Cheng Siu Fai v. Swenson Global Opportunities Funds Spc and Others

CAMP 252/2020

[2021] HKCA 1005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 252 OF 2020

(ON AN INTENDED APPEAL FROM HCA NO 2058 OF 2020)

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Before: Hon Kwan VP in Court

Dates of Written Submissions: 9, 23 and 30 June 2021

Date of Decision on Costs: 14 July 2021

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DECISION ON COSTS

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The applications to the Court of Appeal

1.On 23 December 2020, the plaintiff issued a summons^[1] in these proceedings seeking leave to appeal against the order of Deputy High Court Judge M K Liu in HCA 2058/2020 (“the Action”) on 22 December 2020 (“the 22 December Order”)^[2], a stay of the 22 December Order and an interim interim injunction pending the determination of the leave to appeal and of the appeal if leave be granted.

2.On 24 December 2020, I refused the application to stay the 22 December Order and for an interim interim injunction.  I acceded to the plaintiff’s request to hold a rolled-up hearing of the leave application and the substantive appeal if leave be granted and gave directions for the lodging of bundles and submissions.

3.On 5 January 2021, a notice of hearing was issued for the rolled-up hearing to be held on 30 March 2021.

4.On 8 March 2021, the defendants issued a summons (“the New Evidence Application”) seeking to adduce at the rolled-up hearing the 1^st affirmation of Sin Kin Hong Edward^[3] (“Sin 1^st”), which was filed on the same day in the Action. Upon my expressing concern that the impending hearing on 30 March might be de-railed by the New Evidence Application, the defendants wrote to the court on 11 March enclosing a summons to amend the 8 March summons and to confine the scope of the New Evidence Application to those parts of Sin 1^st dealing with the fund flow regarding the subscription monies of $321.8 million paid by the plaintiff to the 1^st defendant to subscribe for shares in the 1^st defendant’s segregated fund (“the Fund”).

5.On 12 March 2021, I accepted the plaintiff’s submission to adjourn the rolled-up hearing and granted an adjournment with liberty to restore by either party. I directed the New Evidence Application be dealt with at the restored hearing and that the question of costs arising from the adjournment be reserved to the determination of the application for leave to appeal.

6.Correspondence was exchanged between the defendants’ solicitors and the plaintiff’s solicitors between 14 and 21 May 2021, in light of the developments in the Action and the decision of Deputy High Court Judge Dawes SC on 20 April 2021^[4]. In short, the defendants inquired of the plaintiff whether he would agree to dismiss the application for leave to appeal.  The plaintiff acknowledged that the latest development in the Action has rendered his application for leave to appeal against the 22 December Order academic.  However, the plaintiff pointed out that the New Evidence Application was made at the eleventh hour, and contended that had the evidence relating to the fund flow been provided earlier he might not have sought leave to appeal.  He proposed that conditional upon the defendants agreeing to an order that the costs of the application for leave to appeal (including the costs arising from the adjournment of the rolled-up hearing) to be in the cause of the Action, he would have “no objection” to the dismissal of the leave application.

7.On 21 May 2021, the defendants made a request to this court to restore the rolled-up hearing. On 24 May 2021, the plaintiff proposed to the court to make an order dismissing his summons for leave to appeal and to give directions for submissions to be lodged for the determination of the issue of costs on paper.

8.On 26 May 2021, I made an order dismissing the plaintiff’s summons of 23 December 2020 and gave directions for the determination of the issue of costs of this summons on paper.

The orders made in the Action

9.Before dealing with the submissions on costs, I will first summarise the relevant orders made in the Action.

10.The plaintiff claimed to be the victim of a fraud perpetrated by the defendants in an arrangement concerning the subscription of new shares under the IPO of Ant Group Co Ltd in 2020, which was aborted on 3 November 2020.  The 1^st defendant, a fund company, and the 2^nd defendant, the investment manager of the fund, are part of the Swenson Financial Group of companies.  The 3^rd and 4^th defendants were senior managers of Swenson.

11.The plaintiff’s case is that he subscribed for shares in the Fund induced by and in reliance on the defendants’ representation that his subscription monies of $321.8 million would be used only to subscribe for new shares of the Ant Group to be issued upon the IPO through the Fund.  The representation was false and fraudulent in that the defendants never intended to and did not use the plaintiff’s subscription monies to subscribe for or purchase any shares of the Ant Group; alternatively, the defendants only intended to use the subscription monies to purchase old shares of the Ant Group.

