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

CACV 198/20 16

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 198 OF 2016

(ON APPEAL FROM HCA NO 857 OF 2011)

________________________

BETWEEN

________________________

________________________

J U D G M E N T

________________________

Hon Kwan JA (giving the judgment of the Court):

1.On 7 September 2016, Chow J handed down his judgment (“the Judgment”) after a ten-day trial dismissing the plaintiffs’ claim that the fund (“the Fund”) the 1^st plaintiff (“Eric”) paid to the 1^st defendant (“Winnie”) for the purpose of investing in certain gaming and related business in Macau gave rise to a trust of the investment for Eric’s benefit. The judge awarded costs of the action to Winnie[1] and in a subsequent decision on 18 May 2017, he varied the costs order nisi and ordered the plaintiffs to pay 10% of the 2^nd defendant’s costs of the action and 25% of the 3^rd defendant’s costs of the action.

2.The plaintiffs filed a notice of appeal against the Judgment on 5 October 2016.

3.On 22 November 2016, Winnie issued the present summons against the plaintiffs seeking security for costs of the appeal in the sum of $2,488,000 or such sum as directed by the court.

4.On 24 November 2016, the Registrar of Civil Appeals gave directions for the parties to file evidence and submissions for this application. Winnie’s counsel, Mr Michael Yin, lodged his skeleton submission on 21 December 2016.  Eric did not file evidence in opposition until 1 March 2017 after an unless order was made, and his counsel, Mr Barrie Barlow, SC lodged his submission on 17 March 2017.  Having considered the evidence and submissions, we take the view that this application should be disposed of on paper without an oral hearing.

5.It is unnecessary to recite the background, which have been set out in detail in §§1 to 47 of the Judgment.

6.Winnie’s application for security for costs of the appeal was made on these grounds: she would face considerable difficulty and/or expense in enforcing any costs ordered against the plaintiffs unless they are secured by payment into court; the plaintiffs have no real interest in the outcome of these proceedings and are pursuing the appeal only in a nominal capacity; and the chances of overturning the Judgment on appeal are not just slim but the appeal is so hopeless that for the plaintiffs to pursue it is tantamount to an abuse of the process of the court.

7.We are satisfied that “special circumstances” under Order 59 rule 10(5) of the Rules of the High Court are made out to give the court jurisdiction to order security be provided for the costs of the appeal.

8.Mr Barlow submitted it was just speculation that Eric may be unable to pay any costs order made against him. We do not agree.

9.In his 4^th affidavit dated 21 April 2016 filed in the court below in opposition to the defendants’ application for security for costs, Eric stated in §7 that although he was born into wealth, he has given most of it to various charitable or other non-profit organisations, that the majority of his current assets comprises family heirlooms such as paintings, that he has a limited amount of liquid assets sufficient only to discharge his day-to-day and medical expenses but certainly insufficient to enable him to pay into court $4 million for each of the three defendants within three weeks to provide further security for their costs of a 17-day trial.

10.Even more importantly, when the defendants renewed their applications for security for costs on the second day of the trial on 24 May 2016, after the plaintiffs disclosed on the first day of trial the existence of a Deed of Settlement dated 20 November 2010 (“the Settlement Deed”, by which Eric assigned all rights and benefits of the Fund to the 2^nd plaintiff, to hold on trust for Sir Robert Ho Tung Charitable Fund, a fund managed by HSBC Trustee (HK) Ltd), Mr Barlow accepted before Chow J 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.”[2]

11.In his affidavit in opposition filed in March 2017, Eric chose not to depose to his financial circumstances.

12.The 2^nd plaintiff is a company incorporated in the British Virgin Islands and does not appear to hold any asset other than the rights and benefits in relation to the Fund assigned to it by the Settlement Deed, and which it is to hold on trust for the beneficiary as stated.

13.Having irrevocably assigned all rights and benefits of the Fund to the 2^nd plaintiff by the Settlement Deed before this action was brought, Eric was held by Chow J to be a nominal plaintiff for the purpose of Order 23 rule 1(b)[3]. We see no reason why he should not be regarded as pursuing this appeal in a nominal capacity.

14.As for the 2^nd plaintiff, Chow J did not find it necessary to come to a firm view whether a trustee suing for the benefit of a beneficiary should be regarded as a nominal plaintiff, in view of the fact that there was reason to believe that both plaintiffs would be unable to pay costs if ordered to do so[4]. Likewise, it is not necessary for us to hold if the 2^nd plaintiff is pursuing this appeal in a nominal capacity.

15.On the evidence, it has been sufficiently demonstrated that Winnie would probably have considerable difficulty and/or expense in enforcing any costs that may be ordered against the plaintiffs on appeal.  It is for the plaintiffs to establish countervailing factors militating against an order for security being made.

16.Mr Barlow put forward nine matters as countervailing factors. Eric stated in his opposing affidavit he was advised by his legal advisers that he has good prospects of success in his appeal.  But merits of the appeal did not feature as a countervailing factor in his counsel’s submission, and rightly so.  His claim rests essentially on the credibility of his evidence, which was rejected by the judge for the reasons given in §§51 to 67 of the Judgment.  The judge was not satisfied, on the balance of probabilities, that Winnie held the interests in the casino business which she acquired using the Fund on trust for Eric, whether on the basis of an express, implied or resulting trust.  The appeal seeks to overturn the judge’s finding of fact.  We have considered the grounds of appeal in the notice of appeal. Like Chow J[5], we are not satisfied that the appeal is reasonably arguable.  So merits of the appeal cannot be taken into consideration to resist an order for security.

