Chen Yu v. Sky Merit Ltd and Others

HCA 725/2022

[2023] HKCFI 1480

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 725 OF 2022

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D E C I S I O N

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A.  INTRODUCTION

1.On 16^th November 2022, I handed down a decision (“the Decision”) granting various items of injunctive relief, in the light of certain undertakings given by the Defendants, and made a costs order nisi that 70% of the costs of and occasioned by the Plaintiff’s Amended Summons be paid by the Defendants to Mr Chen.

2.By summonses both of 30^th November 2022, each of Sky Merit HK[1] (the 2^nd Defendant) and Mr Fong (the 3^rd Defendant) seek to vary the costs order nisi such that as between Mr Chen and each of them, there be no order as to the costs of and occasioned by the Plaintiff’s Amended Summons.

3.This decision should be read together with the Decision, the contents of which I will not repeat here.

B.  THE PARTIES’ ARGUMENTS

4.Sky Merit HK and Mr Fong say that:

4.1  Mr Chen acted unreasonably in insisting on pursuing injunctive relief against them;

4.2  Mr Chen adopted an approach to the litigation contrary to the underlying objectives in RHC O.1A r.1, by failing to resolve the matter in an expeditious and cost-effective manner;

4.3  no injunctive relief was obtained against Sky Merit HK and Mr Fong.

5.Mr Chen says that he acted reasonably, and that it was only at the hearing on 19^th October 2022 (“the October Hearing”) that Sky Merit HK and Mr Fong gave additional confirmations and undertakings in the light of which the relief sought by Mr Chen was declined.

C.  THE RELEVANT PRINCIPLES

6.RHC O.62 r.3(2A) provides that if the court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to O.62, order the costs to follow the event or make such other order as it sees fit.

7.There is no dispute that the court has a wide discretion as to costs in interlocutory proceedings, and that it is entitled to take into account all the circumstances of the case, including those set out in O.62 r.5, in making the order that it thinks fit. See Waxman & anor v Li Fei Yu & Anor [2013] 6 HKC 424 at [19]. For present purposes, the factors identified in O.62 r.5 which are relevant are:

7.1  the underlying objectives set out in O.1A r.1 (r.5(1)(aa));

7.2  any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings (save where the party making the offer could have protected his position by means of a sanctioned payment or sanctioned offer) (r.5(1)(d));

7.3  the conduct of the parties (r.5(1)(e));

7.4  whether a party has succeeded on part of his case, even if he has not been wholly successful (r.5(1)(f)).

8.For present purposes, O.62 r.5(2) provides that for the purpose of r.5(1)(e), the conduct of the parties includes:

8.1  whether it was reasonable for a party to raise, pursue or context a particular allegation or issue;

8.2  the manner in which a party has pursued or defended his case or a particular allegation or issue;

8.3  conduct before, as well as during, the proceedings.

9.The underlying objectives of the rules of court, as set out in O.1A r.1, are, inter alia:

9.1  to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the court;

9.2  to ensure that a case is dealt with as expeditiously as is reasonably practicable.

10.Parties to proceedings and their legal representatives have a duty to assist the court to further the underlying objectives of the rules of court: O.1A r.3.

D.  UNDERTAKINGS OFFERED BY SKY MERIT HK AND MR FONG PRIOR TO THE HEARING; MR CHEN’S RESPONSE

11.As set out in paragraph 69 of the Decision, an important reason for the costs order nisi made was that whilst Sky Merit HK and Mr Fong were successful in resisting the grant of various items of relief sought against them, this was because of certain confirmations and undertakings which they gave to the court only at the October Hearing.

12.It has since transpired that in fact, Sky Merit HK and Mr Fong had, for the most part, offered such confirmations and undertakings in “without prejudice” correspondence in substantially similar terms prior to the October Hearing.

13.Furthermore, Mr Chen did not provide a constructive response to such offers, but instead continued to pursue injunctive relief.

14.As set out in paragraph 37 of the Decision, Mr Chen had sought the following relief against Mr Fong:

37.1  a Mareva injunction, prohibiting him from removing any assets from Hong Kong up to the amount of US$2,286,594.39;

37.2  an injunction prohibiting Mr Fong from causing Sky Merit BVI to redeem or other dispose of the US$3m investment paid to the Anglepoint Fund other than with the written consent of Mr Chen or until further order; and

37.3  an injunction prohibiting Mr Fong from disposing of, dealing with or diminishing the value of his shares in Sky Merit BVI other than with the written consent of Mr Chen or until further order.

15.As set out in paragraph 48 of the Decision, Mr Chen had sought the following relief against Sky Merit HK:

15.1  a Mareva injunction, prohibiting it from removing any assets from Hong Kong up to the amount of US$2,286,594.39; and

15.2  a proprietary injunction, prohibiting it from removing from Hong Kong the sum of US$5,286,594.39 which was paid into its account with HSBC, or any assets purchased with such funds.