12.On 7 December 2020, the plaintiff made an ex parte application to DHCJ Liu and obtained a proprietary injunction against the 1^st defendant and a Mareva injunction against the 1^st to 4^th defendants freezing the sum of $321.8 million (“the Ex Parte Order”).  Under “Duration of this Order”, it was provided in §6 that the injunctions “will remain in force up to and including” the return date of 18 December 2020 unless before then it is varied or discharged by court order and the application shall come back to the court for hearing on the return date “unless the Defendants (or any one of them) pay(s) the total of HK$321,800,000 into court makes provision for security in that sum by some other method as provided for …”.  Under “Exceptions to this Order”, it was provided in the third paragraph that “This Order shall cease to have effect if the Defendants (or any one of them) provide security by paying the sum of HK$321,800,000 into Court or make provision for security in that sum by some other method agreed with the Plaintiff’s solicitors or approved by the Court.”

13.The aforesaid provisions made under “Duration of this Order” and “Exceptions to this Order” applied to the proprietary injunction and the Mareva injunction without distinction.

14.In the meantime, the accounts of the Fund, and the account of First Fidelity Capital at Dah Sing Bank (“the FCC Account”; with which the Fund maintained a securities account), were frozen by letters of no consent issued by the Joint Financial Intelligence Unit.

15.On 10 December 2020, the plaintiff issued a summons for the continuation of the Ex Parte Order (“the Continuation Summons”).  At the return date on 18 December before DHCJ Liu, the defendants proposed to make a payment into court of the whole sum of $321.8 million, so as to discharge the Ex Parte Order pursuant to the aforesaid provisions made under “Duration of this Order” and “Exceptions to this Order”.  The plaintiff submitted to the judge that the payment of the whole sum into court should not be regarded as sufficient to discharge the Ex Parte Order and sought to vary the same by deleting the aforesaid provisions under “Duration of this Order” and “Exceptions to this Order”.  This would appear to be the earliest occasion that the dispute concerning the origin of the sum to be paid into court was raised.

16.On 21 December, the plaintiff issued a summons (“the Amendment Summons”) to be heard by the judge on the following day. Instead of seeking an order to continue the Ex Parte Order, §1 of the Amendment Summons sought an order in substantially revised terms:

17.“1. Unless the Defendants (a) pay into Court the Sum referred to [i.e. $321.8 million] in paragraph 1 of the [Ex Parte Order] or the substitute or traceable proceeds thereof within 3 days of this Order; and (b) file and serve an affirmation to verify that the sum they paid into Court is the said Sum or its substitute or traceable proceeds within 3 days of the payment into Court, the [Ex Parte Order] be continued until further Order of the Court:

1.1  save that paragraph 6 thereof (“Duration of this Order”) be removed; and

1.2  save that the third paragraph under the heading “Exceptions to this Order” be continued in the following amended form:

“Paragraphs 2 to 4 of this Order shall cease to have effect if the Defendants (or any one of them) provide security by paying the sum of HK$321,800,000 into Court or make provision for security in that sum by some other method agreed with the Plaintiff’s solicitors or approved by the Court.”

18.The plaintiff argued before DHCJ Liu on 22 December that unless conditions (a) and (b) in §1 of the Amendment Summons be fulfilled, the Ex Parte Order should continue as varied in the manner sought.  The concern was that the defendants might have money from another source and caused to be paid into court not the plaintiff’s subscription monies or the substitute or traceable proceeds thereof so that if the Ex Parte Order were to be discharged in that situation, the plaintiff would lose the protection of a proprietary injunction in that he would not be in the position of a secured creditor.  The effect of payment into court proposed by the defendants was only as good as a Mareva injunction.

19.The defendants contended before the judge that a proprietary claim did not give rise to an entitlement to an interlocutory proprietary injunction; that the subscription monies are fungible and the plaintiff was unable to identify specific funds in the 1^st defendant’s assets as his subscription monies, that the defendants had difficulty in complying with condition (b) at the time and the tracing of assets should be an issue for trial; that there was no evidence anyone else was likely to lay claim on the monies to be paid into court.  The defendants’ undertaking to pay into court the whole sum of $321.8 million in two tranches ($315 million from the FCC Account and $6.8 million after realisation of the securities in the FCC Account) should be sufficient protection to the plaintiff.

20.The judge agreed with the defendants’ submissions.  By the 22 December Order, upon the aforesaid undertaking of the 1^st defendant to make payment into court of $321.8 million after obtaining consent from the law enforcement authorities and its further undertaking not to dispose of its assets up to the value of that sum pending payment into court (collectively “the Undertaking”), the judge discharged the Ex Parte Order and dismissed the Amendment Summons.

