Kun Peng I Ltd and Another v. Win Power Investment Ltd and Others

HCA 475/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 475 OF 2012

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D E C I S I O N

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1.On 14 September 2015 Master J Wong ordered, pursuant to a summons dated 27 March 2015, that the 2^nd defendant (D2) provide security for the costs of the applicant, the third party (FTI) in the sum of $210,000 on an “unless basis” and pay FTI’s costs of the application in the sum of $103,000.

2.The application was made on the basis, inter alia, that D2 was a foreign plaintiff in the third party proceeding.  This was not an issue.

3.D2 (unsuccessfully) resisted the application on the basis that he was impecunious, that he had a strong case and that his claim would be stifled if he was ordered to provide security which he could not pay. 

4.The unusual feature of this appeal, made by D2, is that since the making of Master J Wong’s order he has, in fact, and on time, paid the $210,000 security into court.  He has not however paid the costs of $103,000 but that is not a matter which is relevant to this appeal.  

5.Thus, D2 is now saying to this court that the merits of the case are in his favour and even though he is a foreign plaintiff the security order should not have been made and he seeks an order for the return of his money.  It should be said at the outset that this rather undermines the merits of his appeal.  He told the Master he had no money and that an order would stifle his claim.  However, a short time later he provides $210,000 and does not say where he got it from or whether or not he had it, or access to it, at the time of the hearing before the Master.  

6.As a consequence the matter has not been stifled because as a result of the payment into court of the $210,000, FTI became obliged to serve and file a defence which, subject to the outcome of this appeal, they will now do. 

ISSUES ON APPEAL

7.This is a hearing de novo.  Before the Master FTI sought an order for $440,000 security for costs and furnished an estimated Bill of Costs in support.  Although FTI has not made a cross appeal to this court, Mr Toby Brown, counsel for FTI, submits that it is open to this court to increase the security provided if it is satisfied that the Master’s exercise of his discretion in ordering a sum of $210,000 was flawed in that the amount assessed was too low.  I agree that the absence of a notice of cross appeal does not prevent this court from looking at the entire matter afresh upon D2’s appeal. 

8.Before the Master Mr Kelvin Leung, counsel for D2, submitted that he had a strong and arguable case against FTI.  The Master concluded that because the entire litigation appears to be complex involving a number of parties and because it was at an early stage he was not able to reach a safe view about the merits of D2’s case against FTI and that therefore “such factors remain neutral before me”.

9.D2 was also on oath as saying he had no funds available to pay security.  He produced no documentary evidence in support of this claim.  The Master concluded that D2 had not raised any matters with sufficient force to cause the court from departing from the usual order against a foreign plaintiff.  He then considered quantum. 

10.Having heard the matter de novo, the factors advanced by Mr Leung are, in all material respects, the same as before the Master save that, in one respect, his position has been weakened by the fact that his sworn testimony below that he had no funds appears to have been incorrect.

11.For the reasons which I outline below it is clear to this court that the Master was correct in exercising discretion as he did on the question of liability. I will deal with quantum as a separate issue after giving brief reasons for my decision being the same as the Master’s.

REASONS

(1) Merits of the case

12.Mr Leung’s submission that he has a strong case against FTI and that the court should examine the merits and conclude accordingly is his primary submission. However, in my judgment, this does little to advance his appeal for three reasons.

13.First, a strong case on its own fails to consider the matter in context.  If a foreign plaintiff with plenty of money had a strong case there would be no prejudice against him if he were ordered to pay security so that the matter could proceed with his opponent protected.  If on the other hand his plea is — I have got a strong case but I have no money, it is a different matter.  In the present case, even if he has a strong case he was disingenuous about having no money.

14.Secondly, I agree with the Master that it is not possible to form a view about D2’s case against FTI at this stage with the information currently before the court.  The court should not go into the merits in detail unless it can clearly be demonstrated that there is a high degree of probability of success or failure.