The Mareva injunction

16.In relation to the Mareva injunction against both parties, Sky Merit HK and Mr Fong acknowledge that it was only at the October Hearing that they gave an express confirmation that the US$2,286,594.39 which they paid into court pursuant to the undertaking given to DHCJ Laurence Li SC at the inter parties hearing of 21^st June 2022 (“the June Hearing”) should stand as security for the satisfaction of Mr Chen’s claim against them, without regard to whether it was Sky Merit HK or Mr Fong who had made the payment into court. However, they say that no complaint had been raised as to the adequacy of the payment-in until the 4^th Affirmation of Chen Yu of 10^th October 2022, filed shortly before the October Hearing; that contrary to Mr Chen’s suggestion, it was not the case that the payment-in would have to be shared amongst Sky Merit HK’s creditors, given that it stood as security for sums payable by Sky Merit HK and Mr Fong to Mr Chen pursuant to O.1B r.1(3) and 1(4); that the additional confirmation was given only for the avoidance of doubt; and that at the June Hearing, it had already been confirmed that both Sky Merit HK and Mr Fong had given the undertaking to make the payment-in.

17.I agree with the submissions of Sky Merit HK and Mr Fong.

18.It is submitted for Mr Chen that the terms of the confirmation were not offered previously in the “without prejudice” correspondence, so that it is not to the point that Mr Chen’s complaint was only raised in his 4^th Affirmation. However, as shown from the transcript of the June Hearing placed before me, (1) counsel then acting for Sky Merit HK and Mr Fong had confirmed to the court that the payment-in was to be made jointly and severally by them, and (2) the court had expressly raised the issue of the wording of the undertaking regarding the payment in with the parties, and it was not suggested on behalf of Mr Chen that any ambiguity might arise as a result of the wording proposed by the court.

19.The parties had been engaging in without prejudice correspondence and it would have been apparent that Sky Merit HK and Mr Fong were willing to offer various undertakings and assurances to Mr Chen to dispose of the Amended Summons without proceeding to a hearing. In particular, in a letter of 27^th July 2022, which was after the June Hearing, solicitors for Sky Merit HK and Mr Fong had proposed, inter alia, that the payment-in should remain in court until trial or further order of the court. No substantive response as to the inadequacy of the proposal was provided by Mr Chen’s solicitors. In a letter of 1^st August 2022, Mr Chen’s solicitors said that they wanted to see Sky Merit HK and Mr Fong’s evidence first, and that the scope of the existing undertaking “requires adjustment before we can consider it further”, but they did not say (either then or in subsequent correspondence) what adjustment they sought.

20.In such circumstances, I do not agree with the submissions made for Mr Chen that there was nothing unreasonable on Mr Chen’s part in rejecting the offer in the 27^th July 2022 letter. If, despite the indications given at the June Hearing, Mr Chen considered that the status of the payment-in was not sufficiently clear, there is no reason why this could not have been promptly and simply communicated to Sky Merit HK and Mr Fong in order to see whether the point could be adequately addressed by way of an additional confirmation or undertaking. I do not agree that it is good enough for Mr Chen to say that he has no duty to give reasons for rejecting the without prejudice offer made to him. Parties to proceedings and their legal representatives have a duty to assist the court to further the underlying objectives of the rules of court, including to achieve cost-effective and expeditious resolution of issues between the parties.

21.It is now said that the exchanges between DHCJ Li SC and counsel for Sky Merit HK and Mr Fong at the June Hearing were only for the purpose of making it clear that Sky Merit HK and Mr Fong were not each being asked to make a separate payment-in. If that is how Mr Chen or his representatives understood the position, then that is all the more reason for them to have raised their concern with what they now say was unclear about the status of the payment-in at an early stage.

22.In the light of the June Hearing and the correspondence between the parties, the additional confirmation given at the October Hearing was indeed one given for the avoidance of doubt (as indicated at paragraph 39 of the Decision). I do not understand the submission that one can somehow deduce, from the fact that counsel for Sky Merit HK and Mr Fong did not inform the court that they were not willing to give any further undertakings, that it was not in fact the intention of Sky Merit HK and Mr Fong to give the additional confirmation only for the avoidance of doubt. With respect, it is a non sequitur.

23.Furthermore, I do not agree that but for the October Hearing, Mr Chen would not have been able to obtain the additional confirmation in respect of the payment-in. The tenor of the correspondence shows that Sky Merit and Mr Fong were willing to consider providing undertakings and assurances to Mr Chen in order to save the costs of the October Hearing.

24.It is not now disputed that pursuant to O.1B r.1(3) and 1(4), the payment-in stood as security for sums payable by Sky Merit HK and Mr Fong to Mr Chen and would not be shared with Sky Merit HK’s creditors, as earlier claimed.

The injunction against Mr Fong as to the Anglepoint Fund

25.In relation to the Anglepoint Fund, the solicitors for Mr Fong had offered, through their letter of 27^th July 2022, to continue the undertaking given at the June Hearing. As referred to above, the proposal was rejected by the solicitors for Mr Chen in their letter of 1^st August 2022, without giving particulars of what “adjustment” was sought to the existing undertaking.