21.On 23 December, the plaintiff issued a summons in the Court of Appeal for leave to appeal against the 22 December Order, contending that an order in terms of §1 of the Amendment Summons should have been made for the reasons advanced to the judge on his behalf. 

22.On 8 March 2021, Sin 1^st was filed in the Action in which he deposed that of the plaintiff’s subscription monies of $321.8 million paid to the 1^st defendant, $305,710,000 (95%) was transferred to the FCC Account.

23.Having obtained the withdrawal in March 2021 of the letters of no consent of the Joint Financial Intelligence Unit, the 1^st defendant paid into court $315 million on 29 March and $6.8 million on 8 April 2021.

24.The Continuation Summons and other interlocutory applications came before DHCJ Dawes on 19 and 20 April 2021.  By then, the parties were operating on the premise that the Undertaking was an acceptable substitute for the interlocutory proprietary injunction because the monies paid into court were effectively the plaintiff’s subscription monies.  The defendants were willing to continue the Undertaking until the trial of the Action and for the monies paid into court to remain in court. The judge accepted the Undertaking.  He did not find it necessary to form any views on the strength of the plaintiff’s case save to recognise that the plaintiff has a proprietary claim for the monies paid.  He declined to order the plaintiff to provide fortification of the Undertaking.

The issue of costs of the summons for leave to appeal

25.The plaintiff’s position on the costs of the summons for leave to appeal is as stated in the letter of his solicitors dated 18 May 2021, namely, costs are to be in the cause of the Action.

26.The defendants’ position is that they should be awarded the costs of this summons.

27.The costs I am concerned with are the costs of an application for leave to appeal, which was dismissed at the request of the applicant. They are not the costs of an interlocutory injunction.  The cases cited in the plaintiff’s reply submission on the “conventional approach” in the context of interlocutory injunctions (ie costs be made in the cause of the action) are wholly irrelevant.  In the present context, where an application was taken out and abandoned, it is incorrect to say that there would be no “successful” or “unsuccessful” party.

28.Mr Rimsky Yuen, SC contended for the plaintiff^[5] that had the defendants provided evidence on the fund flow as in Sin 1^st earlier (the delay complained of would appear to be a delay of five days, given that the dispute concerning the origin of the funds to be paid into court was first raised on 18 December and the summons for leave to appeal was issued on 23 December), the plaintiff might not have appealed against the 22 December Order.  This is because according to Sin 1^st, 95% of the subscription monies was transferred to the FCC Account, from which the defendants subsequently made payment into court.  If 95% of the monies paid into court had indeed come from the plaintiff’s subscription monies, this would be “highly material” in considering whether this would be adequate to protect the plaintiff’s proprietary interest.  Further, before DHCJ Dawes, the 1^st defendant indicated its willingness to continue the Undertaking until the trial of the Action.  There is therefore no further utility in pursuing the intended appeal against the 22 December Order.  Mr Yuen also contended that even if the defendants had not disclosed the evidence on the fund flow, the intended appeal would have good prospects of success for the reasons set out in the draft notice of appeal, the plaintiff’s skeleton submissions for the intended appeal, and the two submissions lodged by the plaintiff for this determination of costs.

29.Mr Bernard Man, SC submitted for the defendants^[6] that the evidence in Sin 1^st regarding the fund flow is a red herring.  The plaintiff’s intended appeal is clearly unmeritorious, so there is no reason to justify departure from the usual rule that costs should follow the event and be borne by the unsuccessful party who abandoned the intended appeal.

30.The starting point is that the party seeking to withdraw an application made by it should bear the costs of the other party.  In other words, costs should follow the event.  To persuade the court to depart from that starting point, in the particular circumstances of this case, it is not sufficient to show that the plaintiff eventually did obtain the information he wanted regarding the source of the monies that would be paid into court, so that the protection he would obtain would be equivalent to an interlocutory proprietary injunction and hence there would be no need to pursue the intended appeal.  It is not sufficient to show that the intended appeal was withdrawn for good reason, notwithstanding that the plaintiff might not have good grounds for bringing the intended appeal.  The plaintiff would need to show that he had meritorious grounds to bring the intended appeal in the first place to justify departure from the general rule that costs should follow the event.  For the purpose of determining the costs of the application for leave to appeal, there is no need to consider whether the defendants were at fault in not providing the evidence in Sin 1^st to the plaintiff earlier.

31.The appeal against the 22 December Order is an appeal against the exercise of discretion of the judge in refusing to grant an interlocutory injunction in terms of §1 of the Amendment Summons.  The established principles apply regarding the proper approach to warrant appellate intervention^[7]. The appeal court’s role is initially one of review, it does not exercise an independent discretion of its own.  I am not persuaded that the judge is plainly wrong or had erred in principle in the exercise of his discretion for the appeal court to set aside his decision and to exercise the discretion afresh.

