Gurdas S. Choithramani v. Mayer Brown (Formerly Known As Mayer Brown Jsm Formerly Known As Johnson Stokes & Master) and Others

CACV 180/2021

[2022] HKCA 269

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 180 OF 2021

(ON APPEAL FROM HCA NO 507 OF 2019)

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JUDGMENT

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

1.This is the Defendants’ application for security of costs in respect of the Plaintiff’s appeal against the judgment of Deputy High Court Judge To dated 12 March 2021 (“the Judgment”) striking out the Plaintiff’s Writ of Summons and Statement of Claim on the grounds that (i) they disclose no reasonable cause of action, (ii) they are scandalous, frivolous and/or vexatious, and/or (iii) they are otherwise an abuse of the process of the court, and dismissing the Plaintiff’s action against the Defendants.

2.Having read the evidence and submissions filed by the parties, we consider that it is appropriate to determine the Defendants’ application on paper without an oral hearing pursuant to Order 59 rule 14A(1) of the Rules of the High Court, Cap 4A.

THE BACKGROUND FACTS

3.For the purpose of disposing of the present application, the following brief summary of the basic facts of this case, taken from the Judgment, should suffice.

4.The Plaintiff and his brother founded Esquire (Electronics) Ltd (“Esquire”) in 1965 and the associated group of companies (collectively, the “Esquire Group”). Esquire acquired a commercial property in September 1981 known as Li Fung House, Kowloon (“Li Fung House”) for $182 million. The purchase was fully funded by a loan from HSBC secured by a mortgage of Li Fung House to HSBC. Esquire later went into financial difficulties. It was indebted to five banks, including HSBC and Banque Nationale de Paris (“BNP”). The amount owed to HSBC was by far the largest, amounting to over $309 million.

5.To resolve Esquire’s financial difficulties, the Plaintiff and his brother entered into a restructuring agreement with the creditor banks in 1984 (the “1984 RSA”), the effect of which was to freeze the debts owing to the banks. The 1984 RSA was prepared by the 1^st Defendant, a firm of solicitors formerly known as Johnson Stokes & Master (“JSM”), retained by HSBC. The 2^nd Defendant was an associate of JSM working under the supervision of the 3^rd Defendant who was a partner of JSM.

6.Notwithstanding the 1984 RSA, the Esquire Group did not get back to good financial health. Li Fung House was sold in May 1987, and the proceeds of sale were used to partially satisfy the outstanding debts due to HSBC. In October 1987, the 1984 RSA was extended and a further restructuring agreement dated 1 January 1988 was entered into.

7.Ultimately, in 1994, HSBC withdrew all facilities extended to the Esquire Group and demanded repayment of all sums due. Esquire then commenced an action in the High Court in HCA 11077/1994 (“the 1994 Action”) against HSBC and some other parties. Esquire claimed that HSBC had pressured it to sell Li Fung House, amounting to economic duress and/or undue influence, and that HSBC had acted in breach of alleged fiduciary duties owed to it.

8.Esquire succeeded at first instance. However, on appeal, the Court of Appeal in CACV 312/2005 unanimously reversed the first instance decision and dismissed Esquire’s action against HSBC. The Court of Appeal expressly rejected all allegations of wrongdoing levelled against HSBC. In particular, the Court of Appeal held that Esquire’s complaint as to the “correct amount” of indebtedness owing by the Esquire Group was irrelevant and in any event academic because it was ultimately all written off by HSBC. Leave to appeal the Court of Appeal’s judgment in CACV 312/2005 was refused by the Court of Appeal and Court of Final Appeal.

9.In the meantime, Esquire was wound up in 1996 upon the petition of two of its employees, and the Plaintiff was declared bankrupt on 30 December 1996 upon the petition of BNP in respect of a judgment debt in the sum of approximately HK$22 million (“1996 Bankruptcy”).

