Haitong International Securities Co Ltd v. Jin Yong Investments Ltd and Others

HCA 2025/2016

[2019] HKCFI 1241

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2025 OF 2016

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BETWEEN

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Before: Deputy High Court Judge Le Pichon in Chambers

Dates of Written Submissions: 19 March and 2 April 2019

Date of Decision on Costs: 9 May 2019

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DECISION ON COSTS

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1.Following my Decision dated 20 February 2019 setting aside the default judgment obtained by the plaintiff, the 3^rd defendant (“D3”) applied to vary the costs order nisi in his favour, seeking indemnity costs.

2.For the relevant background, reference should be made to the Decision.

3.Having read the written submissions of the parties, I consider this to be an appropriate case for the exercise of the court’s discretion to order indemnity costs.

4.The reason for setting aside the default judgment appears from §§28 and 37 of the Decision: the court was of the view that, at the very least, the plaintiff failed to highlight to the master material information when default judgment was obtained.

5.The common law principle underpinning the Decision is explained at §21 of the Decision.  Whether or not the procedural rules of court for service have been complied with (service pursuant to Order 11, rule 5A) is a separate matter and does not affect the application of the common law principle.

6.As appears from §15 of the Decision, the plaintiff had identified three addresses in the Mainland for service and sought the assistance of the PRC courts pursuant to Order 11, rule 5A.

7.In the present case, the relevant chronology (revealed by the documents exhibited as HHW-2 and HHW-3) in outline is as follows:

(a)  the plaintiff obtained leave to serve D3 out of the jurisdiction on 24 August 2016;

(b)  on 19 September 2016, it made a request to the High Court for service of judicial documents in the PRC;

(c)  attempts by PRC authorities to effect service at the three addresses took place on 14 November, 16 November and 7 December 2016 respectively;

(d)  on 14 December 2016, the High Court received two replies concerning attempts at service at the first two addresses in the PRC which included the matters summarised in §28 of the Decision and forwarded the same to the plaintiff under two covering letters dated 19 December 2016;

(e)  on 19 December 2016, the High Court received a further reply concerning service at the third of the three addresses (the substance of which was summarised in §16 of the Decision) and forwarded the same to the plaintiff under its covering letter dated 22 December 2016;

(f)  the service effected on 7 December took place almost two months after D3 was rendered incommunicado under a residential surveillance order: see §8 below.

8.The documents constituting HHW-2 run to 26 pages. They show that, in fact, on 14 October 2016, a summons for interrogation of D3 was issued as well as a notice of “residential surveillance at designated residence” addressed to D3’s family by the PRC authorities.  Both documents are dated 14 October 2016, long before the PRC courts tried to effect service of the summons for a default judgment on 7 December 2016.  What “residential surveillance” entails in practice appears in the “explanation” referred to in §28 of the Decision.

9.The matters mentioned in the preceding paragraph only emerged after undertaking a painstaking chronological analysis of events discerned from the exhibit.

10.D3 prayed in aid of his application for indemnity costs the fact that the plaintiff, while deeming it appropriate to translate a large number of exhibits omitted to translate exhibit HHW-2, suggesting that the omission was “tactical”.  Translations of the relevant part of HHW-2 in the bundles available at the hearing had to be provided by D3’s solicitors.  That said, as will become apparent, it is unnecessary to consider whether such an inference should be drawn.

11.For his part, the plaintiff cited Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at 1334 for the proposition (stated in the headnote) that indemnity costs could properly be awarded “where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for any ulterior motive, or in an oppressive manner”.  It was submitted that none of those categories was applicable to what had occurred in the present case. However, Bond Star also recognised that those are not the only situations where a Court can award indemnity costs.  Such an award could be justified by “some special or unusual feature”: at 1334I – 1335G.

12.Assuming, in the plaintiff’s favour, that the omission to translate HHW-2 and the failure to invite the master’s attention were not deliberate or intentional, no explanation has been forthcoming as to why the evidence then available of the fact that D3 had been under “residential surveillance” since mid-October 2016 and the practical implications of that fact (being material that was “buried” in the 26- page exhibit) were not matters that should have been drawn to the master’s attention.

