Chinacast Education Corporation and Others v. Chan Tze Ngon and Others
Read the full judgment text of HCA 1062/2012 on BabelCite. This High Court CFI judgment was delivered on 15 October 2015.
1. There are two summonses before me:
Cited by 2 cases · Cites 6 cases
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HCA 1062/2012 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1062 OF 2012 ________________
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____________________ D E C I S I O N ____________________ 1.There are two summonses before me:
2.Mr Wong, for the plaintiffs, informed me in the course of his submissions that the plaintiffs did not object to an order being made in the terms of the summons for extension of time. I, therefore, made an order at the hearing on 30 September 2015 in the terms of para 1 of the summons dated 30 December 2014 with costs to the plaintiffs. 3.The plaintiffs opposed the application for security for D3’s costs under D3’s summons dated 14 January 2015. 4.The relevant background to this litigation has been helpfully set out in the decision of Anthony Chan J dated 11 November 2013 at paras 3 to 22 which I gratefully adopt. It is not necessary to set all this out here. 5.Anthony Chan J was at that time dealing with an application by the plaintiffs to continue a Mareva injuction obtained ex parte on 19 June 2012. By his decision of 11 November 2013, Anthony Chan J, for the reasons he gave, continued the Mareva injunction as varied by him until the conclusion of trial or further order. 6.The plaintiffs are incorporated outside Hong Kong. They are companies ordinarily resident abroad with no active business or assets in Hong Kong. 7.The 1st plaintiff (“P1”) was incorporated under the laws of the State of Delaware in the USA. The 2nd plaintiff (“P2”) is a BVI company. The 3rd plaintiff (“P3”), the 4th plaintiff (“P4”) and the 5th plaintiff (“P5”) were incorporated under the laws of the PRC. 8.The 1st defendant (“D1”) was a director, the Chairman and Chief Executive Officer of P1 and P2 until 26 March 2012. D1 was also the Chairman and Legal Representative of P3 and the General Manager, Executive Director and Legal Representative of P4 until 26 March 2012. 9.The 2nd defendant (“D2”) was the Chief Financial Officer and Secretary of P1 and P2 until 26 March 2012. D2 was also a director, the General Manager and Legal Representative of P5 until 20 April 2012. 10.D3 was, inter alia, the Chief Accounting Officer (“CAO”) and Vice President of P1 and P2 at all material times until 11 April 2012. 11.The 4th defendant (“D4”) was the Chief Investment Officer and President of P1 and P2 and a director of P3. 12.The 5th defendant (“D5”) was an executive of the plaintiffs and was joined as a defendant on 27 August 2012. 13.The 6th to 13th defendants were also joined on 27 August 2012. No substantive relief is claimed against them. They were joined only for the purposes of securing injunctive relief for the plaintiffs against them as holders of assets of D1 to D5. The applicable principles 14.D3 applies for security for his costs under Order 23; rule 1, RHC as well as under section 905 of the Companies Ordinance (Cap 622). 15.There is no dispute about the applicable principles. These are well settled. 16.If, having regard to all the circumstances of the case, the court thinks it just to do so, it may order the plaintiffs to give such security for D3’s costs of the action as it thinks just (Order 23; rule 1, RHC). The court’s discretion is in very wide terms and is not to be fettered. 17.As the plaintiffs are ordinarily resident out of the jurisdiction with no assets within the jurisdiction, it is the usual ordinary or general rule of practice that the court would order a foreign plaintiff to provide security for costs because it is ordinarily just to do so (Leslie Fay Companies, Incorporation t/a Breckenridge Sportswear Division v Cheerio Ltd [1990] 1 HKC 463; Goal Setting Consulting Co Ltd v Unigraphs Solutions Asia/Pacific Inc [2006] 3 HKLRD 678, at para 24). Stifling of the plaintiffs’ claims 18.The plaintiffs are impecunious. That is not disputed. As is set out at paras 28 to 33 of the 13th affidavit of Douglas Nelson Woodrum (“Woodrum”) the plaintiffs are impecunious and continue to fund the litigation through shareholders’ financing and are subject to very limited resources. Although for the reasons set out therein Woodrum says that any order for further security for costs will lead to the plaintiffs’ just claims against the defendants being severely hampered or stifled, Mr Wong in his submissions did not press the point that the plaintiffs’ claim would be stifled if an order for security for costs were made. 19.There is no merit, in my view, in the suggestion that the plaintiffs’ claims would be stifled if an order for security for costs were made in D3’s favour. The evidence shows that a substantial shareholder of P1, Fir Tree Partners, would be extremely reluctant to provide any further funding to the plaintiffs and that the other shareholders who look to Fir Tree Partners as the lead funder will likely take a similar position. In my view, this evidence only shows that the shareholders are reluctant to fund the litigation but does not show that they are unable to do so. There is no evidence to show that they will not be able to put up further funds to meet an order for security for costs in D3’s favour. 20.I respectfully agree with what DHCJ Saunders said at para 11 of his decision dated 5 June 2015 when dealing with an application by D2 for security for costs:
21.As stated at 23/3/4 Hong Kong Civil Procedure 2016:
22.I accept that the plaintiffs will face some difficulty in raising the funds to provide for any security for costs ordered but the plaintiffs’ claims will not be stifled if an order were made. Strong likelihood of success 23.Mr Wong submitted that the plaintiffs have a strong likelihood of success against D3 and that no order for security for costs should be made in his favour. 24.I would refer to what Rogers VP said in Sunchase International Group (China) Ltd & others v Vincor Group of Companies (Investment) Ltd & others [2004] 1 HKLRD 731, at p 733:
Le Pichon JA agreed with the judgment of Rogers VP. 25.Having heard the submissions of Mr Cooney SC, with Mr Oh, for D3 and the submissions of Mr Wong, for the plaintiffs, it is abundantly clear to me that the plaintiffs’ claim against D3 is not a simple and straightforward claim. In dealing with an appeal by D2 against a master’s decision refusing to order security for costs against the plaintiffs in favour of D2, Anthony Chan J made it plain at para 26 of his decision dated 26 September 2014 that he was neither satisfied that this was an appropriate case for the court to investigate in an interlocutory application the merits of the plaintiffs’ claims nor that the plaintiffs have demonstrated a strong likelihood of success in their case against D2. I would observe that there was no appeal from the said decision of Anthony Chan J. 26.Mr Wong further submitted that there was a strong likelihood of success in respect of two claims against D3, namely, the claim relating to unauthorized borrowings pleaded at paras 54 to 59 of the statement of claim and the claim relating to the pledging of time deposits pleaded at paras 60 to 63 of the statement of claim. 27.In respect of both these matters, ie unauthorized borrowings and pledging of time deposits, it is clear that the plaintiffs’ case is that these were done with the knowledge or connivance of each of D1 to D4 (paras 58 and 61 of the statement of claim). The plaintiffs rely on the fact that D3 was the CAO to ask the court to draw the inference that the acts complained of were done with his knowledge or connivance with the other said defendants. 28.I would bear in mind that at the hearing before Anthony Chan J on the continuation of the Mareva injunction and as set out in his decision of 11 November 2013 at para 23, it was conceded by then leading counsel for the plaintiffs that there was no direct evidence of any wrongful act committed by D3 whether by himself or with any of the other defendants. The plaintiffs’ case is that D3 acted together with the other said defendants in the massive fraud committed against them and the case against D3 is based entirely on inferences to be drawn against D3. 29.In his defence and counterclaim, D3 has denied the allegations made against him and denies that he is liable to the plaintiffs as alleged or at all. It was accepted by Mr Wong that the claims made against D2 are the same claims made against D3. 30.Witness statements have already been exchanged between the parties. Woodrum’s witness statement runs to 75 pages. The witness statement of Derek Feng, the Chief Executive Officer of P1 runs to 31 pages. D3’s witness statement runs to 47 pages. Needless to say, the plaintiffs’ allegations are hotly disputed. Voluminous documents and accounting records have also been disclosed in this action. 31.Mr Wong also relied on certain observations of Anthony Chan J in his decision of 11 November 2013 when he continued the Mareva injunction against D3. It is plain that the judge was satisfied that a good arguable case had been made out at that stage. And as he said at para 26 of his decision, a good arguable case is “one which is more than barely capable of serious argument, but not necessarily one which the Judge considers would have been better than 50 per cent chance of success.” Anthony Chan J did not consider that the plaintiffs had a strong likelihood of success. He was only expressing the view that the plaintiffs had a good arguable case. 32.With the exchange of witness statements that have been made since then, it is abundantly clear to me that the court should not embark on resolving the question of whether the plaintiffs have a strong likelihood of success. It seems to me that the plaintiffs have a bona fide claim and D3 has a bona fide defence. Whether the plaintiffs will succeed or D3 will succeed is a matter to be resolved at trial with the benefit of cross‑examination. It is not the court’s function at this interlocutory stage to come to any view about the merits of the plaintiffs’ claims without the benefit of cross‑examination. These are matters properly left to trial. 33.As I have said, this is neither a simple case nor am I satisfied that the plaintiffs have a strong likelihood of success. Delay 34.By an order made by Registrar Lung at a Case Management Conference on 4 June 2014 it was ordered that “unless the parties take out the interlocutory applications by 4.00 pm on 25 June 2014, the matter shall proceed as if no application will be taken out”. 35.As DHCJ Saunders said at para 8 of his decision dated 22 May 2015, the unless order made by Registrar Lung cannot be said to be in the usual form of an unless order and the unless order was not an absolute bar to further interlocutory applications. I respectfully agree. 36.Delay per se is not a bar to an application for security for costs (Peconic Industrial Development Ltd & another v Chio Ho Cheong alias Chan Kai Kit & others (HCA 16255/1999, 26 October 2005, at para 10). 37.It seems to me that delay per se is not a bar to D3 taking out the application by his summons dated 14 January 2015. By letter dated 30 June 2014 D3’s solicitors gave notice to the plaintiffs’ then solicitors that D3 reserved his rights as to seeking an order for security for costs. D3 was awaiting the outcome of D2’s appeal against the master’s refusal to make an order for security for costs in his favour. 