10.After the discharge of the 1996 Bankruptcy, on 7 December 2011, the Plaintiff personally commenced another action in the Court of First Instance in HCA 2073/2011 (“the 2011 Action”) against HSBC based on the same factual matrix as the 1994 Action. He advanced some eight or so causes of action, including misrepresentation by HSBC to Esquire and/or the Plaintiff as to the correct amount of the total indebtedness owed by the Esquire Group to HSBC; HSBC’s right to liquidate Esquire and bankrupt the Plaintiff causing loss of business reputation; wrongful procurement of the Plaintiff’s bankruptcy; and wrongful procurement of judgment against Esquire in the 1994 Action.

11.HSBC applied to strike out the 2011 Action on the grounds that the action disclosed no reasonable cause of action, was scandalous, frivolous or vexatious and constituted an abuse of process. HSBC argued that the Plaintiff had no locus standi to sue in respect of alleged misrepresentations relating to the sale of Li Fung House and the wrongful procurement of judgment because those alleged causes of action would have been vested in Esquire not the Plaintiff. As for the other causes of action, they would have been vested in the Official Receiver as trustee in bankruptcy and the Official Receiver had neither assigned them to the Plaintiff nor consented to him bringing the action. On 28 April 2014, Deputy High Court Judge Whitehead, SC struck out the 2011 Action. He found that the Plaintiff had no locus standi to bring or maintain the proceedings as the alleged causes of action pleaded in the statement of claim accrued before or upon the 1996 Bankruptcy and accordingly, if they existed, would have been vested in the trustee in bankruptcy.

12.The Plaintiff’s appeal against the decision of Deputy High Court Judge Whitehead, SC was dismissed by the Court of Appeal in CACV 117/2014. In respect of the wrongful procurement of bankruptcy argument, the Court of Appeal held that it could not see any obligation owed by HSBC to the Plaintiff’s “person” and as such the alleged breach did not give rise to any cause of action which did not vest in the trustee in bankruptcy. As for the claim for wrongful procurement of judgment, the Court of Appeal held that the judgment was in the course of a cause of action by Esquire against HSBC, and the Plaintiff, not being a party to that action, had no locus standi to sue. The party entitled to sue would be Esquire and any loss allegedly suffered by the Plaintiff would merely be reflective loss for which no action would lie. Leave to appeal the Court of Appeal’s judgment in CACV 117/2014 was refused by the Court of Appeal and Court of Final Appeal.

13.On 9 March 2015, the Plaintiff was declared bankrupt a second time on a petition of HSBC in respect of his failure to pay HSBC’s costs in the 2011 Action (“2015 Bankruptcy”). He was discharged from that bankruptcy on 9 March 2020.

14.The Plaintiff commenced the present action on 25 March 2019 based on the same underlying subject matter already traversed in the 1994 Action and 2011 Action. Deputy High Court Judge To summarises the Plaintiff’s complaints as follows:

(1)  the 2^nd Defendant’s failure to consider whether the 1^st Defendant was acting in conflict when drafting the 1984 RSA on the sole instructions of and/or in the interests of HSBC;

(2)  failure to advise the Plaintiff to seek independent legal advice in relation to the 1984 RSA;

(3)  knowing and/or negligent breaches of fiduciary duties and/or duties of care by the 1^st and the 2^nd Defendants in including false information in the 1984 RSA, namely, the inclusion of HSBC’s debt in relation to the property portion as to approximately HK$182 million without reference to any supporting bank statements, with the knowledge of or in collusion with HSBC;

(4)  the 3^rd Defendant’s failure to take steps to correct the false figure in the 1984 RSA;

(5)  the 3^rd Defendant’s failure to bring the true facts and figures to the attention of the Plaintiff and the subsequent actions to cover up the actual position and to mislead the court amounting to deceit and/or perjury on the part of the 3^rd Defendant;

(6)  the 1^st and 3^rd Defendants, whether in collusion with HSBC or for HSBC’s benefit, are responsible for concealing the true facts from the courts which amounted to misleading the court by deliberate design; and

(7)  the Defendants’ suppression and concealment of the false figure in relation to the debt under the property portion in the 1984 RSA resulting in the liquidation of Esquire and the 1996 Bankruptcy of the Plaintiff by BNP.

