Henrik Andersen and Another v. Huang Kuang Yuan and Others

No. 208 of 1997
(Civil)

IN THE HIGH COURT OF HONG KONG

COURT OF APPEAL

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Coram: Chan C.J.H.C., Nazareth V.-P. and Keith J. in Court

Dates of hearing: 31 October 1997 and 4 November 1997

Date of handing down of judgment: 17 November 1997

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J U D G M E N T

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Keith J. (giving the first judgment at the invitation of Chan C.J.H.C.):

Introduction

1. Sears J. is currently trying a massive action. The principal Defendant is D1. He was declared bankrupt in Denmark in 1989. The Plaintiffs are the trustees of D1's estate, and the receivers of his property in Hong Kong. They contend that D1's assets include assets nominally owned by some of the other Defendants, and that attempts have been made by all the Defendants to conceal D1's true assets from the Plaintiffs. In the course of the trial, Sears J. has had to make a number of interlocutory orders. This appeal relates to two orders which Sears J. made for security for costs. They were made pursuant to Ord. 23 r. 1(1)(a) of the Rules of the High Court, on the footing that the Plaintiffs are ordinarily resident out of Hong Kong.

2. The Defendants can conveniently be grouped into 3 categories. First, there is D1 himself. The second group consists of D5 and D9. D9 is D1's wife, and D5 is a company incorporated in Hong Kong. D9 is the legal owner of a significant majority of the shares in D5, and the issue is whether she is the beneficial owner of those shares as well. She said that she is. The Plaintiffs say that D1 is. The third group consists of the other Defendants, i.e. D2, D3, D4, D6, D7, D8 and D10. I shall refer to these Defendants as the B & M Defendants (because they are all represented by Messrs. Baker & McKenzie).

The applications of D5 and D9

3. The second group of Defendants, D5 and D9, applied for security for costs on three occasions:

(i) They first applied for security for costs in December 1993. That application was adjourned sine die. In due course, the application was restored. Sears J. dismissed the application in March 1995. He did so on the basis that the Plaintiffs claimed that they had been "brought to their knees by virtue of the actions of the Defendants".

(ii) On 4th September 1997, D5 and D9 applied for security for costs for the second time. That was Day 14 of the trial. The ground for renewing the application, as Sears J. understood it, was that the action had grown in complexity and was going to last much longer than had been envisaged. The original estimate had been 8 days. Sears J. rejected the application. He took the view that the factors which had caused the action to grow in complexity and to last longer than had been anticipated had not been attributable to anything which the Plaintiffs had done. Indeed, he expressed his view in strong terms: he said that it would be "quite inappropriate for security for costs to be ordered".

(iii) On 9th October 1997, D5 and D9 applied for security for costs for the third time. That was Day 34 of the trial, and the case for D5 and D9 was coming to an end. On that occasion, Sears J. ordered the Plaintiffs to provide security for their costs. The sum ordered was $2m., and the Plaintiffs had to provide it by 13th October. If they failed to do so, they would be debarred from continuing with their claim against D5 and D9. The Plaintiffs did not provide the security ordered, and on 15th October Sears J. dismissed the Plaintiffs' action against them. The Plaintiffs' appeal is against the order for security for costs of 9th October and the dismissal of the action on 15th October.

The applications of the B & M Defendants

4. The B & M Defendants also applied for security for costs on three occasions. The first occasion was on 4th September 1997, when they made the same application as D5 and D9. Their application was dismissed for the same reasons. The second occasion was on 9th October 1997 when they again made the same application as D5 and D9. Although the application of D5 and D9 was allowed, that of the B & M Defendants was not, but Sears J. said that he kept an open mind on the matter.

5. However, the B & M Defendants' third application for security for costs was successful. It was made on 23rd October, which was Day 42 of the trial. The sum ordered was $1.2m., and the Plaintiffs had to provide it by 10:00 a.m. on the following day. The proceedings were stayed in the meantime. The Plaintiffs did not provide the security ordered, and on the following day Sears J. dismissed the action against the B & M Defendants. The Plaintiffs' appeal is against the order for security for costs of 23rd October and the dismissal of the action on 24th October.

The unusual features of the case

6. There is no inflexible practice that a plaintiff ordinarily resident out of Hong Kong must be ordered to give security for costs. However, as a matter of discretion, the court's usual practice is to require a non-resident plaintiff to give security for costs because a non-resident plaintiff may be immune from the consequences of an order for costs against him.

7. On the other hand, there are two features which made the orders for security for costs which Sears J. made in the present case unusual. First, there had been previous unsuccessful applications for security. Accordingly, for a subsequent application to be successful, there would have had to be at the very least a material change of circumstances since the previous applications had been dismissed. Secondly, the orders for security were made a long time into the trial. Indeed, the trial was well over half-way through. It is common ground that such orders are rare. The reason is obvious. By the time a trial begins, significant costs will have been incurred. If security is ordered at that stage, and the plaintiff is unable to comply so that the action is stayed and subsequently dismissed, all those costs will have been wasted. In short, if security for costs is to be ordered, it should be ordered sooner rather than later so that the plaintiff has a sensible opportunity to decide, at an early stage in the proceedings, whether or not to invest additional funds for the prosecution of the action. Indeed, the rejection of a defendant's previous applications for security for costs positively encourages a plaintiff to continue with the action.

