Hengshi International Investments Ltd v. Bayspring International Ltd and Another

HCMP 1916/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO1916 OF 2015

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D E C I S I O N
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1.On 18 December 2015, this court handed down a decision (“the Decision”) continuing an injunction against D2 and made an order for disclosure of bankers’ records under section 21 of the Evidence Ordinance. An order nisi was made for costs to be in the cause. There are now 2 applications before me:

A. D2’s application for leave to appeal against the injunction order and the s.21 EO Order;

B. The plaintiff’s application for variation of costs order, with regard to the injunction application, to one of costs to the plaintiff to be borne by D2.

A.  LEAVE TO APPEAL

Legal principles

2.The applicable principles for the grant of leave to appeal under RHC O.59, r.2B have been recently summarised by To J in Sun Yan v Superb Jade Limited & ors, HCA 813/2014 (unrep, 3 March 2016), §§6-7:

“6. … to obtain leave to appeal, the Applicants have to satisfy the court either (1) that the proposed appeal has a reasonable prospect of success, or (2) that there is some other reason in the interest of justice why the appeal should be heard. Reasonable prospect of success involves the notion that the prospect of succeeding must be more than fanciful, without having to be probable. Although the fact that there is, ex hypothesi, a reasonable prospect of success would heavily influence the court’s exercise of discretion, even if the court comes to that view, it still retains in an appropriate case, discretion not to grant leave.”

7. For an appellate court to interfere with the judge’s exercise of discretion, it must be established that the judge has misunderstood the law or the evidence or that the exercise of his discretion was plainly wrong such that it was ‘outside the generous ambit within which reasonable disagreement is possible.”

3.In relation to an applicant’s challenge that the Court had failed to take into account relevant considerations, or had taken into account irrelevant considerations, the following observations are relevant:

“The fact that [the Judge] did not refer to each and every piece of evidence placed before the court, or each and every argument run before him, does not mean that he, as a professional judge, has forgotten any of them, or has failed to take them into account where appropriate”: see The Incorporated Owners of Kadoorie Avenue Mansion v Rising Dragon International Limited, HCMP 3201/2013 (unrep, 10 April 2014), §6, per Cheung CJHC.

4.Hence, in order to show that the Judge had failed to take into account of any relevant considerations, it must be “clear from his judgment” that “he must have clearly overlooked” such matter: Sun Focus Investment Limited v Tang Shing Bor & anor, HCMP 2251/2009 (unrep, 24 November 2009), §2, perRogers VP.

5.Ultimately, “the question of weight was a matter for the judge to decide in conducting his balancing exercise”: The Incorporated Owners of Kadoorie Avenue Mansion §8.

General observations

6.Mr Beresford has advanced 18 grounds of appeal.  Before those grounds are analyzed, it is important not to lose sight of the core issue then before this court at the hearing (“the Hearing”) which gave rise to the Decision.  The core issue was whether the plaintiff had a proprietary claim over the subject shares to justify the injunction and the s.21 EO Order.

7.This court has set out each party’s case in §§23-24 of the Decision.  In relation to the III Dune unpledged shares, this court took the view that D2 did not appear even to have a defence (§§33, 34 & 85).  In respect of the III Dune pledged shares, D2 had conceded in its oral and written submissions that there was a serious issue to be tried on the nature of the III Dune Loan Agreement.  This court found that there were such serious issues to be tried (§§28 & 83).  This court stated that the plaintiff had a proprietary claim over the HMI shares and any sale proceeds (§84) and that the plaintiff had a strong case on the merits (§82).  So even if other causes of action relied on by the plaintiff had failed, that would not have affected outcome of the Decision.

Grounds 1-3: Proprietary claims over the subject shares

8.D2 asserts that this court has erred in finding a serious issue to be tried on the nature of the plaintiff’s pledge of the shares as being in the nature of an equitable mortgage.  D2’s case had always been that it was a contractual arrangement which did not create proprietary rights.  D2 also claims that it had not made the concession that there was an equitable mortgage or equitable charge as stated in §24 of the Decision.

9.A recap of what happened would be useful. D2’s position stated in Mr Beresford’s written submission before the Hearing was that the Loan Agreement formed “a title transfer collateral arrangement”.