17.None of these factors put forward by Mr Barlow, whether individually or cumulatively, can properly be regarded as countervailing factors.  We fail to see the relevance of background matters of this dispute; the great value of the investment made with the Fund; having rejected the plaintiffs’ case of a trust, the judge did not determine if the Fund was a loan, a gift or something else; the alleged tactics of the 3^rd defendant in arranging for separate representation for the three defendants and looking to the plaintiffs to pay three sets of costs; the allegation that it is the 3^rd defendant who is giving instructions to solicitors as Winnie is incapable of doing so (Chow J is not satisfied there is sufficient evidence to draw this conclusion[6]); the fact that any recoveries in the event of a successful appeal will enrich Hong Kong charities does not make the plaintiffs nominal parties.

18.Nor do we think the dicta relied on by Mr Barlow in the cases he cited[7] would help his arguments in any way.

19.We conclude it would be just in all the circumstances to order security to be provided by the plaintiffs for the costs of Winnie on appeal.

20.We turn to the amount that should be provided as security.  Mr Barlow made three points.

21.First, he submitted that the draft bill of costs of $2,488,000 to cover the application for security for costs and the appeal is “wildly exaggerated”.  The bill was prepared on the basis there would be a hearing for security for costs and the appeal was estimated to last for two days.  We agree with the plaintiffs one day for the appeal should be sufficient.  We would reduce the total estimated costs that may be reasonably incurred to $1.2 million.

22.Second, he submitted that the costs order nisi in the Judgment may not be the final word on the subject, due to challenges by various parties below.  This has been overtaken by events.  On 16 May 2017, the plaintiffs abandoned their summons dated 21 September 2016 seeking leave to appeal against the costs orders made on 7 September 2016 and Chow J varied his costs order nisi on 18 May 2017 ordering the plaintiffs to pay 10% of the 2^nd defendant’s costs of the action and 25% of the 3^rd defendant’s costs of the action.

23.Third, he asked the court to take into account the $1.8 million ($600,000 for each defendant) which the plaintiffs paid into court pursuant to the order of Registrar Lung on 13 December 2013 and two consent orders dated 13 February 2014 and 12 March 2014.  Mr Barlow submitted only $600,000 should be payable to Winnie for her costs, the balance of $1.2 million as security for the 2^nd and 3^rd defendants, which remain sitting in court, would be returnable to the plaintiffs and could be taken into account as security for the costs of the 1^st defendant of this appeal. This has also been overtaken by events as mentioned above.

24.Part of the $1.2 million sitting in court should go to the discharge of the plaintiffs’ liability to pay 10% of the 2^nd defendant’s costs and 25% of the 3^rd defendant’s costs of the action, as ordered by Chow J on 18 May 2017.  The 2^nd defendant sought $2.1 million and the 3^rd defendant sought $2,421,333 as further security for costs on the second day of the trial on 24 May 2016.  This would bring the total estimated costs of these defendants to the region of $2.7 million and $3 million, taking into account the $600,000 already provided to each as security.  We do not have information about the costs actually incurred by these defendants.  But we note that Winnie’s solicitors have filed a bill of costs for taxation in December 2016 of $9.9 million, which was criticised by Eric as an over-estimate.  Taking a broad brush approach and doing the best we can, we would estimate the total amount of the costs of the action ordered to be recoverable by the 2^nd and 3^rd defendants to be not less than $400,000.

25.As security for costs of this appeal should be provided to cover an amount of $1.2 million, and $400,000 is to be knocked off notionally from the $1.2 million remaining in court, we would order the plaintiffs to pay into court $400,000 as part of the security for costs of this appeal.

26.We make the following orders:

(1) the 1^st and 2^nd plaintiffs do within 28 days hereof give security for the 1^st defendant’s costs of this appeal in the sum of $400,000 by making payment into court of the said sum by cash or bankers draft, and until such payment be made and notice thereof given to the Registrar and to the solicitors for the 1^st defendant all proceedings in the appeal are to be stayed;

(2) in default of the plaintiffs making such payment as aforesaid within the time specified, the appeal do (upon the solicitors for the 1^st defendant certifying such default to the Registrar) stand dismissed out of this court without further order;

(3) any balance of the sums paid into court by the plaintiffs pursuant to the orders of 13 December 2013 and 12 March 2014 (as security for the costs of the 3^rd and 2^nd defendants in this action), after the discharge of the plaintiffs’ liability to pay the costs of the 2^nd and 3^rd defendants, is to remain in court until further order, as security for the costs of the 1^st defendant in the appeal;

(4) in the event that the appeal is dismissed in the circumstances provided for above, the plaintiffs do pay to the 1^st defendant the costs occasioned by the appeal, such costs to be taxed if not agreed; and

(5) the plaintiffs do pay to the 1^st defendant the costs of this application in any event, which we assess on a gross sum basis at $160,000.

Written submissions by Mr Barrie Barlow SC, instructed by Cheung & Co, for the 1^st and 2^nd Plaintiffs

Written submissions by Mr Michael Yin, instructed by C K Mok & Co, for the 1^st Defendant

[1] On 16 May 2017, the plaintiffs withdrew their summons dated 21 September 2016 seeking leave to appeal against the costs orders made on 7 September 2016.

[2] Decision of Chow J in HCA 857/2011 on 25 May 2016, §20

[3] Decision of Chow J on 25 May 2016, §18

[4] Decision of Chow J on 25 May 2016, §§19, 20

[5] Decision of Chow J on 18 May 2017 refusing stay pending appeal, §21

[6] Decision of Chow J on 18 May 2017, §23

[7] Idmiston Ltd v Asian Master Enterprises Ltd [1988] 2 HKLR 614 at 616H to 617F; Dao Heng Bank Ltd v Bis Consultants Ltd [1989] 1 HKC 87 at 91H to 92H