Eric Edward Hotung and Another v. Ho Yuen Ki and Others

HCA 857/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 857 OF 2011

____________

____________

__________________

D E C I S I O N

__________________

INTRODUCTION

1.I have before me three summonses taken out by the 1^st, 2^nd and 3^rd defendants all dated 24 May 2016 renewing their applications against the plaintiffs for security for costs up to the conclusion of the trial of this action, which commenced on 23 May 2016 and is scheduled to last for a total of 17 days up to 15 June 2016.  The amounts of the security sought are HK$10,000,000, HK$2,100,000 and HK$2,421,333 respectively.

2.The background facts leading to my previous order dated 27 April 2016 allowing the plaintiffs’ appeal against the order of Master M Wong dated 5 April 2016 ordering the plaintiffs to give further security for the three defendants’ respective costs (each in the sum of HK$4,000,000) are set out in my written decision dated 27 April 2016 (“the Decision”), and I shall not repeat them here.

3.In what follows, I shall adopt the expressions and abbreviations as defined in the Decision unless the context indicates otherwise.

4.The defendants’ previous applications for security for costs were advanced on the basis that the plaintiffs were ordinarily resident out of the jurisdiction.  I concluded, on the basis of the evidence then before me, that the 1^st plaintiff was ordinarily resident in Hong Kong at the time of the hearing of the appeal and therefore no order for security for costs should be made against him. In so far as the 2^nd plaintiff was concerned, I held that it likewise should not be required to give security for costs because:-

(1)  It was made a party to this action only because it had been nominated by the 1^st plaintiff as the new trustee of the Trust Property.  The real parties to the present disputes were the 1^st plaintiff and the defendants.

(2)  Although there was no inflexible rule that the existence of a co-plaintiff within the jurisdiction meant that no security could be ordered against the other, foreign, plaintiff, that was at least a relevant factor and seemed to me to be a strong factor in the present case in view of the foregoing consideration.

(3)  The 2^nd plaintiff did not carry on any business, and was the 1^st plaintiff’s nominee for the purpose of holding the Trust Property claimed in the action. It was owned and controlled by the 1^st plaintiff.  Hence, the place of ordinary residence of the 2^nd plaintiff would follow that of the 1^st plaintiff (being its central management and control), ie Hong Kong.

5.The above findings relating to the position of the 2^nd plaintiff was based on what was pleaded in paragraphs 10 and 11 of the statement of claim dated 30 June 2011, which was verified by the 1^st plaintiff’s statement of truth, and on the evidence before me at the hearing of the appeal.

6.In particular, at paragraph 11 of the statement of claim, it is pleaded that:

“By a letter dated 20 January 2011, the 1^st plaintiff by his then solicitors wrote to the 1^st and 2^nd defendants requesting them to transfer the Trust Property to the 2^nd plaintiff (then named Assure Capital Global Limited) as the new trustee for the 1^st plaintiff” [emphasis added].

7.Also, in paragraph 23 of the 1^st plaintiff’s affidavit filed on 30 September 2013, he stated that the 2^nd plaintiff was his nominee to take over as trustee and the Trust Property from the defendants, and he had included the 2^nd plaintiff in these proceedings to ensure that there would be no doubt as to who the new trustee would be and to specify that in the prayer for relief claimed in the statement of claim.  The assertion that the 2^nd plaintiff was the 1^st plaintiff’s nominee in relation to the Trust Property was repeated in paragraph 13 of the 1^st plaintiff’s 2^nd affidavit filed on 16 February 2016.

8.However, on the first day of the trial (ie 23 May 2016), the plaintiffs’ solicitors disclosed for the first time to the defendants’ solicitors the existence of a “Deed of Settlement” dated 20 November 2010 between the 1^st plaintiff as the “Assignor” and Assure Capital Global Limited (ie the 2^nd plaintiff) as the “Assignee”, under which the 1^st plaintiff purportedly assigned all rights and benefits of and in relation to the “Funds” to the 2^nd plaintiff to be held on trust in favour of the “Beneficiary”.  I shall come back to the Settlement Deed later in this decision.

9.The disclosure of the Settlement Deed has prompted the defendants to renew their applications for security for costs, this time on the basis that both plaintiffs are nominal parties and there is reason to believe that they will be unable to pay the costs of the defendants if ordered by the court to do so, in reliance on Order 23, rule 1(b) of the Rules of the High Court. In addition, the 1^st defendant relies on section 905 of the Companies Ordinance, Cap 622, in support of her application against the 2^nd plaintiff for security for costs.

THE DEED OF SETTLEMENT

10.In the Deed of Settlement, which is stated to be known or referred to as the “STDM Trust” or “Assignment”:-

(1)  The “Funds” is defined, in Schedule A thereto, to mean and include the sum of HK$2,000,000 paid to the 1^st defendant in or around 1962 by the 1^st plaintiff for investment and the income and profits thereafter generated from such investment.  It is further stated that as of the date thereof, the Funds comprise:-

(a)  6,251 shares in STDM;

(b)  40,050 shares in STS; and

(c)  such other income and dividends thereof accountable by the 1^st defendant.