15.The Defendants applied to strike out the Plaintiff’s latest claim on the following grounds:

(1)  The Plaintiff has no locus standi to pursue the action: the alleged wrongs occurred prior to his two bankruptcies, and the causes of action were thus vested in the trustee in bankruptcy, who has not assigned the actions to the Plaintiff.

(2)  The alleged claims fall foul of the rule against reflective loss as the loss does not belong to the Plaintiff but to other companies.

(3)  The alleged causes of action have long been time-barred.

(4)  The present claim amounts to a collateral attack against previous final decisions of the court and/or infringes the principles of res judicata.

(5)  Even on the basis of the Plaintiff’s allegations, there is no causation between the alleged acts of the Defendants and the Plaintiff’s bankruptcy which arose from his failure to satisfy debts owed to BNP.

16.By the Judgment, Deputy High Court Judge To struck out the Plaintiff’s Writ and Statement of Claim in the present action, holding that:

“… the Plaintiff has no locus standi to sue in respect of the causes of action vested in the Official Receiver as trustee in his two bankruptcies; that his action is time-barred in respect of the other causes of action; and in any event, the present action falls foul of the principles of res judicata. The first ground will probably close all the doors to the Plaintiff’s non-personal claims. Any alleged residual personal claims not vested in the Official Receiver are also time-barred under the second ground. The third ground of res judiciata provides a double lock to those doors.” (see §84 of the Judgment)

17.By a notice of appeal dated 9 April 2021 (“the Notice of Appeal”), the Plaintiff appeals the Judgment to the Court of Appeal. The Notice of Appeal contains three grounds:

(1)  Under Ground 1, the Plaintiff contends that the Judge erred in striking out his claim “when it was not a plain and obvious case that the pleadings are unarguably bad, or that the Plaintiff’s claim is bound to fail, or obviously unsustainable, or impossible (not just improbable) to succeed”.

(2)  Under Ground 2, the Plaintiff contends, alternatively, that the Judge “failed to have sufficient regard to the fact that it was the very fraud and wrongdoing which the Plaintiff alleges to have been perpetuated by, inter alia, the Defendants and HSBC that (a) caused the Plaintiff’s bankruptcy and (b) in turn gave rise to the complaints by the Defendants in the strike out application (including complaints about, inter alia, locus standi)”.

(3)  Ground 3 consists of 26 sub-paragraphs, and contains detailed arguments that the Judge erred in his findings in various paragraphs of the Judgment.

THE DEFENDANTS’ APPLICATION FOR SECURITY FOR COSTS

18.On 26 August 2021, the Defendants took out the present application for security for costs. As stated in the Defendants’ Skeleton Submissions dated 5 October 2021, the Defendants contend that the following special circumstances exist in the present case which justify an order for security for their costs of the appeal being made against the Plaintiff:

(1)  the Plaintiff is impecunious;

(2)  the Defendants are likely to encounter difficulty, undue delay and undue expense in enforcing any order for costs in respect of the appeal;

(3)  the Plaintiff’s appeal is an abuse of the process of the Court; and

(4)  the Plaintiff’s appeal does not have a sufficiently good chance of success.

19.As can be seen from the Plaintiff’s Skeleton Submissions dated 11 November 2020, the Plaintiff opposes the Defendants’ application for security for costs on the following grounds:

(1)  The Plaintiff’s impecuniosity arises from the Defendants’ fraud and wrongdoings.

(2)  The Plaintiff would be denied justice if security is awarded, having regard to his allegations of fraud and wrongdoings (including concealment) against the Defendants and HSBC. Those allegations are extremely serious and should be examined by the court. It would be a denial of justice if the Plaintiff is prevented from proving his allegations.

