HUI (ANNIE) GUO v. YUEDONG XU AND OTHERS

HCCL 3/2019

[2022] HKCFI 3785

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 3 OF 2019

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DECISION

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1.  These are my succinct reasons for allowing this amendment application in respect of the Defence of the 1st Defendant (“Xu”), with the exception of paras 13.7A(c), (g), (h), (k) and (l), 13.7C (the reference to Mr Zhang’s witness statement), 42A.3 and the opening part of the first sentence of 42A.4. The disallowed parts are matters of evidence which have no place in a pleading.

2.  A summary of this case can be found in a previous Decision of M Chan J in [2019] HKCFI 2171, [1]-[10]. 

3.  The applicable principles can be found in Re Hin-Pro International Logistics Ltd [2016] 1 HKLRD 1367, per P Ng J, [13]-[18].

4.  There are 5 Categories of amendment as identified in para 19 of the Skeleton Arguments of Mr Wong SC, who appears for the Plaintiff (“Guo”).  There is no objection to Category 4 (para 18.10(c) of the draft Amended Defence) which seeks to correct a factual error. 

5.  Every conceivable objection has been taken with the proposed amendments.  With respect, some of the arguments have little merit and it is unnecessary to deal with all of them.

6.  On the objection of delay in making this application, whilst it may be said that Xu should have made this Amendment Application before the last day of the deadline for interlocutory application, given that there is no trial date yet for this action and in light of the applicable principles I fail to see this as a good ground to deny the Amendment.

7.  As regards the alleged prejudice which cannot be compensated by costs, namely, the demise of Mr Carson, who is said to be able to give evidence on the dealings between Gou and Mr Billis, 3 points can be made :

(1)  I agree with Mr Ho, who appears for Xu, that Guo’s dealings with Mr Billis were matters pleaded and should be proved by her.  If Mr Carson’s evidence was relevant to Guo’s case, she should have made arrangements to obtain his evidence well before illness befell Mr Carson;

(2)  Mr Billis’ witness statement was served on Guo on 12 October 2021, probably there remained time for a witness statement to be taken from Mr Carson thereafter.  The evidence is that Mr Carson’s health “deteriorated from in about October 2021” and he “received palliative care from in or about mid-December 2021”;

(3)  It appears that there was at least one important email from Mr Billis to Guo dated 22 April 2014 which may shed some light on the dealings between them.  I do not know from the evidence in this Application if there was any other such document.  It may not be a case where the trial will turn solely upon the oral evidence of Gou and Mr Billis on the issue of their dealings.  The unavailability of Mr Carson’s evidence should be assessed in such light. 

8.  I am, in the premises, not convinced that there is any prejudice to Guo which cannot be compensated with costs.

9.  In respect of the arguments that the pleas sought to be introduced by Amendment are defective and bound to fail, I am unable to agree.  First, there is no merit in the suggestion that the amendments are not adequately pleaded.  If anything, the pleas could be more concisely formulated. 

10.  On the proposition that Xu has the burden, but failed, to plead that restitutio in integrum is possible.  I am not persuaded, having been taken by the parties to a number of authorities, that there is such a burden on Xu.  In particular, it seems to sit with common sense that it is an issue which should be raised by Guo to resist the relief of rescission in the event that the case of misrepresentation is made out against her: see Salt v Stratstore Specialist Ltd [2015] 2 CLC 269, per Longmore, LJ at [19]-[30].

11.  In respect of the attack on the new plea on lack of clean hands, which is said to bar Guo from seeking equitable relief. Assuming that Guo is correct that in order for Xu to succeed the alleged misconduct must have an immediate and necessary relation to the relief sought, it will primarily be a matter of law for the court whether the lack of clean hands can so relate to the relief.  Generally, matters of law should not be pleaded.

12.  Second, none of the arguments on the substantive merits of the new pleas can be said to be clear cut, and should not be entertained for the present purpose.  For instance, whether rescission is available to Xu will depend on the facts as found by the court and whether the court can do “practical justice” on any necessary return of benefit acquired to achieve rescission (see School Facility Management Ltd v Governing Body of Christ the King College [2021] 1 WLR 6129, CA, [39]-[40]).

13.  As regards the argument that the new plea which challenges Guo’s entitlement to sue as only one of two promisees (the other being the 3^rd Defendant) should be raised and determined at the outset and not raised by way of defence, I am inclined to agree with Mr Ho that a valid distinction can be drawn between this case and, eg, Waddington Ltd v Chan Chun Hoo Thomas & Ors, CACV 10/2014, where the challenge was one of authority to sue.  Here, the issue is one of substantive legal entitlement on the part of Guo to sue as only one of the promisees.  I believe that it is one which should be determined at the trial.

14.  I shall hear the parties on costs. 

HCCL 3/2019

[2022] HKCFI 2423

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 3 OF 2019

(TRANSFERRED FROM HIGH COURT ACTION NO 2404 OF 2018)

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DECISION

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1.  This is the 1^st defendant’s application against the plaintiff for further security for costs up to and including trial. There is no dispute on liability. What divides the parties is the quantum of security. The parties have agreed that this application shall be dealt with on paper.