15.This is multi‑party litigation, involving companies’ and individual’s corporate activities in Hong Kong and to PRC.  There has been parallel litigation involving 28 defendants of which the plaintiffs in this action are two. The statement of claim is very lengthy indeed.  It has been answered at length by D2 and the same issues that have been raised in D2’s defence form the basis, in virtually identical form, of his third party proceedings against FTI.

16.FTI has yet to file a defence.  It is simply not realistic of Mr Leung, in the context of these proceedings, to submit that as his pleaded third party notice has not yet been answered then its contents should, for the purposes of this application for security, be taken as unchallenged and an unchallenged case is therefore a strong one which is likely to succeed.

17.The reason FTI has not filed a defence is that they have submitted they should only be obliged to incur further costs after this application has been resolved.  In the context of this case, particularly as FTI have only recently been included in the litigation as a Third Party, it is a perfectly reasonable stance to take.

18.Thirdly, the issues at trial are numerous; the matter has a long, unusual and complicated history; there is no evidence before the court from the plaintiff in the main action and every point advanced by Mr Leung is answered with equal force by Mr Brown; there is a great deal in dispute.  Mr Leung’s submission that the court should embark on an assessment of the merits is firmly rejected. 

(2) Will D2’s claim be stifled?

19.Having paid the $210,000 Mr Leung seeks to argue that there is still a risk that the claim may be stifled in the future — if further claims for security are made.  The court is not concerned with future possibilities.  The current position is that the claim can proceed.  It has not been stifled. Moreover, D2 is in a more comfortable position than most litigants since he has affirmed that his own lawyer’s costs will be deferred until after the whole matter has been resolved. 

(3) Full and frank disclosure

20.The criticisms of D2’s apparent lack of full and frank disclosure have been well made. For example:

(i) In earlier proceedings D2 was criticized for not revealing the value of his matrimonial home. It is his case that he has been a very wealthy man.  In these proceedings he provides no evidence about its present ownership, the circumstances in which, if it be the case, that he or his wife ceased to own it or the financial consequences of so doing.

(ii) Equally, no information is provided, one way or the other, about his wife’s financial circumstances.  In the same earlier proceedings he was again criticized for his lack of disclosure concerning his wife.  Little seem to have changed in this application.  Nothing is known save that he says: “I do not have any assets of substantial value.  I have no income.”

(iii) References appears, in pleadings and earlier affirmations, to very large sums of money.  Admittedly, several years have passed since and D2’s present claim is that it has all been lost.  However, a claim of annual profits, in 2008, of RMB150 million from his wholly owned company, sale of shares in his business for RMB115 million and a valuation, in 2010, of a property in his wife’s name of RMB40 million paints a picture of a very wealthy man.  A detailed explanation of his dramatic change of circumstances is absent. 

21.In short, there can be no criticism of the way in which the Master exercised his discretion.  Having heard the matter on appeal, this court’s decision is the same. 

QUANTUM

22.I have considered the skeleton Bill of Costs.  Mr Leung submits that in reaching his final figure for security the Master failed to acknowledge that some items were grossly exaggerated or inflated.  Mr Brown, conversely, submits that for a case of this size and complexity, the figure ordered is inadequate and should be increased.  He submits that certain items have been seriously undervalued and some ignored. 

23.When assessing an appropriate sum for security a master does not have to carry out the same exercise as a taxing master.  The sum ordered does not necessarily represent the sum that would have been ordered on taxation.  Rather, it is a sum, taking a broad view, which seems fair and reasonable in the present circumstances. 

24.The Master’s final order represented marginally less than 50% of the amount claimed “up to the stage of discovery”.  I have some sympathy with the submission that the order was at the lower end of what might be regarded as fair and reasonable.  However, in all the circumstances I have decided that it is not so low as requires interference by this court. 

DECISION

25.The 2^nd defendant’s appeal against the Master’s order for security for costs is dismissed with costs to the third party to be taxed if not agreed. 

Mr Kelvin Leung, instructed by M C A Lai & Co, for the 2^nd defendant

Mr Toby Brown, instructed by Stephenson Harwood, for the third party