10.That position was repeated in Mr Beresford’s skeleton submission in response at the Hearing plus a concession of there being a serious issue to be tried:

“21. The real issue is whether the Loan Agreement was a title transfer type of agreement or whether it created a security interest. In construing the agreement, it is necessary to look at its substance rather than the labels the parties used. This is of particular importance in relation to agreements of this nature where expressions such as "borrow", "lend", "collateral", "margin" etc are used to reflect terminology used in the market for title transfer transactions. It is submitted that the substance of the Loan Agreement in the present case is revealed by the redelivery obligation: the parties agreed that D2 should be able to redeliver equivalent securities at the close-out of the transaction. Hence, there could have been no intention to attach property rights to specific shares. (underline added)

…

23. It is accepted that this raises a serious issue to be tried in the present case. However, it is not accepted that this gives P a right to an injunction.” (underline added)

11.The point of title transfer agreement was abandoned at the Hearing. Mr Beresford submitted that the III Dune Loan Agreement gave rise to a security arrangement, in the form of an equitable charge, as opposed to an equitable mortgage.  It sparked a debate regarding the difference between an equitable charge and equitable mortgage.  Mr Anson Wong SC then submitted that even if it was an equitable charge, the plaintiff would still have a proprietary claim over the shares.

12.It was true that D2 did not accept that the plaintiff had a right to an injunction.  However, the concession of there being an equitable mortgage or equitable charge was not accepted by the court at face value.  This court assessed Mr Anson Wong SC’s submission on the law before finding a “serious issue to be tried on the nature of the plaintiff’s pledge of the HMI shares” (§§24-28 of the Decision).

13.If this court had wrongly considered there to be a concession by D2, then after abandoning the contention of “title transfer agreement” and with the submission that there was a security arrangement, there was still no leg for D2 to stand on to resist a finding of there being a serious issue to be tried. Even now, Mr Beresford has avoided all arguments in relation to the unpledged shares.  Even accepting his submission that the case was all about contractual arrangements (which no one could deny because the III Dune Loan Agreement was about such), clause 2.2(a) in the Loan Agreement would have shown the nature of the agreement to be a mortgage, pledge, charge and as creating a security interest over the pledged HMI shares: §7(a) & (b) of the Decision.  The contract still gave proprietary rights to the plaintiff.

14.Insofar as D2 insists on there being a difference between CCASS shares and physical share certificates, no authority has been produced.  To the contrary, this court has referred to Wason Holdings Ltd & ors v BHP International Markets Ltd & anor, HCA 1692/2014, 20 March 2015, per Chow J, in which it was held that there was a proprietary claim in relation to the pledged CCASS shares and their sale proceeds.  The point at least remained a serious issue to be tried.

15.Accordingly, whether I was mistaken about D2 having made a concession, there is no reasonable prospect of success for Grounds 1-3.

Grounds 4-7: Claims in constructive trust for proceeds of sale derived from sale of the III Dune HMI Shares

16.It is asserted that this court erred in holding that a constructive trust arose from a breach of contract (§29 of the Decision) or that a constructive trust gave rise to a proprietary claim.  The court ought to have held the converse, namely, that a proprietary claim was a pre-condition for a constructive trust.

17.These grounds must fail since the court clearly found a serious issue to be tried on there being a proprietary claim (§84 of the Decision).  I repeat my general observations in paragraphs 6 and 7 above.

Ground 8: conclusory statement

18.Ground 8 is, as Mr Wong SC submits, a conclusion of D2 which adds nothing to Grounds 1-7.

Grounds 9-11: conspiracy

19.Although this court has found that there was a serious issue to be tried on conspiracy, it has expressly stated that it was content not to rest its decision on this tort (§64 of the Decision).  I repeat my general observations above.

20.Deutsche Bank and SCB had custodian accounts of D1 and D2 (§5 of the Decision).  Share reductions from JP Morgan represented unlawful sales of the HMI shares deposited by the plaintiff (§109(a) of the Decision). The disclosure order made was in respect of each bank for specific accounts and not “lumped together” as Mr Beresford suggests.

Ground 12: the tort of conversion

21.It is said that there was, as a matter of law, no cause of action for conversion of a chose in action and hence there was no serious issue to be tried on conversion.  Even if Mr Beresford is correct, my general observations above applied.

Grounds 13 and 14: irrelevant factors taken into account and relevant factors not taken into account

22.This is a complaint on wrong exercise of discretion for which the principles in Sun Yan, §§2 &7 apply.  It is futile to go into the details of these grounds in view of the general observations above.

Grounds 15-18: Intended appeal against the s.21 EO Order

23.In ground 15, Mr Beresford contends, in substance, that:

(a) This court has wrongly exercised its discretion in refusing to apply the well-established principles in the Lady Muriel [1995] 2 HKC 320; and

(b) An order under s.21 EO should not be made in aid of foreign proceedings; the Hong Kong court exceeded its jurisdiction.