The orders for security for the costs of D5 and D9

8. Sears J. acknowledged how unusual it would be to order security for the costs of D5 and D9 at that stage of the trial, but as I read his ruling his decision was based on two factors:

(i) The Plaintiffs had conducted the case in a manner which had bordered "on the oppressive", and which had amounted at times to "a personal vendetta" against some or all of the Defendants. The case was being litigated "relentlessly", "every little avenue [was] being pursued", and "every little item of expenditure [was] being dealt with in the most minute detail".

(ii) The evidence had not borne out the Plaintiffs' case that D9 was simply the nominee of D1.

9. The Plaintiffs' conduct of the case. There is, in my view, nothing wrong in principle with a judge approaching the question of security in the way in which Sears J. did. In an extreme case, it would be open to a judge to order security for costs in the course of a trial if he thought that the trial was being deliberately or unreasonably prolonged. The difficulty is that the exceptionally strong views which Sears J. expressed do not lie easily with his emphatic exoneration of the Plaintiffs on 4th September of any prolongation of the action. Nor do they lie easily with what the judge said on 23rd October in his ruling on the application by the B & M Defendants for security for costs. On that occasion, he described as "praiseworthy" the Plaintiffs' mammoth preparations for the action. Nor do they lie easily with the judge's view of the conduct of the Plaintiffs during the most significant part of the trial for present purposes - namely the period between Day 14 (when he dismissed D5 and D9's second application for security for costs) and Day 34 (when he allowed their third application). 10 of those 20 days had been taken up with the cross-examination of D1, and the judge went out of his way on 23rd October to say that he made no criticism of that.

10. Nevertheless, it is plain that Sears J. thought that what he regarded as the Plaintiffs' obsession with detail had resulted in the case lasting significantly longer than it should have done. Although the judge had not always spoken with one voice, he was saying that, looking at their conduct of the case as a whole, it had prolonged the case unreasonably. If that view was correct, it was capable of amounting to a material change of circumstance since 4th September (when the previous application of D5 and D9 for security for their costs had been dismissed) which could justify ordering security for their costs then.

11. Mr. Barrie Barlow for the Plaintiffs has contended that this criticism of the Plaintiffs was unfair. No reasons were given by Sears J. for the conclusion he reached. However, my difficulty is that without reading a full transcript of everything which occurred between Day 14 and Day 34, I cannot determine whether the criticisms which Sears J. made of the Plaintiffs' conduct of the case were justified. This interlocutory appeal is not an appropriate occasion for such an examination of the transcript to take place. It follows that I have no alternative but to assume, albeit for present purposes only, that the judge's view of the Plaintiffs' conduct cannot be challenged. On that footing, I have reached the view that it was open to the judge to take the exceptional course of ordering security for the costs of D5 and D9, even though the order was made well into the trial as the case for D5 and D9 was coming to an end, and even though previous applications for security for their costs had been dismissed.

12. I was for a time troubled by the fact that on the same occasion as the judge ordered security for the costs of D5 and D9, he refused to order security for the costs of the B & M Defendants. If the Plaintiffs' conduct of the action justified an order for security for the costs of D5 and D9, should it not also have justified an order for security for the costs of the B & M Defendants? However, the judge gave a particular reason for not ordering security on 9th October for the costs of the B & M Defendants: he said that they had brought the action on themselves by "clothing [D1] with the apparent authority to be the owner of these companies". That is an unusual basis on which to refuse to order security, but the fact that the judge, albeit for surprising reasons, refused to apply to the B & M Defendants the reasoning which persuaded him to order security for the costs of D5 and D9 does not undermine the order which he made for security for the costs of D5 and D9.

13. The weakness of the Plaintiffs' case against D5 and D9. A plaintiff's prospects of success is a factor which a court can properly take into account in determining whether to order security for costs. The circumstances in which a plaintiff should be ordered to provide security for a defendant's costs in the course of a trial because of the weakness of the plaintiff's case must be rare indeed. But I cannot say that it would never be appropriate. It is open to a judge to express a provisional view about the case he is trying, so as to enable the parties to make informed decisions about the future conduct of the case - provided, of course, that the judge makes it absolutely clear that the opinion he is expressing is only a provisional one, that he is keeping a completely open mind on the matter, and that his final view would only be formed once all the evidence and submissions had been heard. If a judge expresses a strong provisional view adverse to a foreign plaintiff, and the plaintiff decides (as is its absolute right) to continue with the claim, I cannot say that it would necessarily be wrong for a judge to order the plaintiff to provide security for the defendant's costs in those circumstances.

14. In this case, the judge had expressed a strong provisional view adverse to the Plaintiffs' case against D5 and D9. The evidence of D9, upon which that view was based, amounted to a material change of circumstances since 4th September. I have to assume, for present purposes, that there was material on which the judge could have formed the provisional view which he did. Otherwise, this interlocutory appeal would resemble an appeal from the final disposal of the action. On that assumption, although the order for security was a strong one, I cannot say that it was not reasonably open to the judge to make it.