26.At the October Hearing, the argument for Mr Chen was that the undertaking was meaningless because Mr Chen had resigned as a director of Sky Merit BVI. This argument was rejected: see paragraphs 43 and 44 of the Decision. In particular, on the logic of the argument, if the undertaking was meaningless for this reason, then an injunction would be similarly meaningless for the same reason.

27.It is not now suggested by Mr Chen that he achieved anything additional as against Mr Fong in relation to the Anglepoint Fund at the October Hearing.

The injunction against Mr Fong as to the shares of Sky Merit BVI and Sky Merit HK

28.In relation to the shares of Sky Merit BVI and Sky Merit HK, the solicitors for Mr Fong had offered an undertaking through their letter of 20^th June 2022, prior to the June Hearing, to the effect that Mr Fong would not in any way dispose of, deal with, transfer, charge, encumber or diminish the value of his shares in Sky Merit BVI and Sky Merit HK. However, this was not taken up by Mr Chen (as indicated in his solicitors’ letter of 21^st June 2022). At the June Hearing, Mr Chen sought but was unable to obtain an injunction in relation to the shares. Nor was any undertaking given at that hearing.

29.In the letter of 27^th July 2022, the solicitors for Mr Fong did not repeat the offer of an undertaking from Mr Fong in relation to the shares. It is therefore submitted on behalf of Mr Chen that it was reasonable for him to have rejected the proposal in that letter. Furthermore, whilst in the Affirmation of Fong Ming of 6^th September 2022, Mr Fong renewed the offer of an undertaking in relation to the shares, this was limited in scope, to the effect that Mr Fong would not dispose of Sky Merit BVI’s shares pending the final resolution of the proceedings. It is said that this was much narrower in scope than the version of the undertaking offered through counsel for Mr Fong at the October Hearing.

30.Insofar as Mr Chen considered that the letter of 27^th July 2022 was insufficient to address his concerns by reason of the absence of an undertaking from Mr Fong in relation to the shares, there is no reason why this could not have been promptly and simply communicated by Mr Chen’s solicitors. I have already explained above why their response of 1^st August 2022 was inadequate, in coyly stating that the undertakings offered required “adjustment” before they could be considered further, but without indicating in what regard, either on that occasion or subsequently.

31.In any event, it is not as if Mr Chen had all along been holding out for an undertaking (rather than an injunction) which was only provided at the October Hearing. The history of the matter shows that Mr Fong was all along agreeable to the provision of an undertaking in relation to the shares of Sky Merit BVI. However, Mr Chen’s stance was that this was not good enough, and he sought to obtain an injunction instead, as his counsel made clear at the June Hearing and at the October Hearing. Whilst the undertaking offered at the October Hearing was broader than the one originally offered on 20^th June 2022 or the one in Mr Fong’s Affirmation, it is not as if Mr Chen had made complaints regarding these earlier versions which were only remedied in the version offered at the October Hearing. See paragraph 46 of the Decision.

The proprietary injunction against Sky Merit HK

32.Sky Merit HK complains that Mr Chen insisted on pursuing a proprietary injunction against it despite the fact that he was aware that Sky Merit HK did not hold any substantial assets. Indeed at the October Hearing, it was apparent from the bank statements of Sky Merit HK that by 13^th November 2021, only US$0.24 of the Funds remained with it. Furthermore, it was not suggested that Sky Merit HK had used the remainder of the funds to purchase any assets over which an injunction should be granted. In the circumstances no injunction was made. See paragraph 50 of the Decision.

33.No answer to this has been provided by Mr Chen.

E.  CONCLUSION; DISPOSITION

34.In the light of the above, I agree with the submissions of Sky Merit HK and Mr Fong that Mr Chen’s insistence on pursuing injunctive relief against them at the October Hearing was unreasonable, that he adopted an uncooperative attitude which did not assist in resolving the dispute in an expeditious and cost-effective manner, and that ultimately, Mr Chen obtained little more than what had either been offered to him earlier, or what would in all likelihood have been offered earlier had he engaged more constructively with Sky Merit HK and Mr Fong in the parties’ correspondence prior to the October Hearing.

35.I therefore grant an order in terms of paragraph 1(1) of each of the summonses of 30^th November 2022. I further make a costs order nisi that Mr Chen pay to Sky Merit HK and Mr Fong the costs of and occasioned by their respective summons, to be assessed summarily on the papers. Sky Merit HK and Mr Fong should each lodge their statement of costs within 7 days; Mr Chen should lodge and serve concise lists of objections within 7 days thereafter; Sky Merit HK and Mr Fong each have leave to lodge and serve a reply, if any, within 3 days thereafter.

Mr Adrian Leung and Mr Brian Lo, instructed by K.C. Ho & Fong, for the Plaintiff

Mr Tony Ko, instructed by Simon C.W. Yung & Co., for the 1^st and 2^nd Defendants

Miss Tanie Toh, instructed by Cheung Yan & Associates, for the 3^rd Defendant