2.  On 19 July 2021, the plaintiff was ordered to pay security for the 1^st defendant’s costs up to and including discovery in the sum of HK$1,600,000, which it had duly paid into court on 3 August 2021.  The 1^st defendant now seeks a further sum of HK$6,500,000 up to and including trial.  The plaintiff contends that a sum of HK$3,000,000 is sufficient.

3.  The 1^st defendant’s application for further security is supported by a revised bill of costs dated 21 March 2022.  That bill was revised from a previous bill of costs dated 13 January 2022.  Both bills were prepared by law costs draftsman.  The original bill sought a total sum of HK$10,082,979.20 comprising HK$3,948,466.70 as profit costs and HK$6,134,512.50 as disbursements, a significant part of which caters for counsel fees (for both senior and junior counsel). 

4.  According to the 1^st defendant’s handling solicitor Mr Janice Chew, the original bill was revised because it was prepared on the basis of the daily refresher of senior counsel being at HK$300,000 and junior counsel at HK$100,000, which she says were “at variance with the prevailing industry rates” and were therefore reduced to HK$120,000 and HK$50,000 respectively. She also took out some items which did not require input from counsel.  Most tellingly, she had “adjusted” the number of hours charged by her associate Mr Raymond Liu who had been working under her supervision to “reflect the allocation of work between the two fee earners in the proceedings”.  Mr Liu was named as one of the two fee earners in the original bill.  There is no suggestion that his hours were inadvertently left out from the original bill. How it was claimed only in the revised bill that he had incurred substantial hours which were not reflected in the original bill is highly questionable, and is a matter that I shall come back to in the latter part of this decision.

5.  The revised bill sought a total sum of HK$10,569,312.50 comprising HK$6,073,000 as profit costs and HK$4,496,312.50 as disbursements.  The reduction in disbursements was largely the result of the reduction of counsel fees as explained above.  What troubles me is the increase in the profit costs claimed by over HK$2 million when the two bills are only two months apart.  A comparison of the two bills showed that for a number of items bearing the same description, Ms Chew’s hours have been increased and, significantly, hours for Mr Liu have been added.  For other items which have reduced Ms Chew’s hours, the inclusion of Mr Liu’s hours could not be explained by Ms Chew dividing up part of her work with Mr Liu to achieve better costs efficiency, when the aggregate sum under the item was in fact increased.

6.  By way of illustration:

Attendance on client

(1)  Discovery

(a)  original bill: Ms Chew (6 hours);

(b)  revised bill: Ms Chew (20 hours), Mr Liu (60 hours);

(2)  Witness statements[1]

(a)  original bill: Ms Chew (30 hours);

(b)  revised bill: Ms Chew (20 hours), Mr Liu (60 hours);

(3)  Application for further security for costs

(a)  original bill: Ms Chew (15 hours);

(b)  revised bill: Ms Chew (15 hours), Mr Liu (40 hours);

(4)  Supplemental witness statements[2]

(a)  original bill: Ms Chew (20 hours);

(b)  revised bill: Ms Chew (15 hours), Mr Liu (40 hours);

Attendance on other party

(5)  Discovery

(a)  original bill: Ms Chew (5 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (20 hours);

(6)  Plaintiff’s witness statements[3]

(a)  original bill: Ms Chew (5 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (20 hours);

(7)  Plaintiff’s supplemental witness statements

(a)  original bill: Ms Chew (5 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (20 hours);

(8)  Application for further security for costs

(a)  original bill: Ms Chew (5 hours);

(b)  revised bill: Ms Chew (5 hours), Mr Liu (15 hours);

Attendance on senior counsel

(9)  Instructions to counsel to advise on merits and evidence

(a)  original bill: Ms Chew (15 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (35 hours);

(10)  Instructions to counsel to advise on and attend PTR

(a)  original bill: Ms Chew (10 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (25 hours);

Attendance on junior counsel

(11)  Instructions to counsel to advise on client’s supplemental witness statements

(a)  original bill: Ms Chew (8 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (30 hours);

(12)  Instructions to counsel to advise on merits and evidence

(a)  original bill: Ms Chew (10 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (30 hours);

(13)  Instructions to counsel to advise on and attend PTR

(a)  original bill: Ms Chew (5 hours);

(b)  revised bill: Ms Chew (5 hours), Mr Liu (20 hours);

Preparing and considering court documents

(14)  Considering plaintiff’s witness statements[4]

(a)  original bill: Ms Chew (40 hours);

(b)  revised bill: Ms Chew (50 hours), Mr Liu (80 hours);

(15)  Considering plaintiff’s supplemental witness statements[5]

(a)  original bill: Ms Chew (20 hours);

(b)  revised bill: Ms Chew (20 hours), Mr Liu (60 hours);

Preparing for and attending court hearings

(16)  Security for costs

(a)  original bill: Ms Chew (15 hours);

(b)  revised bill: Ms Chew (10 hours), Mr Liu (30 hours);

(17)  Directions hearings and PTR

(a)  original bill: Ms Chew (30 hours);

(b)  revised bill: Ms Chew (25 hours), Mr Liu (40 hours).

7.  It is therefore no surprise that despite the significant reduction in disbursements, the total amount sought in the revised bill was still in the HK$10 million region and in fact exceeded that in the original bill.