15. The amount of security. However, I regret to say that in my opinion the judge's view as to the amount of security which the Plaintiffs should have been ordered to provide, namely $2m., cannot be sustained. I say that for this reason. The judge was told by counsel for D5 and D9 that their costs to date were in the region of $5.6m., and that the costs which they were likely to incur in respect of the remainder of the action was in the region of $1m. I accept that security for costs is not necessarily confined to future costs: see the Supreme Court Practice 1997, Vol. 1, para. 23/1-3/29. But to the extent that the judge ordered security for the costs of D5 and D9 because of the Plaintiffs' conduct which caused the unreasonable prolongation of the action, the amount of security should logically be limited to the additional costs which D5 and D9 would incur as a result of that conduct. The judge did not say that the trial would have finished well before Day 34 but for the Plaintiffs' conduct of the action. In those circumstances, I do not see how D5 and D9 could have become entitled to security for costs incurred before 9th October.

16. Further, to the extent that the judge ordered security for the costs of D5 and D9 because he believed, as a result of D9's evidence, that the Plaintiffs' case against D5 and D9 was weak, the amount of security should logically have been limited to the additional costs which D5 and D9 would incur as a result of the Plaintiffs not acting on the views which the judge expressed on 9th October. Accordingly, the order for security should have been limited to the costs which would be incurred after 9th October. Even then, the estimate of those costs, namely $1m., would have to be discounted to reflect the effect of taxation. In my judgment, therefore, the amount which the judge should have ordered for security for the costs of D5 and D9 was $700,000.00.

The order for security for the costs of the B & M Defendants

17. As I read his ruling, the reason why Sears J. ordered security for the costs of the B & M Defendants was because the cross-examination of D10's principal witness had shown that the Plaintiffs' case against the B & M Defendants was a weak one. The judge thought that the Plaintiffs could not resist an order for security for costs on the basis that they had no funds. If the Plaintiffs wanted to continue the action against the B & M Defendants, they should "put their money where their mouth is".

18. For the reasons I have given in relation to the order for security for the costs of D5 and D9, I think that it was open to the judge to approach the question of security in this way. On 22nd October, i.e. Day 41 of the trial, the judge had expressed a strong provisional view adverse to the Plaintiffs' case against the B & M Defendants. This view was based on the evidence of D10's principal witness. The judge said that he had been "very impressed" by her, and that he had found her "an exceptionally good witness". This amounted to a material change of circumstances since 9th October . Indeed, it was the expression of that view which prompted the B & M Defendants to make their third application for security for costs.

19. However, I should add this. The judge had been informed on 9th October that the Plaintiffs had available funds in Hong Kong amounting to $1.93m. I shall have to return later to the circumstances in which the judge acquired that information. But in concluding, in the context of the successful application for security for the costs of the B & M Defendants, that the Plaintiffs could not rely on the lack of funds available to them in Hong Kong to resist an order for security, the judge had in mind the special position of litigation brought by trustees in bankruptcy. They are personally liable for a successful defendant's costs. If that makes them reluctant to pursue claims for the bankrupt's estate, they can always persuade the bankrupt's creditors to indemnify them. The judge took the view that, whether or not the Plaintiffs had funds available in Hong Kong to provide security, they could have looked to D1's creditors for additional funds. In my opinion, that was a view which it was open to the judge to take, especially as it was never suggested to him that D1's creditors did not have other funds which could have been made available to the Plaintiffs for the continued prosecution of the action. That is not surprising: D1's creditors included Danish banks and major companies in China. Accordingly, it was open to the judge to conclude that this was not a case in which the Plaintiffs' claim against the B & M Defendants would be stifled if security for their costs was ordered.

20. Incidentally, that is also the answer to a point which Mr. Barlow particularly stressed. Since the judge knew on 9th October that the Plaintiffs' available funds in Hong Kong amounted to only $1.93m., to order them to pay $2m. as security for the costs of D5 and D9 would have amounted to the stifling of the Plaintiffs' claim against them. The answer is that the judge was entitled to conclude, in the absence of evidence to the contrary, that additional funds could have been obtained from D1's creditors, especially as Mr. Dennis Yu for D5 and D9 had made that very point to him.

21. I turn to the amount of the security which the judge ordered the Plaintiffs to provide. The ground for attacking the amount of security ordered for the costs of D5 and D9 does not apply to the amount of security ordered for the costs of the B & M Defendants. The security ordered related only to the future costs of the B & M Defendants, and it was significantly less than the estimate of those costs. However, if the security for the costs of D5 and D9 had been limited to $700,000.00, it may be that the Plaintiffs would have provided it. In that event, they may not have had to look to D1's creditors for further funds to provide the security ordered for the costs of the B & M Defendants. But if they had had to (because the $1.93m. had been depleted by the Plaintiffs' own costs since 9th October), the Plaintiffs could not have been expected to provide the security within the 18 hours or so which the judge ordered. For my part, I would allow the Plaintiffs up to 14 days from today, if they want it, to provide the security ordered.

