BANK OF HULUDAO CO LTD v. ZHONGYING INT’L HOLDING GROUP LTD

HCA 1656/2022

[2025] HKCFI 1111

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1656 OF 2022

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____________________

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D E C I S I O N

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Introduction and Applicable Principles

1.  This is an application by the Defendant (“D”) by Notice of Appeal dated 17 February 2025 for leave to appeal against my Order made and Decision given at the end of the hearing on 5 February 2025 (see [2025] HKCFI 729 (“the Decision”)).  For ease of reference, I shall herein adopt the same abbreviations and definitions as the Decision.

2.  The test for granting leave to appeal against an interlocutory order of the Court of First Instance is trite. Under s.14AA(4) of the High Court Ordinance, Cap.4, leave to appeal shall not be granted unless the court is satisfied that the appeal has a reasonable prospect of success, or there is some other reason in the interests of justice why the appeal should be heard.  See Hong Kong Civil Procedure 2025, Vol.1, §59/2A/4.

3.  Mr Wong, counsel for D, who also appeared before me at the hearing on 5 February 2025, relied on both bases: (1) reasonable prospect of success; and (2) some other reason in the interests of justice why the appeal should be heard.

Discussion

Whether intended appeal has reasonable prospect of success

4.  Firstly, Mr Wong argued that I erred to find that the PRC Judgment was a judgment on sentencing whereas it is clear that it was a judgment on both conviction and sentencing.  This is a non-point.  Whether it was a sentencing judgment or conviction and sentencing judgment is not relevant and did not have any bearing to my finding that the impugned paragraphs sought to be excluded as evidence (“the Paragraph”) did not make any factual findings.  Indeed in the Decision at §17, I accepted that in the PRC Judgment the defendants therein were sentenced for the convicted crimes.

5.  Secondly, more to the point, Mr Wong submitted that I erred to find that the Paragraph merely contained a summary of the agreed or uncontested evidence.  He submitted that it is clearly a factual finding and conclusion because it is a fact directly in support of the verdict of money laundering against the various individual defendants therein.  Even leaving aside the submissions made by Mr Mariani, solicitor advocate for P who did not appear before me at the hearing on 5 February 2025, that D has not adduced any evidence of PRC law to support this assertion, as I stated in the Decision at §17 there was no factual finding because the defendants were convicted and sentenced on the basis of uncontested evidence. 

6.  Even if I was wrong and there were findings of facts in support of the verdict of the defendants therein, as I mentioned in the Decision at §18, the Paragraph could not (as Duan HT and Zhao were not defendants therein) and did not (as any finding were directed at the conviction and sentencing of the defendants therein) make any factual findings on Duan HT’s and Zhao’s involvement in the fraud. 

7.  As I mentioned in the Decision at §13, the rationale for the Hollington principle is to ensure a fair trial. The judge is to make his or her own evaluation of the evidence and not to be influenced by the opinion of the earlier court.  See also Capital Century Textile Company Limited v Li Dianxiao & Anor [2018] HKCFI 729 at §28.  Test it this way, how is there any unfairness in admitting the Paragraph even if it included factual findings in support of the conviction of the defendants therein but not Duan HT and Zhao?  There will only be unfairness if there was a factual finding against Duan HT on his involvement in the alleged fraud which is a matter properly for the trial judge of these actions.

8.  Thirdly, Mr Wong submitted that there was a finding against Duan HT for fraud even though he was not a party to those proceedings in order to establish the conviction of money laundering against the defendants in the PRC and therefore I erred to find that the PRC court could not and did not make factual findings against Duan HT.  With greatest respect, that is a highly astonishing submission to make.  If that is the case, there would not be a need for further proceedings to be taken against him (and Zhao) as expressly stated at p.4: “勾结段洪涛（葫芦岛银行股东,另案处理）和周志龙（另案处理）”.

9.  As submitted by Mr Mariani there is no expert evidence before me on PRC law to support that submission.  Nor is it sufficient to rely on the case of Rogers v Hoyle [2013] EWHC 1409 (QB) at §89, which referred to Calyon v Michailaidis [2009] UKPC 34 that held an earlier Greek court judgment that found the claimants were the owners of an art collection was binding on a person not a party to those proceedings.  Besides, in that case, the court accepted that there was a factual finding by the earlier court.

10.  I therefore do not accept that it is reasonably arguable that there were findings in the PRC Judgment against Duan HT that he defrauded P a total sum of RMB 2.6B and dissipated a total sum of RMB 1.8B to bank accounts controlled by Duan HT in Hong Kong.