8.  One would expect all of Mr Liu’s involvement (whether past or projected)  to be reflected in the original bill which described him as one of the two fee earners. In such circumstances, the addition of Mr Liu’s hours in the revised bill could not have been an adjustment to “reflect the allocation of work between the two fee earners” as Ms Chew tried to explain in her affirmation.  What is clear is that the revised bill is a grossly inflated one which the court cannot safely rely upon in deciding quantum.  Indeed, the fact that the 1^st defendant is not claiming the full HK$10 million sought in the revised bill but the much lesser amount of HK$6.5 million is telling.  Such an extreme variance does not reflect the reasonableness in the quantum sought by the 1^st defendant, but rather highlights the grossly inflated nature of the revised bill.

9.  Applicants for security for costs must be realistic in their costs estimates.  It is not the role of the court to undertake a mini-taxation and vet through each item in the bill of costs.  The court has to rely heavily on the applicants and those advising them for an accurate estimate.  There is no room for any practice of inflating a bill and then settling for less in anticipation of a broad-brush discount by the court.

10.  In addition, given the 1^st defendant is seeking further top-up security against the plaintiff, it is incumbent on the 1^st defendant to explain how much of the previous security ordered against the plaintiff has been used up.  No such information has been provided by the 1^st defendant.  The revised bill made no apparent let alone clear distinction between costs already incurred, and projected future costs.

11.  In such circumstances, the revised bill put forward by the 1^st defendant falls far short of providing any meaningful assistance to the court on the question of quantum of security. The court is left with no option but to apply common sense based on its experience in coming to an educated estimate of a reasonable sum.

12.  Engagement of both senior and junior counsel by the parties is reasonable.  This action is of some complexity as reflected in: (i)  the trial estimated length of 10 days; (ii)  the plaintiff previously being ordered to provide security up to and including discovery in the sum of HK$1,600,000 for the 1^st defendant’s costs, and separately for the 4^th and 5^th defendants’ costs in the same amount; and (iii)  the plaintiff being ordered to pay HK$5,500,000 as further security for the 4^th and 5^th defendants’ costs up to and including trial.  Although the 1^st defendant has not identified the senior and junior counsel intended to be instructed (or whether any has been instructed by now), my estimate would be made on the basis that both senior and junior counsel would be involved.

13.  On a broad-brush basis, I order the plaintiff to provide further security for the 1^st defendant’s costs up to and including trial in the sum of HK$4,600,000.  This is based on: (i)  HK$3,800,000 covering the costs for the preparation for and attendance at the PTR and trial by senior counsel,[6] junior counsel[7] and the 1^st defendants’ solicitors[8]; and (ii)  a lump sum of HK$800,000 covering costs incurred and projected to be incurred after discovery leading up to trial including preparation of witness statements (and supplemental witness statements, if any), obtaining counsel advice, any further interlocutory applications, and for the general care and conduct of the case.

14.  The 1^st defendant seeks an order that in default of provision of further security, the plaintiff’s claim against the 1^st defendant be dismissed forthwith with costs without further order.  It is customary for such a self-executory order to be made. See for example Sunchase International Group (China)  Ltd v Vincor Group of Companies (Investment)  Ltd & Ors (FAMV 21/2004, 22 February 2005)  at [6].  Such an order was also included as part of the order directing the plaintiff to provide further security for the 4^th and 5^th defendants’ costs up to and including trial.  This is to save the time and trouble for the 1^st defendant to be put to wait for a sufficiently long period of time after the plaintiff has defaulted in providing security to apply to strike out the claim for want of prosecution, which is not an easy threshold to cross following the decision of the Court of Final Appeal in Wing Fai Construction Co Ltd v Yip Kwong Robert (2011)  14 HKCFAR 935.  There is no good reason to depart from the conventional practice and the previous order made by the court in this action.

15.  I make the following orders:

(1)  The plaintiff do provide further security for the 1^st defendant’s costs in this action up to and including trial in the sum of HK$4,600,000 by payment into court within 28 days from the date of this Order, and in the meantime all further proceedings be stayed save for the performance of this Order; and

(2)  If the plaintiff fails to provide security in accordance with paragraph (1)  above, the plaintiff’s claim herein against the 1^st defendant be forthwith dismissed with costs to the 1^st defendant to be taxed if not agreed without further Order.

16.  Given the sum ordered against the plaintiff is lower than the amount sought by the 1^st defendant but higher than the amount offered by the plaintiff, I make a costs order nisi that the costs of this application (including all costs reserved, if any)  be in the cause, and such order shall be made absolute in the absence of any application for variation by way of inter partes summons within 14 days from the date of this Order.

Written submissions by Mr Leon Ho instructed by K&L Gates, for the Plaintiff

Written submissions by JC Legal, for the 1^st Defendant

HCCL 3/2019

[2022] HKCFI 1629

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 3 OF 2019

(Transferred from HCA No 2404 of 2018)

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DECISION

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1.  This is the application of the 4^th and 5^th Defendants for specific discovery against the Plaintiff in respect of documents relating to alleged secret profits made by the Plaintiff in breach of the Strategic Cooperation Agreement pleaded in the Amended Statement of Claim.