The judge's agenda

22. There are two final matters I must address. The first relates to a grave attack which Mr. Barlow mounted against the integrity of the judge. He argued that the judge ordered the Plaintiffs to provide security for the Defendants' costs because he was seeking to achieve a collateral objective of his own. The judge, it was said, had become disenchanted with the length of time the case was taking, especially as he had taken a particular view of the witnesses. He therefore wanted to bring the case to an end, and he saw orders for security for costs as a means of achieving that objective. That is said to have been borne out by the exceptionally strong, and at times injudicious, language which the transcript reveals the judge as having used, and the fact that he had positively encouraged the Defendants to make the very applications for security for costs which eventually turned out to be successful.

23. If the judge had been pursuing his own agenda, he would, by definition, not have been exercising the discretion which he was obliged to exercise. It would then have been for us to exercise an original discretion of our own. It goes without saying, I hope, that I would not have shirked from the unpalatable task of pronouncing on the judge's integrity if it had been necessary to do so. In fact, I do not think that it is necessary for me to determine that issue, even if it was possible for me to do so on the limited material before us (which I doubt). That is because on the views which the judge expressed I would have exercised my discretion in the same way as he did (save for the amount of security for the costs of D5 and D9).

24. I stress the words on the views which the judge expressed. Those views related to the Plaintiffs' conduct of the case and the weakness of their case against D5, D9 and the B & M Defendants. I do not know whether those views are in fact correct, but as I said earlier, I have to proceed for present purposes on the footing that those views cannot be challenged: otherwise, this would cease to be a straightforward interlocutory appeal within a narrow compass, and it would become a hearing akin to an appeal from the final judgment in the action. If

(a) a foreign plaintiff conducts a case against a defendant in such a way that the trial is unreasonably prolonged,

(b) the plaintiff continues with the action despite the judge's strong provisional view that the plaintiff's case is a weak one, and

(c) funds are available from companies in whose interests the action is being brought, so that an order for security for costs will not force the plaintiff to abandon its claim,

I do not see how the judge can avoid ordering security limited to the defendant's future costs of the action.

The confidential information provided to the judge

25. Finally, I return to the circumstances in which the judge was informed about the Plaintiffs' available funds in Hong Kong. The judge directed that that information be given to him "off the record", and he promised that the information would be for his eyes only. As a result, he was handed a document which showed what funds were available to the Plaintiffs in Hong Kong. That was not an appropriate course for the judge to adopt. He should not have ordered that the information be provided to him on an ex parte basis, and the document in which the information was contained should have been on the record by being exhibited. Moreover, on a number of occasions thereafter, the judge commented on the fact that "the Plaintiffs [had] no money". That was unfortunate. It could have given the impression to the Defendants that the judge was divulging, contrary to his promise, the information he had received. In any event, it misrepresented what he had been informed: far from having no money, the Plaintiffs had had available funds in Hong Kong on 9th October of $1.93m. I understand what prompted the judge to do what he did, but I am confident that with the advantage of hindsight this experienced and respected judge would recognise that his conduct was inappropriate.

Conclusion

26. I doubt whether I have done justice in this judgment to the wide-ranging arguments which counsel have deployed, but I have limited this judgment to a consideration of the issues on which, in my view, the success or failure of this appeal depends. For my part, I would allow the Plaintiffs' appeal to this extent only. I would set aside the orders dismissing the Plaintiffs' action against D5, D9 and the B & M Defendants. I would direct that the order that the Plaintiffs provide security for the costs of D5 and D9 be varied, so that the Plaintiffs are ordered to provide security for their costs in the sum of $700,000.00 within 14 days of today. I would direct that the order that the Plaintiffs provide security for the costs of the B & M Defendants be varied, so that the Plaintiffs are ordered to provide security for their costs in the sum of $1.2m. within 14 days of today. Finally, I would give D5, D9 and the B & M Defendants liberty to apply to Sears J. for the dismissal of the claim against them if the Plaintiffs do not provide the security ordered.

Nazareth V.-P.

27. I have had the advantage of seeing my Lords' judgments in draft and agree that the appeal should be allowed only to the extent they propose. I also agree with their reasons, save that I rely primarily upon the following additional reasons.

28. Keith J feels that without reading a transcript of what occurred between Day 14 and Day 34 of the trial he could not determine whether the criticism made by Sears J that the plaintiffs' conduct of the case prolonged it unreasonably, is justified.

29. Likewise in addressing the attack on the integrity of the judge upon the basis that he had ordered security to be provided to achieve his collateral objective of bringing the case to an end, Keith J doubted whether he could decide that issue on the material before us.

30. It seems to me that since the plaintiffs are, with respect to each of those matters by their appeal, challenging findings or decisions of Sears J, the onus is upon them to establish their challenges. Likewise, it is for them to choose what submissions to make and what material to present, subject to such principles as may apply. The latter and its inherent jurisdiction would enable the Court to decline to permit the plaintiffs to present material that, e.g. was considered irrelevant or too remote. But if they choose to concentrate and rely upon limited material and submissions, it seems to me that it is upon those that the Court should determine the appeal, a fortiori in the case of an appeal which if unsuccessful, albeit interlocutory, is likely to result in the termination of the appellants' action. If I am wrong in that view, I would then fall back upon the approach that Keith J favours.