(3)  The appeal raises real and substantial issues, and the Plaintiff has a sufficiently good chance of success to justify the Defendants being required to shoulder the risk of having to bear their own costs.

(4)  The Plaintiff denies that he has abused the process of the court. On the contrary, it is the Defendants and HSBC who have taken advantage of their positions, and abused the court’s process.

DISCUSSION

20.Under Order 59, r 10(5) of the Rules of the High Court, Cap 4A, the Court of Appeal may, in special circumstances, order that such security shall be given of the costs of an appeal as may be just. The principles for the exercise of this jurisdiction are well settled. For this purpose, “special circumstances” include cases of insolvency or impecuniosity, and difficulty or expense in enforcing costs order (see Hong Kong Civil Procedure 2022, Vol 1, at §§59/10/26 and 59/10/27) However, even in such cases, the court retains a discretion not to order security if the appellant can demonstrate sufficient countervailing factors which would militate against such order being made (see Hong Kong Civil Procedure 2022, at §59/10/27).

21.The Plaintiff does not dispute that he is impecunious. It is also clear, from the matters referred to in §19 of the Affidavit of David Alexander MeKellar filed on 27 August 2021 that the Defendants will likely encounter difficulties or expenses in enforcing any costs order which may be made against the Plaintiff. The question is whether there are sufficient countervailing factors which would militate against an order for security for costs being made against the Plaintiff.

22.In respect of the argument that the Plaintiff’s impecuniosity arises from the Defendants’ fraud and wrongdoings, it is based essentially on allegations which have twice been rejected by different courts in the 1994 Action and 2011 Action.

23.In respect of the argument that the Plaintiff would be denied justice if security is awarded, while the Plaintiff is apparently impecunious, he has not suggested that he cannot raise funds elsewhere, eg from his family or friends. The amount of security sought by the Defendants, while substantial, is not extravagant.

24.In respect of the merits of the appeal, we do not propose to examine in any detail the Plaintiff’s grounds of appeal here. Suffice it to say that, having considered the Notice of Appeal and the other materials before us, we do not consider that the merits of appeal operate in the Plaintiff’s favour in so far as the issue of security for costs is concerned.

25.Lastly, we do not consider it necessary to consider whether the Plaintiff’s appeal constitutes an abuse of the court’s process. We do not see, however, any, or any sufficient, basis for the contention that the Defendants (and HSBC) have acted in abuse of the process of the court.

26.Overall, we are satisfied that there are special circumstances in the present case which justify ordering the Plaintiff to give security for the Defendants’ costs of the appeal.

DISPOSITION

27.We allow the Defendants’ application for security for costs, and fix the amount of the security for the Defendants’ costs of the appeal (excluding the costs of the present application) at HK$350,000.

28.The following orders are made:

(1)  The Plaintiff do within 28 days from the date of the order herein pay into court the sum of HK$350,000 as security for the Defendants’ costs of the appeal.

(2)  Until such payment into court be made and notice thereof given by the Plaintiff to the Registrar of Civil Appeals and to the solicitors for the Defendants, all proceedings in the appeal herein be stayed.

(3)  In default of making such payment into court within the time aforesaid, the appeal, upon the solicitors for the Defendants certifying such default to the Registrar of Civil Appeals, do stand dismissed without further order of the court with costs to be paid by the Plaintiff to the Defendants, such costs to be taxed if not agreed.

29.We further order the Plaintiff to pay the Defendants’ costs of the present application for security for costs, which shall be summarily assessed. The Plaintiff shall have leave to file and serve within 14 days a statement of objection (limited to 2 pages) to the Defendants’ updated skeleton bill of costs annexed to the 1^st to 3^rd Defendants’ Skeleton Submissions in Reply dated 16 November 2021. Subject to any further directions as may be given by this Court, the Defendants’ costs shall be summarily assessed after receipt of the Plaintiff’s statement of objection (if any).

The Plaintiff, acting in person

Messrs Howse Williams, Solicitors, for the Defendants