2.  Mr Ng, who appears today for the 4^th and 5^th Defendants, rightly accepted that the court had previously expressed concern about the progress of this case.  I should add that there had been a number of interlocutory applications made before this court, but very little real progress has been made about bringing the case to trial.  I understand from Mr Ng that this application was filed on the last day when interlocutory application must be filed pursuant to the order of this court dated 12 November 2020 (with subsequent extensions). 

3.  There are two fundamental issues concerning this application.  Firstly, the Summons was not supported by any affirmation.  I understand that after receiving the Plaintiff’s skeleton arguments for this hearing yesterday, the 4^th affirmation of Mr Li Jiankun was filed to make good that deficiency.  That affirmation was only served on the Plaintiff yesterday afternoon.  By reason of the fact that the hearing bundles were only lodged with the court early yesterday evening, the affirmation has not been read by the court.  Hence, I do not regard the deficiency as having been remedied.  I think it must be accepted that the requirement under Order 24 rule 7(3) is a mandatory one such that an application of the present type must be supported by an affidavit.  This I regard as a serious deficiency in respect of the application before the court.

4.  Secondly, despite having made lengthy submissions, Mr Ng has not managed to demonstrate to the court why the issue of secret profits is a live one by virtue of the pleadings in this case.  It is not pleaded in the Amended Statement of Claim.  Nor is it pleaded in the Defence of the 4^th and 5^th Defendants.  Even if there is ground for the 4^th and 5^th Defendants to complain that the Plaintiff had, in breach of the Strategic Cooperation Agreement, made secret profits, the point has to be made an issue in the case.  There is simply no answer to the fundamental problem that the matter has not been made an issue in this case, and hence it is not relevant.  Even if there is ground for the 4^th and 5^th Defendants to amend their case to make it an issue, this application is premature.  As it is, the 4^th and 5^th Defendants are putting the cart before the horse. 

5.  For these reasons, this application must be dismissed and I do so. 

HCCL 3/2019

[2022] HKCFI 1331

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 3 OF 2019

(TRANSFERRED FROM HIGH COURT ACTION NO. 2404 OF 2018)

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D E C I S I O N

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1.  By summons of 2^nd March 2022, the Plaintiff applied for an extension of time, until 4^th May 2022, for the parties to take out all outstanding interlocutory applications.

2.  By a further summons of 21^st April 2022, the Plaintiff applied for leave to amend this summons, to extend time to 7 days from a further directions hearing to be listed not before 1^st June 2022.  I grant leave for the amendment and will consider the application for a time extension on this basis.

3.  The original deadline by which the parties were to take out their outstanding interlocutory applications was 6^th August 2021, pursuant to the order of A Chan J of 12th November 2020.  There were further extensions by consent.  The time extension summons of 2^nd March 2022 is the Plaintiff’s fifth request to extend time for the taking out of interlocutory applications.

4.  The Plaintiff relies on the following grounds for extension.

4.1  The Plaintiff has a fee dispute with her previous solicitors King & Wood Mallesons Hong Kong (“KWM”).  KWM has only provided some of the pleadings and a limited number of documents to the Plaintiff’s current solicitors K&L Gates (“K&L”)  and is not willing to transfer other files until all of KWM’s fees have been paid.

4.2  There has been a material change of circumstances as the Plaintiff had not changed her solicitors when agreeing to the previous deadline.

4.3  It has not been possible to take copies of documents from the court file between 7^th March 2022 to 11th April 2022 by reason of the General Adjournment of Proceedings announced by the Judiciary due to the COVID-19 pandemic (“GAP”).

4.4  The value of the claim is substantial, so that fairness requires that the Plaintiff should be afforded a real opportunity to obtain legal advice.

4.5  The 1^st, 4^th and 5^th Defendants have taken out interlocutory applications against the Plaintiff, so that the parties will need time to deal with these in any event and minimal prejudice will be caused by the time extension sought by the Plaintiff.

Fee dispute

5.  Mr Thomas Wong, counsel for the 4^th and 5^th Defendants, has submitted that even if there is a fee dispute with KWM, the Plaintiff could settle the disputed bills first under an express reservation of rights to refer the bills to taxation, obtain the papers, and then commence taxation proceedings.  He cited Springbok Shipping (HK)  Ltd & others v Clayton Wong & Co [1998] 1 HKLRD 225, where the Court of Appeal held that despite paying the bills, the plaintiffs were entitled to proceed to taxation as (inter alia)  they had reserved the right to taxation.

6.  In the present case, it is unknown whether KWM would have released the papers on such a basis.  However, there is no evidence that the Plaintiff even attempted such a course.

Material change of circumstances; inability to take copies of documents from the court file

7.  The currently operative deadline, which has passed, for the making of interlocutory applications was 4^th March 2022.  This date was proposed by KWM on 24^th December 2021.  The parties agreed to it and an order was accordingly granted by A Chan J on 24^th January 2022.

8.  Whilst it is true that the Plaintiff had not changed her solicitors when agreeing to this previous deadline, I note that the Plaintiff engaged K&L on 7^th February 2022, and K&L had already learnt by 10^th February 2022 that KWM was only going to transfer limited documents to it because of the fee dispute.  The handling partner of K&L has made an affirmation stating that he was mindful of the necessity to act with due haste.  Yet no explanation has been given as to:

8.1  why the court file could not have been searched between 10^th February 2022 and 7^th March 2022 when GAP started, particularly given that the deadline for making interlocutory applications was 4^th March 2022;

8.2  whether any attempts were made to ask for leave to search the court file during GAP.