31. I turn upon that basis to address first the attack upon the judge as having a collateral objective. This was, as Keith J has succinctly put it, that it was to secure his collateral objective of bringing the case to an end, that the judge ordered security to be provided, having become disenchanted with the length of time the case was taking, especially as he had taken a particular view of the witnesses; and that the exceptionally strong, and at times injudicious language the transcript reveals, and his positive encouragement of the defendants to make the applications for security that were successful, are indicative of that collateral objective.

32. I have to add that Mr Barlow also relied upon the absence of reasons in the judge's ruling for reversing his previous refusals to order security for costs; and similarly absence of reasons for his view that the plaintiffs' attitude to D9 "borders on the oppressive" and appeared to be "a personal vendetta". Also, very material to the complaint is the context in which Mr Barlow placed it, i.e. the plaintiffs' case against the two groups of defendants, which was proclaimed to the judge at the outset of the hearing.

33. The plaintiffs' case against the first group of defendants, i.e. D9 and D5 was that D5 was set up by D1 who had been declared bankrupt by the Danish Courts, using his own funds. D1 traded from the offices of the Hovency Group, using Hovency staff. He signed 90% of its trade documentation, he operated its bank accounts and, alone, guaranteed its loans. He operated it as just another Hovency company of his own which fact was recognised in various notes or letters written by D9. D9 was of course his wife, who held the majority of shares in D5. I pause to add here Mr Barlow's point that no submission of no case to answer was made on behalf of the defendants on the conclusion of the plaintiffs' case. Instead Mr Denis Yu for D5 and D9 called his evidence which the plaintiff was in the process of testing when the judge, without any submission or complaint from Mr Yu, raised the issue of the plaintiffs' funds.

34. The plaintiffs' case against the second group comprising the remaining defendants (the B & M defendants) was similarly that D1 set up the Hovency Group of Companies; he ran them; he was a signatory to the bank accounts; he alone guaranteed the banking facilities, and for up to HK$42m; he wrote company cheques without any necessity to account to anyone else, the staff including the financial controller considered him to own the Group; he lived in one of the Group's flats and used cars owned by the Group; each year he spent several million dollars of the Group's funds on himself and his family; he had multi-million dollar interest free loans from the Group and he did not seem to be accountable to anyone. His evidence was that he owned nothing but the clothes he stood up in.

35. D9's evidence was to the like effect although on her own evidence she was wealthy as a result of the trading of D5. Madam Zeng's evidence was that despite all of the foregoing, D1 and D10 had entered into secret agreements in 1989 when D1 was released from police custody in Denmark and was penniless - secret agreements whereby D1 would act as D10's secret nominee, establish the Group and trade on its behalf, never paying dividends but causing the value of the Group to grow year after year. Madam Zeng, it has to be noted, was D10's officer or employee whose evidence so impressed the judge as to lead him to his provisional view adverse to the plaintiffs' case against the second group of defendants.

36. Plainly, therefore, the case of each group of defendants was highly suspicious, and their two principal witnesses who were to establish those cases could be expected to be subjected to searching cross-examination. It has to be said in the light of that background that it is not immediately apparent from the possibly limited material put before this Court why the cross-examination of D9 and the conduct of the plaintiffs' case should have been thought oppressive or indeed a personal vendetta. It has also to be said that the numerous interventions made by the judge, many relative lengthy, others forcefully reflecting his provisionally adverse view, could not but have made it exceedingly difficult for Mr Barlow to effectively cross-examine D9. However, although he mentioned that matter and the Notice of Appeal refers to "repeated interruptions and harassment of counsel during" cross-examination, it is not a ground of appeal before us that the conduct of the plaintiffs' case was thereby materially prejudiced. Moreover to his credit, Mr Barlow appears nonetheless to have been able to sufficiently test the evidence called for the defendants and to extract the evidence he sought. Certainly he did not complain that he was prevented from doing so.

37. All that is one side of the coin. I now turn to the other.

38. The highly suspicious nature of the defendants' case directed to showing that D1 did not have a beneficial interest in the companies concerned, did not escape the judge. Indeed, he referred to D1 as a "crook" as Mr Barlow pointed out. It seems to me that it must have been this suspicious nature of the defendants' case that prompted the judge initially not to make an order for the provision of security for costs by the foreign plaintiffs here, which is usually ordered. His remark that he would have to keep his refusal under review suggests that while he was rightly concerned that the plaintiffs should not be unduly vexed with having to provide security in a case that seemed to be so suspect, he was also rightly concerned that he should not overlook the possibility of having to remedy the situation if the suspicions turned out to lack substance. It is plain from the exchanges that he was thoroughly disenchanted with the trial taking so long and apparently also substantially overrunning. It would be natural for his disenchantment to be exacerbated by indications he detected of the plaintiffs' case lacking substance. It appears that he had expected documentary or other evidence to emerge and substantiate the suspicions. But to the contrary he found both D9 and Madam Zeng remarkably impressive witnesses. In those circumstances it would have been proper for him to indicate to the plaintiffs his provisional view so that they had an opportunity to meet that possible weaknesses in their case. There is no unequivocal indication that the judge had taken a final view of the matter. Indeed, he referred to his provisional view.