13.In so far as the plaintiff relies on the official certificate under Order 11, rule 5 (5), the statement made in Hong Kong Housing Authority v Hsin Yieh Architects & Associates Ltd (No 2) [2006] 4 HKLRD 107 (HCCT 39/2001, 4 April 2006) §77 to the effect that the Court cannot go behind such an official certificate, all the relevant certificate dated 12 December 2016 stated was that the judicial document has been “successfully served with the assistance of the Intermediate People’s Court of Shenzhen City”.

14.The letter to the Foreign Affairs Office of the Higher People’s Court of Guangdong Province (the authority effecting service) stated that the judicial document had been served on an employee of D3’s company who agreed to sign the receipt on his behalf.  Therefore, at best, the service effected was “in accordance with the law of the country or place in which service was effected” within Order 11, rule 5(5).  But, on any view, it did not engage that part of sub rule (5) concerning service “on a person personally”.  Accordingly, the certificate cannot assist the plaintiff.

15.Final judgment was obtained within less than two months of receipt of the letter dated 22 December 2016 from the High Court enclosing the report received from the PRC authorities on 19 December 2016.  The hearing bundles contained a copy of Final Judgment issued by the Court on 13 February 2017 which did not indicate who had issued the order.  There was nothing else that shed any light on the application itself or the circumstances in which it was made culminating in the Final Judgment: no paper application as such (whether by way of summons or letter) could be found in the relation to that application.

16.On further investigation, the Court found an affirmation of Ho Hon Wah dated 24 January 2017, a clerk employed by the plaintiff’s solicitors. The affirmation was apparently filed in compliance with the Registrar’s request of 18 January 2017 “to file an affidavit to explain the process for serving the Concurrent Writ on D3 in PRC with evidence in support exhibited there to”: see §2 of the affirmation. It merely exhibited the request made to the High Court on this 19 September 2016 for assistance on service and the Return Forms received in reply in December 2016 (being exhibits HHW-2 and HHW-3), but invited attention to the Return Form enclosed with the High Court’s letter of 22 December 2016 to the effect that “service was successful” at the third address.

17.It would appear that contrary to the prescribed procedure for obtaining a default judgment, some solicitors have taken to taking shortcuts and submitting to the Court a draft final judgment for approval without any supporting affidavit.  In the present case, that appeared to have occurred given that the Registrar’s “request” was in the form of a manuscript note endorsed on the inside page of the folder of the court file.

18.Shortcuts to prescribed procedural rules should not be tolerated, much less entertained.  Where default judgments are concerned, they could easily result in serious injustice to the defendant said to have been in default.

19.In my view, it is incumbent on any plaintiff seeking default judgment to approach the matter with the degree of care and attention that is commensurate with the seriousness or magnitude of the default judgment sought. A proper application should be made and the court’s attention drawn any feature or fact that is unusual.

20.That the plaintiff “fell short” of what should have been done in that regard is plain and incontrovertible.  The so-called “application” appears to have been nothing more than an attempt to get a draft order rubberstamped as speedily as possible, the applicant not caring what the service reports by the PRC authorities actually stated or whether D3 could have had actual knowledge of the summons given the usual circumstances disclosed by the PRC service reports so long as it could state that “service was successful”.

21.The final judgment sought was in excess of $72 million (exclusive of a 13% interest rate).  In my view, had the application for a default judgment been made conscientiously and with the requisite modicum of diligence, the fact and significance of D3 being under “residential surveillance” in the PRC since mid-October 2016, and what that entailed given the “explanation” (see §28 of the Decision) could not have been overlooked and would have been brought to the Court’s attention.  In my view, that is sufficient to constitute the “special or unusual feature” amply justifying an order for indemnity costs.

22.D3 also seeks an order that the plaintiff bears its own costs of signing irregular judgment as prayed for in paragraph 2 of D3’s summons to set aside.  Given the circumstances set out above, D3 has made out a case for such an order.

23.Accordingly, the costs order nisi is varied in the two respects stated above.

Written submissions from King & Wood Mallesons, for the plaintiff

Written submissions by Mr Maurice J Chan, instructed by Fan Wong & Tso, for the 3^rd defendant