24.With regard to (a), this court held that the Lady Muriel was decided before the Civil Justice Reform (“CJR”) in 2009 and so the post-CJR approach is that set out in §111 and Section H3 of the Decision.  This court also distinguished the Lady Muriel on the facts.  At the time of the Hearing, the arbitrator was not appointed.  Even now, after appointment of the arbitrator, it has not been shown that the Bahamas arbitral tribunal would have power to make any effective disclosure order compelling the banks in Hong Kong to make disclosure of the kind under s.21 EO.

25.In Top Gains Mineral Macao Commercial Offshore Limited v TL Resources Pte Ltd, HCMP 1622/2015, 18 November 2015, §§15-25, Mimmie Chan J held that the decisions in the Lady Muriel and Leviathan Shipping v Sky Sailing [1998] 4 HKC 347, both of which are now relied on by Mr Beresford, were inapplicable after the amendments to the repealed Arbitration Ordinance.

26.In fact, it was the CJR which led to amendments to the repealed Arbitration Ordinance.  So Mimmie Chan J and I reached the same conclusion as regards the inapplicability of the Lady Muriel as a matter of law.  Item (a) has no reasonable prospect of success.

27.With regard to (b), this court has found that there was a serious issue to be tried on the plaintiff’s proprietary claim.  Accordingly, this court had jurisdiction to make a s.21 EO Order in support of the proprietary injunction in aid of the foreign arbitration proceedings. 

28.At the Hearing, Mr Beresford did not challenge the court’s jurisdiction to make the s.21 EO Order: §45 of his then skeleton submission.  He now submits that notwithstanding the proprietary claim, the plaintiff has not raised a “tracing” claim.  It indicated that the plaintiff’s claim was not in truth a proprietary claim. 

29.I agree with Mr Anson Wong SC that whether or not tracing was claimed as a remedy did not affect the proprietary nature of a claim.  The plaintiff claimed for a proprietary injunction in Hong Kong and advanced a proprietary claim in the arbitration in the Bahamas.  The plaintiff did seek, by letter dated 4 September 2015 before the Hearing, a permanent injunction against disposal of the shares, accounts and inquiries in the arbitration, which were all equitable reliefs available to in a proprietary claim.

30.Mr Beresford states in his skeleton submission that the plaintiff has refused to comply with D2’s request to disclose the documents received pursuant to the s.21 EO Order.   The inference is that it would show the bankers’ records to be of no assistance to D2.  Without disrespect, there is no evidence of such refusal and the reasons before the court.  It is not open to D2 to ambush the plaintiff with this kind of submission.

31.Ground 16 complains about invading the privacy of strangers.  This court has already taken this into account in §123 of the Decision.  There is no suggestion by Mr Beresford that this court has misguided itself on law.  The exercise of discretion is not appealable.

32.Ground 17 does not add anything of substance to ground 15.

33.Ground 18 complains about the lack of specificity and width of the s.21 EO Order.  There was no suggestion as to how the order could have been better specified.  In any case, the banks had no difficulty in understanding what needed to be disclosed and had disclosed the same.

Summary on the application for leave to appeal

34.None of the grounds advanced have reasonable prospects of success.  The application for leave to appeal is dismissed.

35.Mr Anson Wong SC has asked for indemnity costs.  Notwithstanding Mr Beresford’s bold denial of having made concessions and that I have rejected all his grounds, I am not satisfied that this is an application which would have justified an indemnity costs order.

36.I make an order nisi that costs of the leave application be to the plaintiff with certificates for 2 counsel. 

37.There has been a summons for stay of execution which need not be dealt with eventually.  However, costs reserved under it should be to the plaintiff as well.

B.  VARIATION OF THE COSTS ORDER

38.In an interlocutory matter, costs to follow the event is but one option.  Where a party has acted improperly or is in some way to be penalized, or the application is totally baseless, the court may consider an immediate order as to costs.  See Korea Exchange Bank, Hong Kong Branch & anor v SSCP Holdings (Hong Kong) Limited & ors, HCA 146/2013 (unrep, 26 June 2013), §11, per Au-Yeung J; Golite International Limited v Golden Power Industries Limited, HCA 2262/2004 (unrep, 18 March 2005), §14, per Chu J (as she then was).

39.Mr Beresford submits that where an injunction was granted or continued on the basis of the balance of convenience in order to hold the ring until the dispute between the parties could properly be decided at trial, it was inconsistent to say that there were successful or unsuccessful parties for the purpose of the rules relating to costs and so the proper order is for costs to be reserved to the trial judge: Desquenne et Giral UK Ltd v Richardson [2001] FSR 1, §§12 & 14.