11.  In all, I do not consider that the intended grounds of appeal are arguable with reasonable prospects of success.

Whether some other reasons for the appeal to be heard

12.  Firstly, Mr Wong submitted that as the cases of Capital Century Textile Company Limited and Jin Jiang Investment Limited & Or (cited by me in the Decision, §13) are first instance decisions and the proposition has never been tested or ruled at a higher court, the general public will benefit from a decision of a higher court clarifying and explaining the scope of the rule in Hollington.  However, this submission is plainly misconceived when there can be no suggestion that there is any confusion or lack of clarity in the Hollington principle (which is well established by a body of case law both in the UK and Hong Kong) and the parties have never raised any issue on the correctness of that principle.  Indeed at the hearing, I expressly asked counsel to confirm that the only issue to be decided is whether the PRC Judgment containing the Paragraph is or is not excluded by the Hollington principle: see the Decision, §15.  In any event, the simple application of the Hollington principle to the particular PRC judgment in this case, even by a higher court, can advance no public interest.

13.  Secondly, Mr Wong submitted that the Paragraph could be on one view interpreted as both being records of uncontested evidence and factual findings which the general public would benefit from a higher court setting out the applicability of the Hollington principle.  My comments in the preceding paragraph equally applies to this ground and should be accordingly rejected.

14.  Thirdly, Mr Wong submitted that if the party against which a foreign criminal judgment is intended to be used is not a party to the foreign judgment itself, there is a legitimate question as to whether the Hollington principle is ever applicable, if that judgment makes findings which would impeach that party but without making any findings against that party as a defendant therein.  Again, the applicability of the Hollington principle was never called into question.  Besides, the applicability of that principle to the foreign judgment in the present case can serve no public interest.

15.  For all these reasons, I would refuse leave to appeal against the Order and the Decision.

16.  Costs should follow the event.  D should pay to P the costs of this application as summarily assessed by me.

17.  Having considered P’s Statement of Costs and accepting Mr Wong’s objections that the time spent on preparation of documents and preparation for today’s hearing appeared excessive and adjustments should be made to the hearing time, adopting a broad brush approach, I have summarily assessed P’s costs of this application at HK$50,000.

HCA 1656/2022

[2025] HKCFI 729

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1656 OF 2022

________________________

________________________

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D E C I S I O N

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Introduction and Brief Background

1.  This is an appeal by the Defendant (“D”) against the order of Master Lewis Law (“the Master”) dated 13 August 2024 dismissing the application made by D to debar the Plaintiff (“P”) from adducing a PRC criminal judgment dated 22 August 2023 (“the PRC Judgment”) as evidence in this action, whether by way of discovery of documents, affidavit evidence, witness statements or any other mode or manner.

2.  The PRC Judgment was referred to in one paragraph of, and exhibited to, an affirmation made in relation to an application for security for costs against P. It is also listed in P’s List of Documents.

3.  This action and another action (HCA1903/2021) have been ordered to be tried together before the same judge and the evidence in both actions to be used interchangeably. The two actions have been set down for trial in October 2025.

4.  P, in the present action, is a bank established and carrying on business in the PRC. According to P, Duan Hongtao (“Duan HT”) was the chairman and sole beneficial shareholder of the largest shareholder of P, Zhongying Holdings Group Limited (“Zhongying”). Duan HT was also a director of P and a member of P’s Compliance and Risk Management Committee whose function was to oversee and approve large amount credit and investment plans of P.

5.  Duan Chunchao (“Duan CC”), the paternal uncle of Duan HT, was the legal representative of Zhongying.

6.  According to P, it was the victim of a fraudulent scheme masterminded by Duan HT and Zhao Zhilong (“Zhao”) and their associates. In July to September 2020, Duan HT and Zhao (through themselves or their associates) represented to P’s executives that Duan HT would assist P to resolve its problem of non-performing loans if RMB2.6B was transferred from P to Duan HT to invest and acquire shares of Hana Bank China (“Hana Bank”). The requisite funds would first be transferred from P to Guotai Yuanxin Asset Management Co Ltd (“Guotai”) for asset management and then transferred to Ningxia Shunyi Asset Management Co Ltd (“Shunyi”), a company owned and controlled by Zhao, to acquire and invest in the shares of Hana Bank.

7.  Relying on the representations made to P, P’s executives were induced and agreed to transfer RMB 2.6B to Guotai on 25 September 2020. On 29 September 2020, RMB2.55B out of RMB2.6B was transferred to Shunyi.

8.  However, in about September 2021, P discovered the fraud and that RMB2.6B had not been used to acquire the shares of Hana Bank. Nor had Guotai provided any assets management services to P. Instead the sums transferred by P were dissipated for the personal use and benefit of Zhao and Duan HT.

9.  D is a company incorporated in Hong Kong. Duan CC and Duan HT were the shareholders of D. Duan CC was the sole director of D. According to P, D was used to receive part of the proceeds from the fraudulent scheme and/or fraudulent misrepresentation of which USD87,000,000 (“the Sum”) was transferred to Zinda Hong Kong Co Ltd (“Zinda”), a company authorized by P to retrieve and retain the misappropriated funds on behalf of P, on 16 December 2021.

10.  D’s defence is that neither it, nor Duan CC and Duan HT had any knowledge of or participated in, consented to, approved or acquiesced to the alleged fraud or fraudulent misrepresentation.