32.The judge was plainly alive to the difference between a proprietary injunction and a Mareva injunction and aware of the greater protection that may be given under an interlocutory proprietary injunction. He was entitled to take the view that the Undertaking offered by the defendant was adequate for the plaintiff’s protection in the circumstances of this case and that the balance of convenience did not come down in favour of granting or continuing an interlocutory proprietary injunction.  In agreeing with the defendants’ submissions, he would have taken the view that the plaintiff’s claim, albeit proprietary in nature, is a claim to money, which is a fungible asset.  Notwithstanding the plaintiff’s submissions casting doubt on the defendants’ financial position (repeated in the draft notice of appeal, the plaintiff’s skeleton submissions for the intended appeal and the reply submission), the judge was not persuaded that the defendants would not be able to satisfy the claim made against them. I have mentioned earlier that the plaintiff had expressed concern the defendants might make payment into court of the full amount claimed from another source and there was no evidence that anyone else was likely to lay claim on the monies to be paid into court.

33.I can detect no error in law or in fact of the judge in rejecting the plaintiff’s submission that the monies the defendants offered to pay into court were not the 1^st defendant’s monies but those of other subscribers of the participating shares in the Fund.  Upon payment of subscription monies to subscribe for the participating shares, the subscribers only acquired an interest in the shares, not an interest in the underlying assets of the 1^st defendant.

34.I am not satisfied that the intended appeal is meritorious.  As Lam VP stated in NPYJ v SMRC [2018] 1 HKLRD 573 at §8: “The Court of Appeal is not the forum for the parties to make a second attempt when they fail in the first instance, just hoping that the Court of Appeal or judges in the Court of Appeal will form different views on the weight to be attached to a particular factor.  That is not a proper use of an appeal.”

35.There is no good reason to justify departure from the usual rule that costs should follow the event.  I order the plaintiff to pay the defendant’s costs of the summons of 23 December 2020, which comprised the application for leave to appeal and two applications that I have dismissed earlier being a stay of the 22 December Order and an interim interim injunction.

The issue of costs occasioned by the adjournment

36.Mr Man contended that the costs awarded to the defendants in the summons of 23 December 2020 should include the costs of and occasioned by the adjournment of the rolled-up hearing, whilst proposing that there should be no order as to costs in respect of the defendants’ summons of 11 March 2021 to amend the New Evidence Application.

37.Mr Yuen did not differentiate between the costs of the adjournment from the costs of the summons for leave to appeal, contending that both should be costs in the cause of the Action, although he did point out that the de-railing of the rolled-up hearing on 30 March 2021 was not in any way caused or contributed to by the plaintiff and the late application to adduce evidence in Sin 1^st was the only cause.  He also made the point there is no explanation why Sin 1^st could not have been filed prior to 8 March 2021, when the information on the fund flow was within the defendants’ knowledge.  He submitted that the costs occasioned by the adjournment were solely caused by the defendants.

38.I agree with Mr Yuen.  Instead of ordering that the costs of the adjournment to be in the cause of the Action, I order the defendants to pay the plaintiff the costs of and occasioned by the adjournment of the rolled-up hearing.

Costs of the present application

39.As the defendants are largely successful in the determination of the issue on costs save for the costs of the adjournment, I order the plaintiff to pay the defendants 80% of the costs of the present application, with a certificate for two counsel.

40.I decline to order summary assessment of costs as sought by Mr Man.

Mr Rimsky Yuen SC, Mr José Maurellet SC, Mr James Man and Mr Keith Chan, instructed by Stevenson Wong & Co, for the Plaintiff

Mr Bernard Man SC, Mr Danny Tang and Mr Jonathan Ng, instructed by Jones Day, for the Defendants

[1] Supported by a certificate of urgency signed by four counsel for the plaintiff to explain why an application for leave to appeal should be made directly to the Court of Appeal under Order 59 rule 2B(4) of the Rules of the High Court.

[2] The judge has not handed down a judgment giving reasons for the order he made.  Nor did the parties provide to this court the official transcript of the hearing on 22 December 2020.  What was made available is a “transcript and full note” taken by the legal team of the plaintiff.

[3] 4^th defendant in the Action

[4] [2021] HKCFI 1608

[5] With Mr José Maurellet, SC, Mr James Man and Mr Keith Chan

[6] With Mr Danny Tang and Mr Jonathan Ng

[7] Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 at 220A to E