9.  It appears that K&L has, since the end of GAP, on 11th April 2022 carried out searches of the court file although it is said that not all of the interlocutory applications and orders have been obtained.  It is not clear why this is the case.

10.  It is said that K&L does not have copies of:

10.1  documents discovered by the parties to the proceedings;

10.2  correspondence between the parties;

10.3  documents prepared by KWM for the Plaintiff; and

10.4  documents received by KWM from the Plaintiff’s counsel.

11.  As to documents discovered by the parties, the 1^st, 4^th and 5^th Defendants today have helpfully indicated that they would be willing to provide copies to the Plaintiff.  The 4^th and 5^th Defendants have indicated that they would be willing to provide photocopies of the documents of which the Plaintiff gave discovery, and electronic copies of the documents of which the Defendants gave discovery, within a week, upon payment of copying charges and reasonable costs for work involved.

12.  As to correspondence between the parties, it is not clear to me why this would be needed in order to decide what interlocutory applications need to be made.

13.  As to the documents prepared by KWM for the Plaintiff, the emphasis in the skeleton of Mr Leon Ho, counsel for the Plaintiff, was placed on the fact that draft proofs of evidence prepared by KWM were not available.  It is not clear to me why such documents would be necessary for KWM to consider whether interlocutory applications should be made.

14.  As to the documents received by KWM from the Plaintiff’s counsel, there is no evidence as to whether counsel was asked for copies.

15.  Furthermore, whilst the Plaintiff has focused on what is said to be the inability of K&L to consider what interlocutory applications should be made in the absence of documents made available since they were engaged, what the Plaintiff has not explained is why the necessary interlocutory applications were not taken out whilst KWM was still acting for her.  The relevant chronology is as follows.

15.1  On 26^th May 2021, KWM proposed that interlocutory applications of all parties should be made within 28 days after exchange of witness statements between the Plaintiff and the 1^st Defendant.  A consent order was made by DHCJ MK Liu on 15^th June 2021 incorporating this provision.

15.2  It appears that KWM overlooked this and it suggested by letter of 26^th July 2021 that interlocutory applications of all parties should be made within 14 days after exchange of witness statements between the Plaintiff and the 1^st Defendant.

15.3  There were subsequently further extensions of time.

15.4  The Plaintiff was in fact served with the 1^st Defendant’s witness statements on 12th October 2021, which was some four months prior to the termination of KWM’s retainer.

15.5  There has been no explanation as to why the Plaintiff was unable to take out interlocutory applications during those four months.

Value of the claim

16.  Whilst the value of the claim may be substantial, this alone is not a reason to grant an extension of time, if the Plaintiff has already had a sufficient opportunity to obtain legal advice.

Interlocutory applications taken out by the Defendants

17.  The Plaintiff says that the 1^st, 4^th and 5^th Defendants have taken out interlocutory applications themselves and that (a)  they may result in consequential applications, (b)  time will be needed to deal with such applications in any event so delay arising from the time extension will not be substantial, and (c)  there will be minimal prejudice caused from any additional delay arising from an extension of time.

18.  As to (a), this is speculative.

19.  As to (b), there is nothing to indicate that the delay would not be substantial, particularly when the Defendants’ applications were in fact taken out before the deadline of 4^th March 2022, and are all due to be heard in May 2022, whereas the Plaintiff is asking for a somewhat open-ended deadline after 8^th June 2022.

20.  As to (c), the 4^th and 5^th Defendants say that an extension of time will cause them great prejudice as the Plaintiff obtained a freezing injunction in Australia in aid of the present proceedings, covering assets of the 4^th and 5^th Defendant in the amount of over A$22.6m, and this has been in place since October 2018.  Furthermore, the 4^th and 5^th Defendants have suffered loss in the form of lost interest and penalties for late repayment of loans.  The Plaintiff says that this is a matter for the 4^th and 5^th Defendants to take up with the New South Wales court.  I do not agree, as the prejudice arises from delay caused by the extension of time sought in the Hong Kong proceedings.

Disposition

21.  Taking the above into account, I will grant a short extension to the Plaintiff so that she may have the opportunity to obtain the documents which she says she currently does not have.

22.  However, given the history of repeated extensions of the deadline and the prejudice which further delay will cause to the 4^th and 5^th Defendants, I do not agree that it would be appropriate to make a somewhat open-ended order of extending the deadline to 7 days from a further directions hearing to be listed not before 1^st June 2022.

23.  I will therefore order that unless by 20th May 2022 the Plaintiff do take out all interlocutory applications she seeks to make, she will be debarred from so doing.

24.  I should make it clear that it is a matter for the Plaintiff to decide what documents she wishes to obtain and from which source, and that the operation of the unless order does not in any way depend on whether the Plaintiff obtains any particular documents from any particular source.  She may for example choose to pursue obtaining documents from KWM.  I am not making any order that the Defendants provide documents to her.  I simply record that the 4^th and 5^th Defendants, through counsel, have indicated their willingness to provide a set of documents provided by the parties in discovery within a week and upon payment of charges and costs as aforesaid.  Whether the Plaintiff wishes to avail herself of this is a matter for her.