11.  As for the transfer of the Sum from D to Zinda, this was done when Madam Liu, D’s financial controller, was physically detained and under extreme stress and pressure from persons claiming to be local police officers. By HCA 1903/2021, D commenced proceedings against Zinda for the Sum.

Applicable principles

12.  It is trite and not disputed that a judgment and factual finding of another court or tribunal in earlier proceedings, whether civil or criminal, is inadmissible in subsequent proceedings, unless the party against whom the party is sought to be deployed is bound by it by reason of estoppel per rem judicatam: see Hollington v F Hewthorn & Co Ltd [1943] KB 587 applied in Capital Century Textile Company Limited v Li Dianxiao & Anor[2018] HKCFI 729, per Lisa Wong J at §23.

13.  In Jin Jiang Investment Limited & Anor v 深圳市威廉金融控股有限公司 & Ors [2022] HKCFI 378 at §44, Coleman J set out the rationale for that principle as follows:

(1)  A central part of a judge’s task in a civil case is to evaluate the evidence adduced by the parties, and to decide what conclusions may properly be drawn from that evidence;

(2)  In performing that task, consistently with the parties’ right to a fair trial before an impartial and independent tribunal, the judge must make his or her own evaluation of the evidence, and not defer to the opinion of anyone else;

(3)  Therefore, it is not proper for a judge to be influenced by the opinion of a previous court;

(4)  If the evidence before the judge is the same as that before the earlier court, the judge is in as good a position to draw inferences and conclusions from the evidence;

(5)  If the evidence before the judge is different from that before the earlier court, the opinion of the earlier court does not assist the judge’s task; and

(6)  Indeed, and in any event – except as regards that of the relevant decision maker or an expert in a relevant discipline – the opinion of someone who is not the trial judge is, as a matter of law, irrelevant and should not be taken into account.

14.  On the other hand, statements or reported statements of the factual evidence before the previous court are not excluded by the Hollington principle. See ibid at §45 and Capital Century Textile Company Limited at §§29-31.

Discussion and Disposition

15.  Counsel for P and D accepts the only issue I need to decide today is whether the PRC Judgment is not excluded by the Hollington principle because they contain statements or reported statements of the factual evidence before that court and not factual findings.

16.  Mr Wong, counsel on behalf of D confirmed that the basis of D’s application and this appeal is based on the Hollington principle. He submitted that it is clear that P is seeking to rely on the PRC Judgment for its factual findings against Duan HT and Zhao which appears at the first complete paragraph at p.4 of the PRC Judgment. Although he accepted that the paragraphs following “经审理查明” up to the paragraph before the words “上述事实” at p.5, recited the evidence which was not contested and thereafter set out the source of the evidence, he submitted that there were also factual findings of the alleged fraud which was the basis of the conviction and sentencing of the defendants by the PRC court.

17.  From a plain reading of the PRC Judgment as a whole, I agree with Mr Cheung, counsel for P, that those paragraphs merely recited the uncontested evidence before the court before proceeding to sentence the defendants for the convicted crimes of inter alia money laundering. It did not make any finding one way or the other on the evidence recited.

18.  Although it was mentioned at p.4 to the effect that Duan HT, Zhao and others purportedly on the ground of resolving the non-performing loans of P used P’s funds totaling RMB2.6B which the defendants illegally exchanged into foreign currency and transferred to a Hong Kong company account controlled by Duan HT, this was only a summary of the evidence. It was expressly stated that there were other proceedings against Duan HT and Zhao (“另案处理”). Plainly, the PRC Judgment could not and did not make any factual findings on their alleged involvement in the fraud. They were not defendants in the PRC Judgment.

19.  I will therefore dismiss the appeal against the Master’s order.

20.  [Discussion on costs]

21.  Counsel agreed and I so ordered that D should pay to P its costs of this appeal including the costs below. I have summarily assessed P’s cost of and occasioned by this appeal at HK$120,000. P’s costs below shall be taxed if not agreed.

Mr Lawrence Cheung, instructed by LCP, for the Plaintiff

Mr Joseph Wong, instructed by S.W. Wong & Associates, for the Defendant

HCA 1656/2022

[2024] HKCFI 3173

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1656 OF 2022

________________________

________________________

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DECISION

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1.  This is the Defendant (“ZY”)’s application by summons dated 24^th September 2024 for a stay of execution of paragraph 5 of my Order dated 27^th August 2024 (“the Aug 27 Order”) pending determination of (i) ZY’s appeal against the Aug 27 Order and/or (ii) ZY’s appeal against my Order dated 13^th August 2024 (“the Aug 13 Order”).

2.  It is necessary to recount the general background of this action and the previous interlocutory applications made by ZY to understand the basis of the present application.  