40.In Hong Kong, it has been held that it is not now right to say that as a matter of principle, the costs of an interlocutory injunction should be in the cause unless there is justification for its departure.  The Court is entitled to and should look at the merits of the injunction itself as at the time of the application to decide what should be the proper costs order for that application in all the circumstances, which do not necessarily depend on the outcome of the trial.  Mendlowitz & Associates Inc v Winner International Group Ltd & anor,HCA 574/2009 (unrep, 14 May 2010), §28, per Au J.

41.The caveat is that an injunction is an interlocutory remedy granted on affidavit which has not been tested in cross-examination and when the evidence is incomplete.  Accordingly, the Court should balance, on the one hand, the risk of injustice to the defendant in making a final costs order in favour of the plaintiff when upon a mature consideration at the trial it would not have been made against the risk of injustice to the plaintiff, on the other, by delaying its decision until conclusion of the trial which might have the practical effect of depriving the plaintiff of some or all of the costs which he should in fairness have been awarded”: Wah Cheong Construction Company Limited v Super Bright Engineering Limited & ors, HCCT 10/2013 (unrep, 6 June 2003),§6, per To J.

42.There can be serious disadvantages in leaving the question of interlocutory costs to the trial judge. 

“One is the difficulty of reconstructing for the trial judge how things looked at the time of the interlocutory application, particularly when it involved questions of balance of convenience which were irrelevant at the trial. But the more important reason is that very often there is no trial. In such a case, an order that costs be in the cause or reserved to the trial judge is in practice a decision that there should be no order as to costs.” Kickers International SA v Paul Kettle Agencies Limited and anor [1990] FSR 436, at 438, per Hoffmann J, as he then was, followed in Wah Cheong, §3.

43.A costs order should be made against the unsuccessful defendant in an application for interlocutory injunction where (a) the outcome of the hearing might be so plain to the parties that the court should conclude that an order should be made against the defendant for wasting time and money in fighting the issue (whether or not the defendant eventually concedes (at §12), or (b) where the substantive merits were very plain and the court did not expect the case to go any further (at §§13-14). Picnic at Ascot v Kalus Derigs [2001] FSR 2, Neuberger J (as he then was).

Application of the legal principles

44.Having heard the arguments, I am satisfied that the costs order should be varied for the following reasons:

45.Firstly, D2’s case was totally unmeritorious insofar as the unpledged shares were concerned.  It was telling that even in the application for leave to appeal, D2 has not been able to say how this court has erred regarding the unpledged shares.  The principles of Picnic at Ascot applied.

46.Insofar as the pledged shares were concerned, this court found that there were serious issues to be tried and the plaintiff had a strong case on the merits.   I hasten to add that although I have found against D2, that did not mean D2’s resistance of the injunction concerning the pledged shares as bordering on abuse of process as suggested by Mr Anson Wong SC.

47.Secondly, Mr Beresford submits that the point about “title transfer agreement” was abandoned at the outset of the Hearing and D2 could not reasonably be criticized for pursuing an arguable case.  With respect, that just missed the point that costs to resist that point had been incurred before the abandonment was made.

48.Thirdly, this court has alluded to the change in D2’s position in paragraphs 9-13 above.  It is better for me, who had heard the arguments and before the change in D2’s position was forgotten, to determine the question of costs, than to leave it to the arbitrator or another judge to reconstruct what had happened at the Hearing.

49.Fourthly, the plaintiff has effectively obtained all that it has sought in the originating summons, ie an injunction in aid of foreign arbitration. 

50.Fifthly, there was conduct the part of D2 which showed bad faith. An example was D2’s selective disclosure despite a disclosure order (§§87 & 121 of the Decision). 

51.Considering all circumstances, it is appropriate to vary the costs order and require D2 to bear the plaintiff’s costs with regard to the injunction application. That application involved complex legal and factual issues and there was a substantial amount at stake.  There should be certificate for 2 counsel and 2 fee-earners for the plaintiff’s solicitors. 

CONCLUSION

52.I order as follows:

(1) I dismiss the application for leave to appeal with costs to the plaintiff;

(2) I vary the costs order nisi under paragraphs 126(1)(b) and 126(3)(a) of the Decision and order D2 to bear the plaintiff’s costs (including costs for 2 fee-earners) for the application for injunction;

(3) All costs to the plaintiff shall include certificate for 2 counsel;

(4) I adjourn the matter for summary assessment on the papers to 1 April 2016 without a need for attendance;

(5) The Plaintiff shall provide copies of counsel and expert’s fee notes to the Court before the summary assessment.

(6) D2 is to file and serve its grounds of opposition by 31 March 2016.

53.I thank counsel for their assistance.

Mr Anson Wong SC, leading Mr Martin Kok, instructed by DLA Piper Hong Kong, for the plaintiff

Mr Roger Beresford, instructed by Reed Smith Richards Butler, for the 2^nd defendant