Mr Leon Ho, instructed by K & L Gates, for the Plaintiff

Mr Raymond Liu Wai Man, of JC Legal, for the 1^st Defendant

The 2^nd and 3^rd Defendants were not represented and did not appear

Mr Thomas Wong, instructed by Miao & Co, for the 4^th and 5^th Defendants

HCCL 3/2019

[2022] HKCFI 368

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 3 OF 2019

____________________

____________________

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DECISION

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1.  These are very briefly my reasons.

2.  As I mentioned earlier, this is going to be a broad-brush assessment. First of all, Mr Sajnani described the skeleton bill as exorbitant. I have to say that having looked at it and having listened to the submissions made, I am inclined to agree.

3.  I am helpfully reminded of the fact that on 12 March 2020, this court had dealt with a security for costs application in this action. It was indicated in that Decision that the claim by the 4^th and 5^th Defendants was fairly high, and the claim was reduced by a considerable margin by virtue of that Decision. I need only say a few words about the bill in front of me.

4.  First of all, rightly it was pointed out that this bill which amounts to a total of over HK$11 million was preceded by another bill which was of a smaller sum at HK$9.6 million. In the earlier bill, one of the fee earners, the junior associate, stated in the bill was a different person. I have to say that this kind of inconsistency is rather disturbing.

5.  Further, and I am merely pointing out the more eye-catching issues, in the earlier bill senior counsel’s refresher was charged at HK$400,000 per day. The absurdity is self-evident, and in the later bill the same item was reduced to HK$120,000 per day. Overall, I find the number of hours estimated for both fee earners far too excessive. There is self-evidently much duplication in the work of two solicitors, and with respect counsel’s fees are very high. It must not be assumed, as Mr Ng has accepted, that counsel’s fees are automatically approved by the court.

6.  I think in these rather unusual circumstances the court should be very careful about the amount of security for costs ordered. I take into account the fact that there is already payment of security of HK$1.6 million up to discovery. I find the further payment of HK$5.5 million offered by the Plaintiff realistic and quite reasonable in the circumstances. I shall order accordingly.

HCCL 3/2019

[2020] HKCFI 425

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 3 OF 2019

(TRANSFERRED FROM HIGH COURT ACTION NO. 2404 OF 2018)

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D E C I S I O N

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1.  This is the application of the 4^th and 5^th Defendants (“Defendants”) for security for costs against the Plaintiff in the sum of HK$2,937,717.50 for costs up to and including discovery in this action.

2.  Upon the invitation of the court, the parties had agreed that this application be dealt with on paper.  The issue is confined to the quantum of the security to be provided.

3.  It is relevant to bear in mind that the Plaintiff had already provided security for the Defendants’ costs from commencement of these proceedings up to and including the hearing of their application to strike out the Statement of Claim[1] in the sum of HK$600,000[2]. 

4.  The applicable legal principles, helpfully set out in the Plaintiff’s skeleton arguments, are not in dispute.  In particular, it is common ground that the court takes a broad-brush approach in the assessment of the quantum of security.

5.  I have to say that, whilst this case may involve a significant amount of documents, it appears from the Defence of the Defendants that the issues they take with the Plaintiff’s case are not unduly complex.  Therefore, the quantum claimed by the Defendants is surprisingly high.  For instance, counsel fees (senior and junior) in the total sum of HK$382,500 are sought for the production of the 12-page Defence. 

6.  There are merits in much of the submissions advanced by the Plaintiff in opposition to the application.  In particular, I see no reason to revisit the quantum of the security provided for the strike out application.  It is trite that a defendant is entitled to sufficient security but not complete security for his costs. 

7.  Further, it is accepted by the Defendants that the hourly rates used in their draft Skeleton Bill of Costs exceeded the rates applied on party and party taxation.

8.  Furthermore, the number of hours provided for the works of the solicitors should be adjusted downwards given their familiarity with the case after having conducted the strike out application and the involvement of 2 counsel.  It is worth mentioning that: (a) the legal research by the solicitors would, at least to some extent, duplicate with the work of counsel; and (b) the costs for this application must be considerably reduced by the paper disposal.

9.  Finally, I am not inclined to allow a sum for the Request for Further and Better Particulars of the Amended Statement of Claim when no such Request has been made to date, 9 months after the Defendants had received a copy of that document.

10.  In the premises, I hold that the appropriate security should be in the sum of HK$1,000,000 (in addition to the HK$600,000 already paid into court by the Plaintiff).  I make an order in terms of paras 1 and 2 of the Summons filed on 23 December 2019 with the adjusted quantum. Although the sum ordered exceeds that which was offered by the Plaintiff (HK$802,400 (in addition to the HK$600,000)), the quantum claimed by the Defendants has been considerably reduced.  On balance, I believe that the fair costs order for this application should be in the cause, and I make an order nisi accordingly. 

[1]  That application had been dealt with.

[2] The Defendants propose to give credit for this sum against the security to be provided under this application.