General Background of This Action

3.  In December 2021, ZY (as plaintiff) started an action (HCA 1903/2021) against a Hong Kong company called Zinda Hong Kong Co, Ltd (“Zinda”), and successfully obtained an interim injunction restraining Zinda from disposing of a sum of US$87 million standing in its bank account.  ZY says this sum was transmitted from ZY to Zinda out of duress performed on ZY’s financial controller, one Ms Liu Wenjia (劉文嘉)(“Ms Liu”), in Mainland China. 

4.  Zinda counterclaimed against ZY in that action, but the counterclaim was struck out.  Apparently, this was because Zinda, on its own pleaded case, was merely a trustee or agent to receive the relevant funds for Bank of Huludao Co, Ltd (ie the Plaintiff in the present action)(“the Bank”) and could not pursue the causes of action of the counterclaim pleaded.  

5.  After that striking-out decision, the Bank commenced the present action in November 2022 against ZY.  The Bank’s pleaded case in this action, which is similar to the position adopted by Zinda in its Defence filed for HCA 1903/2021, is that the Bank had been defrauded by persons including one Mr Zhou Zhilong (周志龍) (“Mr Zhou”) and one Mr Duan Hongtao (段洪濤)(“Mr Duan”) to give away a very substantial sum in the tune of RMB¥2.6 billion.  Within this very substantial sum, proceeds of US$87 million were transmitted, through other entities’ accounts, to ZY’s bank account in Hong Kong.  The Bank says Ms Liu later voluntarily co-operated with the Public Security in Mainland China in a criminal investigation, made admission to the fraud perpetrated against the Bank and voluntarily transferred the said sum of US$87 million from ZY’s account to Zinda’s account in Hong Kong.

6.  Amongst the reliefs sought by the Bank in this action, the primary one is a declaration that the sum of US$87 million held by Zinda was at all times, and remains to be, the Bank’s property.  If the Bank is successful in obtaining this declaration, it is probable that the interim injunction granted in HCA 1903/2021 will be discharged as there seems to be no serious dispute that Zinda is the Bank’s properly authorized receiving agent.

7.  ZY’s defence in the present action, which is similar to its position in the Reply filed for HCA 1903/2021, is that the sum of US$87 million, being part of a bigger sum, was transferred to ZY out of a proper commercial transaction.  The subject of the transaction was the shares of a company called Red Power Developments Limited and its business undertaking Ziwu Airline (子午線航空), a charter airline.  It is said while Mr Duan, ZY’s majority shareholder, was previously an indirect shareholder of the Bank and a member of its management, and he did introduce Mr Zhou to the Bank’s executives in or around July 2020, Mr Duan’s knowledge about any subsequent deal between the Bank and Mr Zhou was limited; Mr Duan was also not involved in any implementation of such deal.

8.  On 31^st October 2023, Master Dick Ho ordered, amongst others, that this action and HCA 1903/2021 shall be tried together before the same Judge and all evidence in the two actions shall be used interchangeably.  The two actions were subsequently set down in April 2024 for a 7-day heard-together trial.  This trial will take place in October 2025.

9.  On 13^th May 2024, ZY issued a summons seeking security for its costs in this action covering “the period up to and including the trial” in the sum of HK$5,300,000 or such other amount as the Court may direct.  This is the first application for security made by ZY in this action.

The Expunging Summons and the Aug 13 Order

10.  The Bank filed and served its affirmation in opposition to the security for costs application on 4^th July 2024.  One document exhibited to this affirmation was a judgment made by a People’s Court in Shanghai concerning certain offences of money laundering (“the Shanghai Judgment”).  A few characters featured in the papers of this action and the alleged fraud perpetrated against the Bank were mentioned in the Shanghai Judgment, but those characters were neither parties nor witnesses in the relevant criminal proceedings.    

11.  ZY took exception with this exhibit.  On 5^th July 2024, ZY issued a summons seeking to expunge the Shanghai Judgment and the relevant affirmation paragraph from the evidence to be considered in ZY’s security for costs application, in reliance on the common law rule of excluding foreign judgment under Hollington v F Hewthorn & Co Ltd [1943] KB 587.  ZY took one step further to seek an order to debar the Bank from adducing the Shanghai Judgment as evidence in this action in general, “whether by way of discovery of documents, affidavit evidence, witness statements or any other mode or manner whatsoever”.  This summons will be called the “Expunging Summons” in the following.

12.  The Expunging Summons came before me on 13^th August 2024. After hearing Counsel for ZY and Counsel for the Bank, I expunged the Shanghai Judgment and the relevant affirmation paragraph from the evidence to be considered in ZY’s security for costs application, but I refused to order a general prohibition against the use of the Shanghai Judgment in this action.  The following is an elaboration of the brief reasons I gave orally:

12.1.  In Capital Century Textile Company Limited v Li Dianxiao & Anor[2018] HKCFI 729, Lisa Wong, J made it clear the rationale of the Hollington rule is to ensure a fair trial, in the specific sense that a judge appointed to hear and determine a case should make his/her own decision on the evidence and submissions presented to him/her without being influenced by the opinion of an earlier adjudicator (see paragraphs 25-28 of the decision)[1].  In common law, subject to exceptions such as expert evidence, opinion evidence is generally inadmissible.