In other words, the “Trust Property” as defined in paragraph 7 of the statement of claim forms part of the “Funds” as defined in the Deed of Settlement.

(2)  The “Trust Fund” is defined in clause 1.3 thereof to mean, inter alia, the “Funds” (sub-paragraph (a)), and “the money, investments and property from time to time representing the above” (sub-paragraph (e)).

(3)  The “Beneficiary” is defined, in Schedule B thereto, to mean “Sir Robert Ho Tung Charitable Fund, a fund managed by HSBC Trustee (HK) Ltd.”.

11.The following provisions in the Deed of Settlement are of note.  First, it is stated, in recital (H), that it is intended that the “Declaration of Trust” shall be irrevocable. To the same effect is clause 6.9 thereof that “[t]his STDM Trust and the rights and benefits assigned hereto are expressly excluded from the estate of the [1^st plaintiff] and cannot be revoked by any existing or subsequent will or assignment.  The [1^st plaintiff] may not assign any rights benefit or obligation under this Assignment to any third party.”

12.Second, by clause 2, it is provided that the 2^nd plaintiff shall stand possessed of the “Trust Fund” and the income from it on such trust with and subject to such charges powers and provisions thereafter in favour of the Beneficiary.

13.Third, by clause 3.1, the 1^st plaintiff irrevocably assigns all rights and benefits of and in relation to the Funds to the 2^nd plaintiff, and by clause 3.2, the 1^st plaintiff shall use all reasonable means to forthwith transfer, deliver, or otherwise place under the control of, the Funds to the 2^nd plaintiff.

14.Fourth, by clause 3.3, the 1^st plaintiff undertakes to give notice of the aforesaid assignment to the 1^st defendant as soon as practicable.  Pausing here, there is no dispute that such notice was not given by the 1^st plaintiff to the 1^st defendant until 23 May 2016.

15.Fifth, by clause 8, the “Assignment” is governed by the laws of the Hong Kong Special Administrative Region.

16.Sixth, the Deed of Settlement is stated to have been made on 20 November 2010, ie prior to the commencement of this action on 20 May 2011.  It follows that the 1^st plaintiff was well aware, at the time of the signing of the statement of truth, that he was no longer the beneficial owner of the Funds (including the Trust Property), even on his own pleaded case.

WHETHER THE 1^ST AND 2^ND PLAINTIFFS ARE NOMINAL PLAINTIFFS?

17.On the assumption that, prior to the execution of the Deed of Settlement, the 1^st defendant held the Trust Property on behalf, or for the benefit, of the 1^st plaintiff as alleged in the statement of claim (which is of course the central issue to be tried in this action), the assignment of the Trust Property under the Deed of Settlement could only operate as an “equitable” assignment until notice in writing of the assignment in compliance with section 9 of the Law Amendment and Reform (Consolidation) Ordinance (Cap 23) is given.  In the case of an equitable assignment of the Trust Property, both the 1^st and 2^nd plaintiffs would be proper parties to an action to recover the same from the 1^st defendant, the alleged trustee.  It is a nice question of law whether the mere handing over of a copy of the assignment to the “debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action” would satisfy the notice requirement under section 9.  I have been told by Mr Edward Chan SC that he and his learned junior have not been able to find any authority on this point.  It is not a point that I need to decide now, because if the handing over of the assignment could be regarded as notice in writing given in compliance with section 9, that would only have occurred on the first day of the trial.  The 1^st plaintiff would have been a proper party to the present action at the time of the issue of the writ and at all times up to at least the first day of the trial.  His presence as a party for the rest of the trial would not, as I see it, lead to any, or any significant, increase in the costs of the action.  The question of the precise order that ought to be made should the court find in favour of the plaintiffs in relation to the trust arrangement alleged in the statement of claim, including the questions of costs, can be dealt with at the end of the trial.

18.Where a shareholder has transferred shares in a company to a purchaser but the transfer has not yet been registered, he holds the shares as trustee for the benefit of the purchaser.  He is treated, in proceedings relating to the shares, as a nominal party for the purpose of an application for security for costs: see Ng Yat Chi v Max Share Ltd [1996] 4 HKC 284, at 285I-286A per Cheung J (as he then was); and Fong Tak Shing v Greensward Company Limited and Another, HCCW 162/2004, at paragraph 15 per Kwan J (as she then was).  The same conclusion was reached in relation to a plaintiff who, at the time of starting an action, had charged the fruits of the action to another person: see Semler v Murphy [1968] 1 Ch 183 at 191C-F, 193B-D and 194D-G. It seems clear, therefore, that the 1^st plaintiff should be treated as a nominal plaintiff in the present action for the purpose of Order 23, rule 1(b) of the Rules of the High Court.