HCCL 3/2019

[2019] HKCFI 2171

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 3 OF 2019

(Transferred from HCA No. 2404 of 2018)

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____________

______________

D E C I S I O N

______________

Background

1.  The Plaintiff commenced proceedings against 6 Defendants in October 2018, for payment of AUD17,168,803.75 (amended in February 2019 to AU$22,671,178.47) (“Sum”), being (according to paragraph (1) of the Indorsement of Claim) an amount equal to:

(a) the Plaintiff’s share of 49% of the dividend payments received and held by the 6^th Defendant, allegedly for the 4^th and 5^th Defendants, as shareholders of Tribune Resources Ltd and Rand Mining Ltd (“Target Companies”);

(b) the Plaintiff’s share of 49% of the unrealized profits in respect of the shares held in the Target Companies; and

(c) 51% of expenses incurred by the Plaintiff for the acquisition of shares in the Target Companies.

2.  The Plaintiff also sought, in the alternative, payment of the Sum from the 4^th to 6^th Defendants as constructive trustees for the Plaintiff and the 3^rd Defendant; and in the further alternative, such amount as determined by the Court to be “a fair and reasonable share” of the dividend payments the 1^st, 2^nd and 6^th Defendants had received from the Target Companies.

3.  According to the Statement of Claim, the claims were made by the Plaintiff against the Defendants on the basis of the alleged breach of an agreement made between the Plaintiff and the 1^st to 3^rd Defendants in 2014 (“Agreement”) to invest in and acquire 49% interest in the Target Companies. Such shares were to be acquired by a Mainland listed company, or some other entity or platform to be agreed. Under the Agreement, the parties agreed to share the expenses for the work undertaken pursuant to the Agreement, as well as the profits and capital gains achieved, as well as the proceeds gained as a result of the acquisition of the shares in the Target Companies, in the proportion of 49% between the Plaintiff and the 3^rd Defendant, and 51% between the 1^st and 2^nd Defendants.

4.  The terms of the Agreement were supplemented and varied between November 2014 and January 2015, such that the acquisition of shares in the Target Companies was agreed to be undertaken by the 4^th and 5^th Defendants, instead of by a listed Mainland company.

5.  The Plaintiff claims that the 1^st and 2^nd Defendants were at all material times acting as her fiduciaries.

6.  Pursuant to the Agreement as varied, the 4^th and 5^th Defendants did acquire shares in the Target Companies, and the Plaintiff claims that the 1^st and 2^nd Defendants were in breach of the Agreement, and in breach of their fiduciary duties owed to the Plaintiff, by failing to distribute or pay to the Plaintiff the dividends received by the 4^th and 5^th Defendants in respect of their shareholding in the Target Companies for the years 2017 and 2018, and failing to account to the Plaintiff in respect of the increase in value/capital gains in respect of the shares held in the Target Companies. The Plaintiff further claims that the 4^th and 5^th Defendants (which had acquired the shares) had knowledge of the terms of the Agreement and the Plaintiff’s entitlements thereunder, such that they hold 49% of the dividends and capital gains they received, or alternatively a fair and reasonable share thereof, on constructive trust for the Plaintiff, and are liable to account to the Plaintiff.

7.  On 7 January 2019, the 4^th and 5^th Defendants applied by summons to strike out the Statement of Claim, on the ground that it discloses no reasonable cause of action against them. They claim that on the face of the Statement of Claim, the Plaintiff only has a personal claim against the 1^st and 2^nd Defendants, who were personally liable (if at all) to pay, out of their own pockets, the Sum claimed as the Plaintiff’s share of the dividends and capital gains. The shares in the Target Companies were at all material times intended and agreed to be acquired, and beneficially owned, by the 4^th and 5^th Defendants, which were accordingly entitled beneficially to the dividends and any capital gain. Even if the 1^st and 2^nd Defendants were in breach of their fiduciary duties to the Plaintiff, as they had no proprietary interest in the dividends and capital gains from the 4^th and 5^th Defendants’ shares in the Target Companies, there is no basis for the Plaintiff to claim that the 1^st and 2^nd Defendants hold any dividends and capital gain on trust for her.

8.  The 4^th and 5^th Defendants claim that they were not parties to the Agreement, and have no obligation to hold the Plaintiff’s share of the dividends or capital gains on trust, when the Plaintiff is not entitled to seek any proprietary relief against the 1^st and 2^nd Defendants said to be in breach of the Agreement.

9.  The 4^th and 5^th Defendants further argued that there can be no trust of the unspecified and un-earmarked amount, equal to 49% or “a fair and reasonable share” of the capital gain of the Target Companies, or the alleged expenses.