12.2.  But such concern does not exist in relation to the evidence referred to in an earlier judgment, eg the contents of the documents seen or the evidence of the witnesses heard in the process leading to that earlier judgment (see paragraph 29 of the same decision).  In that case, Lisa Wong, J analyzed different sections of a Mainland criminal judgment touching on the affairs between the plaintiff and the 1^st defendant thereof, and ruled that statements of factual evidence recorded by the Mainland criminal court were not excluded by the Hollington rule.  In fact, in Her Ladyship’s subsequent judgment of that case after trial ([2021] HKCFI 2216), heavy reliance was placed on such evidence recorded in that Mainland criminal judgment.

12.3.  In respect of ZY’s application for security for costs, while the merits of the parties’ cases are relevant to the exercise of the Court’s discretion, it is trite that such consideration should not be turned into a mini-trial on affirmations.  Usually, parties may adduce the core and most relevant documentary evidence to inform the security for costs Court of any strong factor concerning the merits of the case, but there must be a boundary to the scope of such evidence. 

12.4.  The high water mark of the Shanghai Judgment is certain individuals’ admission of acts of money laundering.  On the face if it, the Shanghai Judgment was a sentencing judgment upon the guilty plea made by those individuals.  A fraud on the Bank and certain characters relevant to the present case were mentioned in passing, but there was no record of any admission by those characters.  It was even specifically said there should be a separate criminal case to deal with matters about the fraud perpetrated against the Bank.  There was also no concrete evidence recorded in the Shanghai Judgment connecting the admission of money laundering to ZY’s bank account in Hong Kong.

12.5.  ZY’s position in the present case is not that the Bank’s case of having been defrauded is bogus.  ZY’s position is that the money it received is clean and not connected to the fraud alleged by the Bank.  Viewing the matter in this light, the relevance of the Shanghai Judgment to this case is at best marginal.

12.6.  Hence, I was of the view that the Shanghai Judgment should not be considered in ZY’s application for security for costs.  I expunged it from the evidence of the application.  At that stage, it was already within my and parties’ knowledge that the security for costs application would be handled by me.

12.7.  But the same could not be said in terms of a general prohibition against the use of the Shanghai Judgment in the present action.  Capital Century shows the Hollington rule is not absolute to every word recorded in a foreign judgment.  That case and a few other authorities cited to me in the 13^th August 2024 hearing were either decided by the trial judge to determine whether the information contained in a foreign judgment might be used in trial, or by a judge or a master seized of an injunction or a taxation matter to determine the use of such information in that particular matter.  I was not shown an authority in which a Master would determine the admissibility of such information in an action in general.  In my view, the general use of such information in the action (especially its use in cross-examination during trial) is different from its use in an interlocutory matter.  One can also see from the authorities that there has to be a detailed analysis of the information and the purpose of the party adducing it.

12.8.  In the present case, the Shanghai Judgment was exhibited to the affirmation in opposition to the security for costs application (which I had decided to expunge), but I did not know whether and how the Bank would use it in this action in future.

12.9.  After considering counsel’s submissions, I refrained from usurping the role of the trial judge in relation to the admissibility of the Shanghai Judgment in trial or any future stage of the proceedings.  If necessary, the issue might be brought up in the Pre-trial Review of this action. 

12.10.   Moreover, in my judgment, discovery and admissibility of evidence are two different matters.  In the circumstances of the present case, which involves only two parties, ZY cannot complain against the inclusion of an item in a supplemental list of documents served by the Bank (if any), which only informs ZY of its existence, its availability for inspection and the Bank’s view that it is relevant.  ZY can always still dispute relevance, and argue inadmissibility on irrelevancy or other grounds, to resist its inclusion in the trial bundle.  The scope of ZY’s application to debar the Bank from referring to the Shanghai Judgment at all was in my view too wide.  I therefore refused that part of ZY’s application and reserved my decision on costs.

13.  The above explains my Aug 13 Order.  ZY swiftly filed a Notice of Appeal against my refusal to grant a general prohibition against the use of the Shanghai Judgment on 16^th August 2024.

The Security for Costs Application and the Aug 27 Order

14.  On 27^th August 2024, the parties came back to argue the security for costs summons before me.  It was common ground that the Bank is ordinarily resident out of the jurisdiction of Hong Kong and thus the threshold for granting security is met.  The argument was primarily on which party was the “real attacker” in the light of ZY’s capacity as the plaintiff in HCA 1903/2021 and the close connection between the two actions.