39. In the light of the circumstances and considerations I have adumbrated, which embody those urged upon the Court by counsel for the defendants, what Mr Barlow relies upon as supporting his complaint of a collateral objective seems equally consistent with the absence of a collateral objective on the part of the judge.

40. I would add that in reaching that conclusion I have not overlooked the possibility that Mr Barlow may have been pressed for time to fully develop his submissions. That counsel sometimes find they do not have time is not unusual; nevertheless we did allow the parties an extra half-day over the time agreed. On the other hand, it is the plaintiffs' appeal, and their particular complaint. As I have said it is for them to establish it. And it is for them to direct this Court to all the material and, especially the passages in the transcript, upon which they rely.

41. That said, there is another factor that militates against the contention that security was ordered in pursuit of a collateral objective. As the judge was well aware, it was for the creditors to fund the proceedings and not the plaintiff trustees in bankruptcy who could call upon the creditors; and that among the creditors were banks and a Chinese state corporation which must have had ample funds from which to contribute. In the light of this, the fact that the total amount of security ordered to be provided exceeded the plaintiffs' funds in hand, does not support the conclusion that the judge's objective was to bring the case to an end.

42. In the result, on the materials and submissions before this Court, I am not persuaded that the orders for security were made in pursuit of a collateral objective. That allegation, accordingly, has not been established and provides no support for the plaintiffs' challenge of the orders for security. The question this Court had to address in that latter context was whether the judge was right to order security for costs. The judge's conduct as such was not on trial; and the attack upon it, addressed as far as it is possible to do upon the material and submissions presented, does not support the allegation of a collateral objective.

43. Before I leave the matter I feel bound to say that although I am not persuaded that the collateral objective alleged was sufficiently established, that allegation and the associated complaints of excessive intervention and harassment pursued upon specific passages of the transcript are disquieting. Even concern to prevent injustice to one side, or to prevent delay, should not be taken to the point that the other side might be prejudiced in the conduct of its case.

44. Returning to address the plaintiffs' case, with the allegation of a collateral objective discounted, one is still left with the judge's decision on the case against D5 and D9 having been resolved primarily upon his assessment of D9's evidence, which is a finding of fact. The judge must have placed great weight upon the demeanour and manner of D9. In such circumstances, only on the rarest occasions, and in circumstances where it is convinced by the plainest considerations would an appellate court be justified in finding that the trial judge had formed a wrong opinion (see Hongkong and Shanghai Banking Corpn v Chan Yiu-wah and anor [1988]1 HKLR 457, 477). I am not persuaded that any of Mr Barlow's submissions or the matters upon which he relied would in any way justify the rejection of the judge's assessment of D9's evidence. Mr Barlow did not directly address the judge's view that the plaintiffs' conduct of the case unreasonably prolonged it. For my part, addressing that view upon Mr Barlow's general submissions and the material he relied upon, I am not persuaded that the judge was wrong.

45. Similarly, as to the plaintiffs' case in respect of the order for security in favour of the B & M defendants, the judge's decision turned primarily upon his assessment of Madam Zeng's evidence. For the like reasons that I mentioned in relation to D9's evidence, I am not persuaded that the judge was wrong or could be faulted upon Mr Barlow's submissions and the material they rested upon.

46. As indicated, in other respects I agree fully with the reasons given by my Lords for allowing the appeal to the extent mentioned and for the orders proposed.

Chan C.J.H.C.

47. For the reasons given by my Lords, I would also allow the appeal in part and make the orders as proposed by him.

Applicable principles

48. The principles which are applicable to applications for security for costs are not in serious dispute. The starting point must be Order 23 rule 1(1) of the Rules of the High Court. It requires the court to have regard to all the circumstances of the case and to consider whether it is just to order security. A foreign plaintiff falls within the ambit of that rule. However, while there is no inflexible rule that a foreign plaintiff must provide security for costs, "as a matter of discretion, it is the usual ordinary or general rule of practice" of the court to require him to do so (see Supreme Court Practice 1997, 23/1-3/2 and 23/1-3/3). One of the major considerations which the court will take into account would be the plaintiff's prospects of success. The conduct of the litigation is also relevant (see Gibson, L.J. in Keary Developments Ltd v. Tarmac Construction Ltd and another [1995] 3 All ER 534 at 540). Delay may be an important factor to bear in mind especially when the plaintiff has been led to act to his own detriment or it may cause hardship to him in the further conduct of the action (see Jenred Properties Ltd v. Ente Nazionale Italiano Per Turismo, unreported, Financial Times, 29 October 1985). It is rare to order security during the course of a trial. Where the court has previously refused an application for security for costs, there must be a substantial change in circumstances before it would consider exercising its discretion afresh. (See Supreme Court Practice 1997, 23/1-3/28).

49. With respect to counsel for the plaintiffs, it has not been shown that the trial judge had failed to apply these principles.