10.  By its summons issued on 5 June 2019, a few days before the hearing of the striking out application, the Plaintiff applied to amend the Indorsement of Claim to the Writ and the Statement of Claim. In essence, the Plaintiff pleads by her amendments an entitlement to a “Pallant v Morgan equity” (Pallant v Morgan [1953] 1 Ch 43) in what was acquired by the 1^st and 2^nd Defendants under the Agreement, by virtue of an understanding between the Plaintiff and the 1^st and 2^nd Defendants, that they would share the benefit of an opportunity to acquire an interest and to invest in the Target Companies through a cooperation with the substantial shareholder of the Target Companies (“Opportunity”). The Opportunity was known to the Plaintiff through her relationship with the said substantial shareholder, was not hitherto known to the public, and was provided by the Plaintiff to the 1^st and 2^nd Defendants. By the Amended Statement of Claim, the Plaintiff claims that she had conferred advantages on the 1^st and 2^nd Defendants by making the Opportunity available to the 1^st and 2^nd Defendants, and this secured and led to the eventual acquisition of the shares in the Target Companies. The Plaintiff claims that it is inequitable for the 1^st and 2^nd Defendants to retain the entire interest and all future benefits in the shares in the Target Company, which they would not have obtained but for the Opportunity and their understanding with the Plaintiff, that the benefits of the acquisition would be shared.  

11.  On the above basis, the Plaintiff claims in the Amended Statement of Claim that she is entitled to an equity in the benefit acquired by the 1^st and 2^nd Defendants under the Agreement, and that the 1^st and 2^nd Defendants were in breach of their fiduciary duties to her, in acquiring shares in the Target Companies for themselves, by their nominees, and to her exclusion. The Plaintiff further claims that the 4^th and 5^th Defendants, as the nominee vehicles used by the 1^st and 2^nd Defendants to hold the shares in the Target Companies, as well as the dividends and capital gains thereof, had actual or constructive knowledge, that the 1^st and 2^nd Defendants were liable as constructive trustees based on the Pallant v Morgan equity, and alternatively, owed fiduciary duties to the Plaintiff and were in breach of such duties.

12.  On the basis of the alleged equity pleaded in the Amended Statement of Claim, it is not a plain and obvious case for striking out, which was why the striking out was not pursued by the time of the hearing on 11 June 2019.

13.  The issues which remained in dispute at the hearing were whether the Plaintiff should be allowed to amend the Statement of Claim and, in respect of the striking out application, whether the costs of the striking out should include certificate for 2 Counsel for the 4^th and 5^th Defendants.

The amendment

14.  The Plaintiff argued that she is entitled to amend her Statement of Claim without leave. On behalf of the Defendants, it was argued that the Plaintiff should not be permitted, by the amendment sought, to make a new claim of entitlement to a share of the shares in the Target Companies (“New Claim”), as opposed to her original claim to a share of the dividends and capital gains, when such New Claim is not verified by a statement of truth, nor to plead a case which is inconsistent with or diametrically different to her original claim.

15.  The lack of a statement of truth to verify the New Claim has since been rectified, by the Plaintiff making a statement of truth on 10 June 2019, a day before the hearing.

16.  As for the New Claim being allegedly inconsistent with the Plaintiff’s original claim, and which is not pleaded as an alternative, I accept the submissions made by Counsel for the Plaintiff, that the New Claim is in essence a claim for relief made on the basis of the Pallant v Morgan equity.  By the amendment, the Plaintiff seeks to claim that by virtue of her equity, she is entitled to a share of the property or benefit which she and the 1^st and 2^nd Defendants had agreed to share.  If the Court should accept such an equity, the property which the parties had agreed to share would be held on trust for them jointly. In Pallant v Morgan [1953] 1 Ch 43, the court found that even if there was uncertainty as to how the property was to be shared, if the parties should fail to agree on the division, the court can order the property to be sold and the proceeds to be divided equally.

17.  Hence, how the benefit of the investment in the Target Companies is to be shared pursuant to the Agreement is to be decided by the Court, and it is sufficient if the Plaintiff should plead the facts of the Agreement on which she relies, and the facts to support her claim to the benefit to be shared: be it a percentage or share of the dividends and the capital gains from the shares in the Target Companies, or a percentage of the Shares acquired, which may be ordered by way of relief.

18.  I accept the submissions made for the Plaintiff, that there is no inconsistency in the facts relied upon by the Plaintiff, whether as pleaded in the original Statement of Claim, or in the proposed Amended Statement of Claim.  The claim to the shares is but one legal consequence of the Court’s acceptance of the fact of the parties’ understanding under the Agreement, and the constructive trust that this creates.

19.  For the above reasons, I allow the amendments sought to be made by the Plaintiff to the Statement of Claim.  As the Plaintiff seeks the indulgence of the Court, and her statement of truth was only made a day before the hearing, the usual order of costs should be made, that she should bear the costs of and occasioned by the application for leave to amend the Writ and the Statement of Claim.   

Costs of the striking out

20.  Argument on the striking out application was avoided as a result of the application to amend.  The Plaintiff accepted liability for costs, the only issue being whether there should be certificate for 2 counsel.

21.  Considering the guidelines set out in Xin Juan Trading Co Ltd v NPH Petrochemical Ltd HCA 18159/1988 and CACV 276/1998, 25 September 2000, including the issues and arguments raised for the striking out, the substantive amount of the claim, and the fact that the Plaintiff herself had instructed an eminent and senior counsel for the application, I accept that the Plaintiff should pay to the Defendants the costs of the striking out, with Certificate for 2 Counsel. 

22.  In my view, the costs of the hearing on 11 June 2019 can be divided equally between the costs of the application for leave to amend, and the application to strike out. To consider the striking out and the costs incurred, it is necessary to understand the amendments sought to be made.

23.  Being standalone applications, the costs should be payable forthwith.