15.  After hearing counsel, I held that both the Bank and ZY should be viewed as attackers in the dispute involving them.  When both parties are attackers and both are foreign parties, the Court will generally order both sides to pay security (and cross-security) in respect of the part they defend if both have applied, see: Ai Zhong & Anor v Metrofond Ltd [2010] 1 HKLRD 213 and Dracco Netherlands B V v Sima Toys GMBH & CoKG[2018] HKCA 75.  By the same token, when both parties are attackers but just one of them is a foreign party (ie the situation of the present case), the Court will not be deterred from ordering the foreign party to give security for the part it attacks merely because there is a counter-attack.  The degree of overlapping of legal and factual issues would have to be considered.  Here, while I accepted that ZY’s claim in HCA 1903/2021 and the Bank’s claim in the present action arise from the same factual matrix, their resolutions involve separate issues of duress, fraud and causation. There can be different permutations in the outcome of the heard-together trial.  When the overlap is not complete, the Court can apportion the costs incurred and/or to be incurred by a party with reference to the time required for the different issues (eg Eminent Energy Ltd v  Krässik Oü & Ors [2016] EWHC 2585 (Comm) (20 October 2016) at paragraphs 50-52).

16.  Accordingly, I order the Bank to give security for ZY’s costs in defending the present action.  In terms of quantum, the following is an elaboration of the brief oral reasons I gave:

16.1.  While security for costs is not necessarily confined to future costs and may be extended to costs already incurred, the condition is the application has to be made promptly (Hong Kong Civil Procedure 2024, paragraph 23/3/32).  Delay in making the application may deprive the applicant the protection for past costs, see Tri-Tech Metals Co Ltd v YKK AP Hong Kong Ltd  (unrep, HCCT 60/2004, 30 April 2009) at §§25-26, Chun Wo Building Construction Ltd v Metta Resources Ltd [2016] 2 HKLRD 1280 at §§30-31 and Crane World Asia Pte Ltd v Hontrade Engineering Ltd (unrep, HCA 109, 256 & 462/2014, 5 May 2016) at §39.

16.2.  ZY’s application for security was made after the action was set down for trial.  This was not an early stage.  If ZY was minded to seek protection of its costs incurred in the earlier stage of the proceedings, it should make a first application say shortly after the filing of its Defence (in February 2023) or close of pleadings, covering its costs from the beginning to, for example, the first Case Management Conference.  Further applications for security covering costs for the later stages could be made as the case further progressed.  Such staged approach in seeking security is commonly observed by the Court and the practitioners nowadays.

16.3.  When ZY chose not making any application for security until May 2024, it could not expect the Court to grant it full security for all costs previously incurred.  After considering the circumstances of this case, I decided to only grant security for ZY’s costs to be incurred from the time of the hearing to the conclusion of trial. 

16.4.  ZY’s affirmation and the “Revised Estimate of Legal Expenses in respect of HCA 1656/2022” exhibited thereto are unhelpful in terms of the amount of costs to be incurred.  For example, while the costs were broken down to different stages, there was no mention who are the Senior Counsel and Junior Counsel instructed or intended to be instructed for the trial.  No hourly or daily rate of Counsel was provided.  When I enquired about the estimated volume of documentary evidence involved in the trial (apart from the witness statements) during the hearing, Counsel for ZY could not lead me to an answer coming from the hearing bundle.

16.5.  Orally, Counsel for ZY informed me who were the Senior and Junior Counsel intended to be instructed for the trial and gave me their respective daily (refresher) rates, being HK$120,000 and HK$40,000.  These rates were in my view within a reasonable range.  However, when one compared these reasonable rates with the amount of fees quoted in the “Revised Estimate” exhibit, the brief fees quoted were unusually huge:

	Total Fees for the Seven-day Trial Quoted in the “Revised Estimate”	Six Refreshers at the Aforesaid Daily Rates	Brief Fees
Senior Counsel	HK$3,000,000	HK$720,000	HK$2,280,000 (in turn equivalent to 19 refreshers)
Junior Counsel	HK$1,200,000	HK$240,000	HK$960,000 (in turn equivalent to 24 refreshers)

16.6.  I did not accept the brief fees, which were not even worked out by those preparing the “Revised Estimate” but myself, to be realistic or proportional.  I was doubtful if they were quoted or estimated by counsel, or just estimated by those preparing the “Revised Estimate”.

16.7.  Having considered the submissions and the papers, the broad brush figure I adopted as the probable costs of ZY incurred from the time of the hearing to the conclusion of the trial was HK$2.2 million.  This was inclusive of solicitors’ profit costs and the fees of Senior and Junior Counsel, for both Pre-Trial Review and the trial proper.  Amongst the 7 days of the Court hearing this action and HCA 1903/2021 together, I apportioned 5 days to this action (representing the Bank’s attack).  As Counsel for ZY put it during the hearing, trial on the issue of duress (the cause of ZY’s claim in HCA 1903/2021) will have to take place anyway (ie even if the Bank concedes the present case).  It was reasonable to apportion 2 days to HCA 1903/2021, in which the Bank was not the attacker and not even a party. 