Judge's assessments

50. It is submitted that there was no change of circumstances since the last occasion when the judge refused to order security. In his rulings, the judge took the view that there was in view of the manner in which the plaintiffs conducted their case against the defendants and the evidence adduced by the defendants. Was he justified in coming to that conclusion?

51. In my view, a judge's assessment of the parties' relative prospects of success may change during the course of the trial. A party's case may seem to be stronger when a particular witness in his favour comes up to proof but may become weaker if either his own witness fails to support him or a witness called by his opponent has given evidence which has adversely affected or even destroyed his case. The trial judge is in the best position to make such assessment. It would be wrong for the appellate court to substitute its assessment for that of the judge. First, the appellate court should not be asked in an interlocutory appeal such as the present to wade through the evidence in detail. Secondly, even if all the transcripts are available, the appellate court does not have the benefit of watching the demeanour of the witnesses. As the trial progresses, there may come a time when the judge would, after coming to a preliminary view of the evidence adduced so far, come to the view that the plaintiff's case is no longer as strong as it was when the trial commenced and that it is unlikely that it would improve. When the trial reaches such a stage, it is open to the trial judge to consider the question of security again.

52. The court must conduct a balancing exercise with regard to where justice between the parties lies as required by O.23 r.1(1). As Gibson, L.J. said in the Keary's case:

"On the one hand it must weigh the injustice to the plaintiff if prevented from pursuing a proper claim by an order for security. Against that, it must weigh the injustice to the defendant if no security is ordered and at the trial the plaintiff's claim fails and the defendant finds himself unable to recover from the plaintiff the costs which have been incurred by him in his defence of the claim. The court will properly be concerned not to allow the power to order security to be used as an instrument of oppression, such as by stifling a genuine claim ....."

53. In the present case, the trial judge came to the view that he should do justice to the parties having heard the case thus far. The plaintiffs had already concluded their case. The 1st defendant, the person involved in the alleged fraud, had given evidence. In respect of the case of D5 and D9, the judge had heard most part of the evidence of D9. It would seem that the judge was entitled to come to the view, albeit a preliminary view, that the plaintiffs' case was not as strong as it appeared at the beginning of the case and that it could only worsen from then onwards. Further, the judge had also come to the view that the plaintiffs' conduct of the case so far against D5 and D9 had been oppressive. This Court is in no position to doubt these preliminary assessments. In respect of the B & M defendants, the same applies. Two witnesses including Madam Zeng had given evidence. The last witness had been described by the trial judge as impressive. There is again no reason to doubt such preliminary assessment.

Stifling plaintiffs' claim

54. It is submitted that the judge's order has stifled the plaintiffs' claim. It is said that the judge was aware, from the information supplied to him by the plaintiffs in confidence, that the plaintiffs had as at 9th October only $1.9 million in the hands of the solicitors but had chosen to order security in the sum of $2 million with regard to the case of D5 and D9 and $1.2 million in respect of the case against the B & M defendants. In my view, this argument cannot be sustained. As Gibson, L.J. said in the Keary's case at page 540:

"The court should consider not only whether the plaintiff company can provide security out of its own resources to continue the litigation, but also whether it can raise the amount needed from his directors, shareholders or other backers or interested persons."

55. The plaintiffs are Danish trustees in bankruptcy. They started and continued the present action for the benefit of the creditors. It is quite clear from the authorities that trustees in bankruptcy would be personally liable for the costs of litigation. It is the usual practice that they should either get an indemnity from the creditors or extract an undertaking to be so indemnified. When the trial judge ordered that security in those amounts be provided by the plaintiffs, he did make it clear on more than one occasion that such security could be provided by way of an undertaking or a bank guarantee or any other form of security as might be agreed or acceptable by the court. It would seem that what the plaintiffs had in Hong Kong in the hands of their solicitors was not the main consideration. It is not clear whether the plaintiffs had attempted to approach the creditors to get more funds or to give an undertaking for such costs. What counsel for the plaintiffs told the court was that the plaintiffs were not providing the security. In my view, it cannot be said in the present case that the orders of the trial judge had the effect of stifling the plaintiffs' claim against these defendants.

Discretion

56. The court has a complete discretion as to whether to order security or not, having regard to all the circumstances of the case. The appellate court does not usually interfere with the exercise of such a discretion unless "either the judge in the court below fell into an error of law or that in the exercise of his discretion he made a decision which was palpably wrong" (per Bingham, L.J. in Okotcha v. Voest Alpine, [1993] BCLC 474 at 477). While the plaintiffs may be able to show that the orders made by the trial judge were harsh and that the judge was unreasonable, it has not been demonstrated that he had fallen into error or that his decisions were palpably wrong.

Conduct of the judge

57. Criticisms have been levelled at the trial judge for his conduct in the proceedings leading to his orders for security. This has given rise to the allegation (which appears in the Notice of Appeal but not strongly pressed during submissions) that the plaintiffs had not been treated fairly. This has also caused some concern as to whether the judge had taken extra-judicial matters into consideration when he exercised his discretion. What happened can be seen from the transcripts.

