC 4/2010, 21 May 2014) §§ 21-23 and Cheung Wei Man Vivien v Centaline Property (unreported HCA 286/2000, 15 December 2006) § 6.

26.  For abuse of process, Mr Lam submitted that this application was the respondents’ second bite of the cherry having failed in their first bite before Anthony Chan J on 2 April.  The fact that there was evidence from the respondents in support of the 2nd application on 10 April but none in the first application on 2 April is a matter of choice by the respondents.  The respondents had chosen to argue the first application without affirmation evidence and on legal arguments only.  Having lost the first application, they could not put in affirmation evidence and apply again on the pretext that there was a material change in circumstances on the ground of availability of affirmation evidence.  This is particularly so when the evidence was known to the respondents all along.

27.  For the second feature, Mr Lam submitted that the respondents all along since 2 April knew that the time for compliance with the disclosure order would expire on 10 April.  But they gave no indication that they would be making a further application for extension of time.

28.  Since the respondents were able to produce a lengthy supporting affirmation, they must have decided to make the application well before 10 April.  In fact, I had on 10 April pointed out that the respondents could have issued a summons for extension of time two days before 10 April and given the petitioner’s solicitors some indication on the evidence or points intended to be relied on. Mr Lam repeated this in support of his application.  I would also observe that the lengthy written submissions of counsel would also have taken some time to prepare.

29.  However, the respondents gave no hint of the application until they suddenly sprang it on the petitioner in the afternoon of Friday, 10 April. Hence, the petitioner submitted that the urgency rendering the application ex parte was self-engineered.

30.  Mr Liu and Mr Yu, counsel for the respondents however submitted that there was nothing unusual or special in this application.  They said that the respondents were unable to seek extension of time on an earlier date because they needed time to take instructions, collate the information and draft the supporting affirmation.  They needed the affirmation to support their case that the petitioner was guilty of material non-disclosure when he appeared ex parte by counsel before A Chow J on 23 March.  The intervening Easter holidays prolonged the time for the work.  Had the respondents been able to rely on these materials on 2 April, they would have done so. 

31.  Counsel also submitted that unless they obtained an extension of time to comply with the disclosure order, their summons to discharge the dividends injunction and preservation order would be rendered nugatory.  But I note that this argument had been raised and rejected previously.

32.  Counsel also submitted that the application, though not pursued afterwards, was not utterly devoid of merit or doomed to fail from the start and should never have been made.  I however do not think the respondents can now rely on the merit of the application now that they have abandoned it and agreed to pay costs of it to the petitioner. In any case, I do not think merit of this application has anything to do with how the application was made.

33.  Having considered the submissions on both sides, I am not satisfied that the mere fact that this application is the second bite of the cherry would justify indemnity costs.  I am however of the view that the respondents have not answered the point that they should have made the application by summons issued in good time and provided the petitioner with some indications on the evidence or points that they intended to rely on within a reasonable time before 10 April. This is something that they should have done. 

34.  To spring on the petitioner the application, which is a second bite of the cherry, on the last day for compliance together with a lengthy affirmation that the respondents had taken days to prepare and lengthy counsel’s submissions, all without the slightest hint beforehand when prior notification to the petitioner could and should have been given is to conduct the application in an oppressive manner.  In these circumstances, indemnity costs should be ordered.

Order

35.  In the premises, I order that:

(1)  the respondents do pay the petitioner the costs of the ex parte application (including the costs of the hearing) up to 9:53 am on 11 April 2015 to be assessed on an indemnity basis, with certificate for two counsel;

(2)  such costs be summarily assessed and paid forthwith;

(3)  the petitioner shall lodge his statement of costs with breakdown for different days for summary assessment under O 62 r 9A within 7 days from this order; and

(4)  the respondents shall file and serve their grounds in opposition within 7 days thereafter.

36.  Since both the petitioner and the respondents have succeeded to some extent in this application, I make no order as to costs on this application.

HCCW 103/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 103 OF 2015

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D E C I S I O N

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1.  This is my decision on whether to grant a further extension of time for compliance with paragraph 4(3) of the Injunction Order (“Disclosure Order”) pursuant to paragraph 2 of the order of Chow J dated 26 March 2015.

2.  I will not grant any further extension of time for the following reasons.

3.  Firstly, the Disclosure Order is required in support of paragraph 3(2) of the Injunction Order.  Without the Disclosure Order, paragraph 3(2) will not be effective, bearing in mind in particular the fact that there is evidence of fraud having been committed by those in control of the 1^st and/or 8^th respondents.

4.  It would not be appropriate to allow the respondents[1] to seek to change their stance by arguing today, instead of at the substantive hearing for their discharge application, whether paragraph 3(2) should be allowed to stand.  For today’s purpose, this court must take a practical and broad-brush view of these matters and provide for the appropriate interim relief until the determination of the respondents’ discharge application.  There is no doubt in my mind that paragraph 3(2) is justified on the existing evidence.

5.  Secondly, I do not agree that the maintenance of the Disclosure Order is inconsistent with the principles adumbrated in Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang [2015] 1 HKLRD 830.

6.  Apart from the fact that the facts of that case are different to those before this court, the disclosure here concerns the assets of the 8^th respondent which is the main asset of the 1^st respondent in respect of which the petitioner is a 30% shareholder.  I see no reason to take the view that the Disclosure Order is outside the proper parameters prescribed by law.

7.  I do not agree that the court may only grant a disclosure order where the plaintiff has a proprietary claim.  This is not my understanding of Pacific King Shipping Holdings Pte Ltd, see headnotes and paragraph 28 of the judgment.

8.  Thirdly, Mr Mok has not been able to advance a single argument of prejudice.  This is not a case where the disclosure constitutes an infringement of privacy or is otherwise oppressive.  The disclosure concerns the assets of a 70% owned subsidiary and there is evidence before the court that those in charge of the 1^st and/or 8^th respondents might have misappropriated such assets.

9.  Further, I agree with Ms Chan that the 4^th and 6^th respondents have the duty to account for what has transpired to the dividends in question.

10.  Finally, whilst I agree that the petitioner’s indirect interest in 30% of the dividends has been secured, I do not believe that this constitutes a good reason to resist the Disclosure Order.  The petitioner clearly has a legitimate interest in the preservation of the dividends.  They reflect the value and prospects of the 1^st respondent.