16.8.  I thus adopted the round figure of HK$1.6 million (approximately HK$2.2 million divided by 7 and multiplied by 5) as the amount of security the Bank should give.   I allowed the Bank to provide this security within 56 days by either (i) a payment into court or (ii) a bank guarantee given by a licensed and registered bank in Hong Kong.

17.  In terms of costs, I ordered the costs of ZY’s security for costs application incurred before 18^th May 2024 to be ZY’s costs in the cause, to be taxed if not agreed.  However, costs of the application incurred on or after 18^th May 2024, inclusive of the costs of the Expunging Summons, were ordered to be paid by ZY to the Bank forthwith; such costs were summarily assessed at HK$320,000.  This is the part of my Aug 27 Order (paragraph 5 thereof) now sought to be stayed by ZY pending appeal.

18.  The following is a summary of the brief oral reasons I gave for the above costs order:

18.1.  After I decided the amount of security to be HK$1.6 million, I was shown copies of a “without prejudice” letter from solicitors for the Bank to solicitors for ZY dated 17^th May 2024 (“the Bank’s Letter”) and another “without prejudice save as to costs” letter from solicitors for ZY to solicitors for the Bank dated 18^th May 2024 (“ZY’s Letter”).   

18.2.  The existence of the Bank’s Letter caused me to opine that the Expunging Summons seeking to exclude the Shanghai Judgment from the evidence of the security for costs application was wholly unnecessary.  As aforesaid, the other part of the same summons about general prohibition against the Shanghai Judgment was dismissed under the Aug 13 Order.

18.3.  The Bank’s Letter, coupled with ZY’s unsatisfactory manner in presenting its case on the quantum of security, caused me to decide that ZY should bear the costs of the application incurred after 18^th May 2024.

Aftermath of the Aug 27 Order

19.  ZY filed a Notice of Appeal against my Aug 27 Order on 30^th August 2024.  This is not a costs-only appeal against paragraph 5 of the order, as ZY also appeals against the amount of security I ordered.  Moreover, the earlier appeal against my refusal to grant a general prohibition in respect of the Shanghai Judgment will also affect the costs position under paragraph 5 of the Aug 27 Order.  

20.  On 16^th September 2024, the Bank served a statutory demand on ZY for the assessed costs of HK$320,000.  ZY then sought an injunction to restrain the Bank from presenting a winding up petition based on the statutory demand.  On 27^th September 2024, Recorder Suen, SC granted an interim injunction pending determination of this stay of execution application.

21.  I directed paper disposal for this stay of execution application and the lodging of written submissions.  Having perused the submissions, I decide to grant the stay of execution sought by ZY.  My reasons are as follows.

Reasons for Granting a Stay of Execution

22.  The principles on when a stay of execution should be granted are well established and not repeated.  ZY’s argument is straightforward.  The stay is only against ZY’s liabillity to pay costs in the sum of HK$320,000.  ZY says the Bank’s Letter and ZY’s Letter (collectively the “Impugned Letters”) should not have been considered before the costs of ZY’s Expunging Summons and security for costs application were decided.  I did read the Impugned Letters, and the Bank’s Letter did substantively affect my costs order.  If there is a strong appeal on the ground that such consideration was legally impermissible, it is sufficient for me to grant a stay of that part of my Aug 27 Order.

23.  In fairness to Mr Joseph Wong, who appeared before me on 27^th August 2024 and is instructed to handle this stay application, he did remind me the Bank’s Letter was only marked “without prejudice” – with the words “save as to costs” omitted – when the issue of costs was argued and copies of the Impugned Letters were handed up by the Bank’s side near the end of the hearing. 

24.  On the spot, I said the label should not be the overriding consideration; my focus was the substance rather than the form of the Bank’s Letter. Although I did not expressly refer to it, my then thinking was influenced by certain authorities I read in the past concerning the label “without prejudice”.  It has been said although the label is a highly material factor, it should not be conclusive of whether the relevant letter is privileged from production in litigation.  The Court needs to understand if the relevant letter bore relationship to any negotiating stance, offer or compromise and was a genuine attempt to resolve the parties’ dispute in determining whether it is privileged or admissible.  The Court of Appeal’s decision in Secretary for Justice v Wong [2022] 1 HKLRD 258, [2021] HKCA 1982 was one authority for this proposition.

25.  When I read the Impugned Letters (particularly the Bank’s Letter), I considered them genuinely related to the negotiation over the security sought by ZY, and the Bank initiated this communication out of costs concern.  The omission of the specific words “save as to costs” in the Bank’s Letter appeared to be merely a matter of inadvertence. 

26.  Now, with the benefit of written submissions and authorities, I accept that there is strong argument the Impugned Letters should not be read and the Bank’s Letter should not be taken into account in the costs consideration:

26.1.  The proposition I mentioned above was about whether correspondence should be privileged from production by reason of the sender’s genuine attempt to resolve the dispute by negotiation.  Here, the Impugned Letters were clearly sent out for such purpose.  There should be no issue that privilege was attached to the Impugned Letters.