58. On Day 34 of the trial, D9 was in the witness box, having spent a little over one day in examination-in-chief and two days in cross-examination. At about 12:40 pm, the judge asked D9 to leave the court room and return at 2:30 pm. There was a discussion "off the record at (the) direction of his Lordship". According to an agreed note submitted by the parties, it seems that the judge required the plaintiffs to provide him for his eyes only with information as to:

"(1) the funds available to the Receivers;

(2) the disbursements that the solicitors had already incurred for counsel and their own fees; and

(3) what budget they would spent in the next month."

59. The judge was no doubt concerned about what he described as the weakness of the plaintiffs' case and the oppressive way in which the litigation was conducted by the plaintiffs. At that stage, he obviously had in mind the question of security for costs. What should really have concerned him was whether the plaintiffs had the ability to provide security or the means to obtain such security in whatever form. The sort of information required by the judge was of marginal relevance to the question which he was about to raise with the parties.

60. In my view, it is undesirable in the middle of a trial for the judge to have such "off the record" discussions with the parties in open court. It is even more so to seek confidential information from only one of the parties. If the judge was concerned about the protection of the defendants from further oppressive litigation, there was nothing to prevent him from pointing out to the parties, particularly the plaintiffs, what was bothering him. There was absolutely no need to have such ex parte confidential communication.

61. According to the information provided by the plaintiffs to the judge in confidence, the plaintiffs' solicitors had a remaining balance of about $1.9 million in their hands. Having heard submissions from counsel for the plaintiffs and counsel for D5 and D9, the judge decided to order security for costs against the plaintiffs. He asked and was informed by counsel for D5 and D9 that they had so far incurred approximately $5.6 million and would incur another million dollars. The judge decided to order security for the costs of D5 and D9 both for the costs incurred up to that stage as well as future costs. He adopted an arbitrary figure of one-third of the total, rounding up to $2 million which was more than the balance of the funds held by the plaintiffs' solicitors. As Keith, J. said, there was no justification for ordering security for the costs incurred up to that stage.

62. What is more disturbing is that it would seem that the judge did not give counsel for the plaintiffs an opportunity to address him on the amount of security to be provided. According to the transcripts, after the judge's ruling, counsel for D5 and D9 suggested that the security should be higher than $2 million. This is what then transpired:

"Judge : I have thought about this and I appreciate that -

Counsel (for the plaintiffs) : May I say something?

Judge : Yes.

Counsel : Security, surely, is prospective. If there has been a change of circumstances, the court looks ahead to the future costs to be incurred.

Judge : I am ordering you to pay $2 million security ... "

63. It would seem that both counsel for the plaintiffs and counsel for D5 and D9 intended to address the judge on quantum. However, the judge refused to deal with it, having apparently decided to order security for $2 million which amount cannot be upheld.

64. Another matter which calls for concern is that the judge wanted the plaintiffs to tell him by "10 o'clock tomorrow" the manner in which the security would be provided. He knew from the information provided to him that the plaintiffs only had $1.9 million in Hong Kong which was not sufficient to pay for the $2 million security. It would be necessary to contact different creditors to see whether they would be prepared to put up security and if so, in what form. It was quite clear that the plaintiffs were trustees in bankruptcy from Denmark. The creditors were Dutch and PRC companies. When the judge made the order of security, it was 4 o'clock in the afternoon. It would seem that the plaintiffs would have had some difficulty in taking instructions from the creditors in different parts of the world, not to mention that there was a time difference between Hong Kong and Denmark. It was unrealistic for the judge to impose that condition. He was however reminded that the following day was a public holiday and a Friday. He then allowed the plaintiffs to put up the security by Monday the 13th.

65. During the course of the subsequent discussions which followed, the judge also mentioned on several occasions that the plaintiffs "had no money". It may be that the judge was saying that in the general sense and that was also something which the defendants had already suspected. But it did give rise to the plaintiffs' suspicion that the judge was divulging information which was communicated to him in confidence.

66. On the materials before this Court, I am not able to say, as the plaintiffs allege, that the judge had a private agenda in making the orders of security. However, in my view, the above conduct of the judge has certainly created the appearance that he was unduly harsh to the plaintiffs almost to the point of being unfair. This is most regrettable. A judge must always bear in mind that no matter how anxious he is to do justice to the parties and to achieve good and efficient case management, he should not behave in such a way as to create an appearance of being unfair to any of the parties before him. This would not be proper and should be avoided.

67. In conclusion, while the judge was entitled to order security for costs, he should not, in my view, have handled the situation in the way he did.

68. We do not propose to make an order nisi for the costs of the appeal. We leave it to the parties to see whether they can agree the order for costs. If they cannot, the parties can apply to the court for such orders as they think are appropriate.

Representation:

Mr. Barrie Barlow, instructed by Messrs. Deacons Graham & James, for the Plaintiffs

Mr. John Bleach S.C. and Ms. Maria Yuen, instructed by Messrs. Baker & McKenzie, for the 2nd-4th, 6-8th and 10th Defendants

Mr. Denis Gordon Yu and Ms. Doris To, instructed by Messrs. Fred Kan & Co., for the 5th and 9th Defendants