38.D3’s evidence is that he only had limited funds to defend this action and he had to be very careful as to how to spend his funds. As D2 had his application for security for costs dismissed by a master, D3 was deterred from making a similar application. It was only after D2 decided to appeal that decision that D3 considered that if D2 were to succeed on his appeal would he then be willing to spend the money and effort to apply for security for costs as well. Hence his giving of the notice on 30 June 2014 by his solicitors that he reserved his rights to seek security for costs pending D2’s appeal. 39.D2’s appeal from the master came before Anthony Chan J. In his decision dated 26 September 2014 Anthony Chan J allowed D2’s appeal against the master and ordered that the plaintiffs do provide security for D2’s costs in the sum of $1,000,000. 40.There was then some delay by D3 in taking out the application. The summons for an application by D3 for security for costs was taken out on 14 January 2015. Prior to that, the summons for extension of time was taken out on 30 December 2014. 41.In my view, although there has been some delay on the part of D3 in applying for security for costs, the delay does not prevent him from applying for security for costs. After all, an order for security for costs might be made at any stage of the proceedings (Lessy SARL v Pacific Star Development Ltd & another [1997] HKLRD 1248). 42.Mr Wong further submitted that the court should adjourn the question of the quantum of security to be ordered in the light of the recent developments concerning D1 and D2. P1 has obtained a default judgment against D1 and D2 in Delaware, USA. P1 has already instituted HCA 1638 of 2015 against D1 and D2 to enforce the foreign judgment against them (“the enforcement proceedings”). It was submitted that in the event that P1 obtains judgment in the enforcement proceedings, the action would not proceed against D1 and D2 resulting in a substantial saving of costs for the trial. Mr Wong submitted that the question of the quantum of the security be deferred until after the determination of the enforcement proceedings. 43.It was also submitted by Mr Wong that the delay by D3 is relevant as to the quantum of the security to be ordered in that it would be inappropriate to make an order in respect of past costs. 44.The dates for the trial of this action have already been fixed. 25 days have been reserved for the trial which is due to commence on 15 August 2016. A pre‑trial review is scheduled for 16 June 2016. The trial date is a milestone date and is immovable except in the most exceptional circumstances (para 13, Practice Direction 7.1). Thus it is imperative that the parties should not be dilatory in the preparation for trial. Undoubtedly D3 will have to incur substantial costs for the trial preparation. 45.In my view, there is no merit in postponing the decision on the quantum of the security to be ordered until the enforcement proceedings are concluded. There is no certainty that the enforcement proceedings will be concluded before the trial of this action. In any event, even if D1 and D2 are no longer involved in the trial of this action, the trial will nevertheless proceed against D3 and D5. I observe that default judgment has been obtained against D4. If D1 and D2 do not participate in the trial I accept that there will be a substantial saving of time and costs as it is unlikely to require the 25 days reserved for trial. 46.D3 asks for the total of $5,688,751 to be provided as security for costs of the whole action. 47.According to the skeleton bill of costs the total sum of $5,688,751 is made up of two sums, namely the sums of $2,487,751 and $3,201,000. The sum of $2,487,751 is in respect of costs incurred up to 7 January 2015 (“the past costs”) and the sum of $3,201,000 is in respect of costs incurred after 7 January 2015 up to and including trial (“the future costs”). 48.It was pointed out by Mr Wong that in respect of the application for continuation of the Mareva injunction before Anthony Chan J an order was made that costs of that application be the plaintiffs’ costs in the cause as set out in the decision dated 11 November 2013 and that D3 will not recover his costs of that application in any event. 49.I accept that there will be some difficulty facing the plaintiffs in raising funds to provide security for costs. In the light of D3’s delay in making this application, it seems to me that in the interests of justice I ought to require the plaintiffs to provide sufficient security only in respect of the future costs and not for the past costs. It seems to me that D3 had already decided not to make any application for security for most of the past costs and only changed his mind after D2 decided to appeal against the master’s refusal to make an order for security for costs in D2’s favour. 50.I have considered the skeleton bill of costs which seems to me to be inflated and excessive. It was pointed out that in the skeleton bill counsel’s fees were based on a trial estimate of 17 days rather than 25 days. Be that as it may, it seems to me that counsel’s fees and the time spent on professional work are excessive. I have also taken into account the fact that it is unlikely that the trial will last as long as 25 days with the non‑participation of D1 and D2 in the light of the enforcement proceedings. Applying a broad brush approach, it seems to me that a reasonable sum for security for the future costs of D3 up to and including the trial of the action is the sum of $1,700,000. 51.I order that the plaintiffs do provide $1,700,000 as security for the costs of D3 up to and including the trial of the action. Such sum is to be paid into court within 28 days from to‑day and until such security is provided there is to be a stay of these proceedings against D3. 52.I also make an order nisi that the costs of the application by D3’s summons dated 14 January 2015 be D3’s costs in the cause.
Mr Jonathan Wong, instructed by Norton Rose Fulbright Hong Kong, for the 1st to 5th plaintiffs Mr Nicholas Cooney SC and Mr Nicholas Oh, instructed by Lee & Chow, for the 3rd defendant |
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