26.2.  The proposition and the authorities I then had in mind were not about the “save as to costs” qualification, which may be included to make a privileged letter not privileged for the limited purpose of costs. 

26.3.  On reflection, the importance of the words “save as to costs”, in terms of detachment of privilege and rendering a letter relevant to costs consideration, cannot be judged by reference to the inconclusive nature of the label “without prejudice” regarding attachment of privilege to a letter.  In the 27^th August 2024 hearing, there was no specific discussion over this distinction.

26.4.  In support of this stay application, Mr Wong refers to the text of O 62, r 5(1)(d) of the Rules of the High Court (Cap 4A) in his written submission:

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account —

…

(d) any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

…”

26.5.  During the hearing, counsel for both sides agreed that the mechanism of sanctioned offer/payment under O 22 cannot be used to protect a party’s costs position in a security for costs application.  As such, a written offer which is expressedto be “without prejudice save as to costs” (also known as a “Calderbank Offer”) may be used to achieve this purpose.

26.6.  On the question of attaching privilege, the weight to be given to the “without prejudice” label is guided by common law principles.  But on the separate question of detaching privilege and taking a written offer into account in the exercise of the Court’s costs discretion, the starting point appears to be the statute.  There is force in the argument that the “save as to costs” wording, being expressly laid down in O 62, r 5(1)(d), is mandatory, see: Montrio Ltd & Anor v Tse Ping Shun David [2012] 2 HKC 392 at paragraph 12.   

26.7.  Moreover, even in common law, where an offer was made “without prejudice”, but not “save as to costs”, the offer is not admissible on the issue of costs without the consent of both parties (Foskett on Compromise (9^th ed), paragraph 18- 04), ie both the sender and the recipient. 

26.8.  In his written submissions, Mr. Cheung for the Bank does not provide any effective rebuttal to the above points based on O 62, r 5(1)(d) and Foskett. It seems to me Mr Cheung’s emphasis is not on the Bank’s Letter.  Instead, he argues ZY had waived the privilege of the Impugned Letters by referring to the Bank’s Letter in ZY’s Letter and making the latter “without prejudice save as to costs”. 

26.9.  However, there is force in Mr Wong’s points that (i) any letter in response to a “without prejudice” letter forms part of the negotiation and is thus privileged; and (ii) the recipient of a “Calderbank Offer” has no right to refer to that letter on any issue, including the issue of costs; the privilege remains that of the maker of the “Calderbank Offer” (Foskett(9^th ed), paragraphs 18-05 – 18-07 & 19-17).  Here, as ZY was the maker of ZY’s Letter, ZY could use it for costs purpose, but the Bank could not use it without ZY’s consent.  In fact, during the hearing, my emphasis was on the Bank’s Letter and whether the omission of the words “save as to costs” would disable its sender from using it on costs.  My costs decision was not based on ZY’s Letter.

26.10.   Although I did give the additional reason concerning ZY’s shortcoming in its presentation of the quantum of security to justify my costs order, I accept that the Bank’s Letter was the more important factor affecting my exercise of discretion.  My costs order would have been different if I had been convinced in the 27^th August 2024 hearing that the Bank’s Letter was inadmissible, shortly after it was handed up.            

27.  My decision to grant the stay sought is premised on the strong argument against the admissibility of the Bank’s Letter but not other arguments against my decisions on the Expunging Summons and amount of security.   

28.  Against my refusal of a general prohibition against the Shanghai Judgment, Mr Wong submits that where admissibility of evidence is disputed, there would be “grave concern” about adjourning resolution of the matter to the trial judge because of the possibility that the trial judge may have to recuse himself in circumstances where he/she agrees that the evidence is not admissible.  Yu Man Fung Alice v Chiau Sing Chi Stephen[2019] HKCFI 1549 and Tang Yau Keung v Tang Choi Yau[2014] 2 HKLRD 940 are cited.  However, I agree with Mr Cheung that those cases were concerned about admissibility of privileged communications.  Here, the ground objecting to the consideration of Shanghai Judgment is in principle irrelevance-based, ie the opinion of the foreign adjudicator is not something the Hong Kong trial Judge should take into account.  This is not the same as the situation of privileged communications.

29.  Upon my acceptance of a strong appeal that the Bank’s letter was inadmissible, I need not revisit my HK$1.6 million assessment of security as this figure would not have a bearing on the subject matter sought to be stayed.  In any event, the Judge seized of the appeal against my Aug 27 Order will approach the question on a de novo basis and exercise the discretion afresh.        

30.  I have been informed that the two appeals against respectively my Aug 13 and Aug 27 Orders will be heard on two different dates in February 2025.  I grant a stay of paragraph 5 of my Aug 27 Order until the determination of both appeals.  Costs of this stay application shall be in the cause of the two appeals, with certificate for counsel.  I thank counsel for assistance.