19.On the other hand, it is by no means clear that the 2^nd plaintiff, being the trustee of the “Trust Fund” for a charitable trust, should likewise be regarded as a nominal plaintiff for the purpose of Order 23, rule 1(b). Counsel have not referred me to any authority to show that a trustee or, in an analogous situation, a personal representative, suing to recover the trust estate or the estate of a deceased person is generally to be regarded as a nominal plaintiff.  It is clear that a trustee suing for the benefit of the beneficiaries is not necessarilyto be regarded as a nominal plaintiff: see White v Butt [1909] 1 KB 50 referred to in paragraph 16 of Kwan J’s decision in Fong Tak Shing, ante.  In the shortness of time available, I have not been able to research into this matter in depth, and I do not therefore wish to express any concluded view on this matter.

THERE IS REASON TO BELIEVE THAT BOTH PLAINTIFFS WILL BE UNABLE TO PAY THE COSTS OF THE DEFENDANTS

20.It is not necessary for me to reach a firm view on whether the 2^nd plaintiff should be regarded as a nominal plaintiff in the present case, because Mr Barrie Barlow SC (for the plaintiffs) accepts that, on the evidence before the court, there is reason to believe that both plaintiffs will be unable to pay the costs of the defendants if ordered to do so. 

21.Accordingly, the jurisdiction of the court to make an order for security for costs is satisfied in the case of the 1^st plaintiff under Order 23, rule 1(b) of the Rules of the High Court, and in the case of the 2^nd plaintiff under section 905 of the Companies Ordinance.

DISCRETION

22.Mr Barlow submits that the defendants’ applications should be rejected on the ground of delay, and argues that the defendants ought to have found out about the true position of the 1^st and 2^nd plaintiffs as regards their rights and interests in the Trust Property much earlier by pursuing applications for specific discovery and/or interrogatories.  In my view, this complaint cannot fairly be made because the obligation to make full discovery is on the plaintiffs and on-going.  There is, I consider, also some justification in Mr Chan’s submission that the plaintiffs have presented a false, or at least a misleading, case on the pleadings and in the 1^st plaintiff’s affidavits in this regard.

23.Nevertheless, the jurisdiction to order security for costs is not to be exercised on a punitive basis.  I consider that the proper inquiry that I ought to undertake is to balance the injustice to the parties arising from making, or refusing to make, an order for security for costs against the plaintiffs in the present case.

24.On the one hand, refusing the defendants’ application would mean that they may not be able to recover the costs (including costs already incurred and costs to be incurred for rest of the trial) should they succeed in this action and a costs order is eventually made by the court in their favour.  This having been said, it is clear that a good part of their costs would already have been incurred by now, including all the costs up to the commencement of the trial, as well as counsel’s brief for the trial and (at least in the case of the 1^st and 3^rd defendants) half of unused refreshers.  Even if the proceedings should now be aborted, the defendants would still face the prospect of not being able to recover the costs already incurred.  I accept, of course, that without an order for security for costs, they may suffer the further injustice of not being able to recover the costs yet to be incurred up to the conclusion of the trial.

25.On the other hand, making an order against the plaintiffs for security for costs may well mean that their claim will not be adjudicated upon at all.  The amount at stake is, I am given to understand, very substantial.  If this is purely a claim advanced by the 1^st plaintiff for his personal interest, I would be less disinclined to make an order for security for costs against the plaintiffs even at this late stage of the proceedings.  I cannot, however, ignore the fact that the fruits of this action, if successful, would accrue to the benefit of a charitable trust.  In view of the late disclosure of the Deed of Settlement, the Secretary for Justice, as Protector of Charities, has not had the opportunity to consider whether to intervene in this action.

26.Both Mr Chan and Mr Barlow have made submissions on the merits of the plaintiffs’ claim.  I do not consider that the apparent merits, or lack or merits, is such as should be decisive one way or another in my decision whether to make an order for security for costs.

27.The overall interest of justice would, I believe, demand that this action, having gone so far, should proceed to its final conclusion.

DISPOSITION

28.For the foregoing reasons, I am not minded to order the plaintiffs to provide any further security for costs.  I shall deal with the question of the costs of these applications at the end of the trial.

29.The plaintiffs will need to amend the pleadings, including the prayer for relief, but the amendments ought to be relatively simply and should not impede the continuation of the trial.  I shall hear the plaintiffs on when the proposed amendments will be made available, and the parties on how they propose to proceed in the meantime.

Mr Barrie Barlow SC and Mr Alex Lok, instructed by Tam, Pun & Yipp, for the plaintiffs

Mr Edward Chan, SC and Michael Yin, instructed by CK Mok & Co, for the 1^st defendant

Mr Isaac Chan, instructed by B C Chow & Co, for the 2^nd defendant

Mr Patrick Siu, instructed by Tso Au Yim & Yeung, for the 3^rd defendant