Li Dianxiao v. Capital Century Textile Company Ltd and Others

HCA 751/2022

[2025] HKCFI 1508

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 751 OF 2022

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BETWEEN

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DECISION

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A.  INTRODUCTION

1.This Decision concerns an appeal against, inter alia, an order made by a Master who struck out the plaintiff’s action against the 1^st and 5^th defendants.  For reasons which will be made apparent later in this Decision, I will have to set out the procedural history of the action below first.

2.On 21 June 2022, the plaintiff commenced this action against the defendants.  The Statement of Claim endorsed on the Writ of Summons was subsequently amended on 4 May 2023.  In a gist, it is the plaintiff’s amended pleaded case that:

(1)  The plaintiff was the subscriber and shareholder of the 1^st defendant since 1990.  The other subscriber and shareholder was a Mr Man, who was not involved in the 1^st defendant’s operation.  Each of them held 1 share[1] in the 1^st defendant;

(2)  Mr Man’s share was subsequently transferred to the 2^nd defendant;

(3)  Pursuant to an agreement between the plaintiff and the 2^nd defendant dated 1 April 1993 (“the 1993 Agreement”), 18,998 shares and 1,000 shares had been allotted to them  respectively, upon which the plaintiff and the 2^nd defendant held 18,999 shares and 1,001 shares respectively;

(4)  According to the 1993 Agreement, those 1,000 shares (which were equivalent to 5% interest in the 1^st defendant)  were allotted to the 2^nd defendant as reward for her service to the 1^st defendant.  However, she would be obliged to return those shares when she no longer was an employee of the 1^st defendant and those shares should not be further transferred to any third party.  Further, the 2^nd defendant was not entitled to interfere with or vote to conduct or deal with the 1^st defendant’s business;

(5)  On 16 February 1996, a PRC company known as Beijing Knitwear Import & Export Group Corporation (北京針棉織品進出口集團公司)  (“the Beijing Company”)  signed an agreement with the plaintiff (“the 1996 Agreement”), which provided, among other things, that:

“[第一被告人]是[北京針棉織品進出口集團公司]於一九八八年以[原告人]個人名義在香港註冊的分支機構”

(6)  On 18 February 2001, the Beijing Company and the plaintiff signed a memorandum of agreement (“the 2001 Agreement”)  to deal with the beneficial interest in the shares formerly held by the plaintiff for the Beijing Company[2];

(7)  As found by Lisa Wong J in HCA 263/2012 (in which the 1^st defendant sued the plaintiff and another), the Beijing Company terminated the trust of the shares held by the plaintiff, and gave up its beneficial interest to the plaintiff [3], and by the latest, since the date of the 2001 Agreement, the plaintiff has become the sole legal and beneficial holder of the aforesaid shares[4];

(8)  The plaintiff had entrusted his shares to the 2^nd defendant by leaving signed and undated instruments of transfer (“the Undated Instruments”)  for the purpose of winding up the 1^st defendant before he went back to retire in Beijing in 2007/2008;

(9)  The plaintiff was subsequently arrested in the PRC and sentenced by a PRC Court to some 15 years’ imprisonment from 29 August 2008;

(10)  Upon the plaintiff’s incarceration/imprisonment, in breach of the 1993 Agreement, the 2^nd defendant:

(a)  put the Undated Instruments into use in June 2009, and, inter alia, transferred the plaintiff’s shares to herself;

(b)  voted to initiate legal proceedings against the plaintiff in HCA 263/2012;

(11)  As a result, the 2^nd defendant held the plaintiff’s shares on constructive / resulting trust for the plaintiff;

(12)  In further breach of the trust reposed on her in regard to the plaintiff’s shares, the 2^nd defendant transferred part of the plaintiff’s shares to the 3^rd and 5^th defendants without the plaintiff’s knowledge and/or consent;

(13)  As a consequence, the 3^rd and 5^th defendants have also become resulting / constructive trustee of the plaintiff’s shares for the plaintiff.

3.The Defence for the 1^st – 3^rd and 5^th defendants and the Reply were filed on 24 July 2023 and 21 September 2023 respectively. 

4.On 8 March 2024, the 1^st and 5^th defendants took out 2 summonses and applied for:

(1)  an order that the Amended Statement of Claim be struck out and the action be dismissed (“the Striking Out Summons”);

(2)  an order for security for costs (“the Security for Costs Summons”).

5.At the hearing on 16 September 2024 (“the September Hearing”), a Master struck out the plaintiff’s Amended Statement of Claim (“the Striking Out Order”)  primarily for the reason that the 1^st defendant has been state-owned since the 1990s and that the plaintiff’s claim for beneficial ownership over the 1^st defendant’s shares by reason of the 2001 Agreement is absolutely groundless.

6.The learned Master also dismissed the Security for Costs Summons, and awarded costs thereof to the plaintiff, since it was considered that the 1^st and 5^th defendants should not have taken out that application so soon without waiting for the result of the Striking Out Summons.

7.The plaintiff then filed a Notice of Appeal to a Judge in Chambers on 27 September 2024 and asked that the Striking Out Order be set aside.

8.On the other hand, the 1^st and 5^th defendants appeal against the learned Master’s decision to dismiss the Security for Costs Summons with costs to the plaintiff.

9.By a Notice of Hearing dated 18 December 2024, parties were informed that their appeals would be heard on 28 March 2025 (“the Appeal Hearing”).

10.On 21 March 2025, the plaintiff took out a summons (“the New Evidence Summons”)  to adduce certain new evidence at the Appeal Hearing.

B.  THE NEW EVIDENCE SUMMONS

11.I should first of all set out the reasons why I dismissed the New Evidence Summons at the Appeal Hearing.

12.By virtue of the New Evidence Summons,the plaintiff applied to introduce the following new evidence:

(1)  The plaintiff’s 5^th Affirmation;

(2)  The plaintiff’s 3^rd and 4^th Affirmations filed in HCA 263/2012 on 3 January 2025 and 17 January 2025 respectively;

(3)  The expert opinion of a lawyer from the Mainland.

13.However, at the Appeal Hearing, Mr Kwok for the plaintiff submitted that in fact the plaintiff’s 3^rd and 4^th Affirmations should not be regarded as new evidence because they have already been filed in the Court in another action, and that actually no leave should be required for adducing the same at the Appeal Hearing.  He relied on Order 38 rule 10 of the Rules of the High Court (Cap.4A, Laws of Hong Kong)  (“RHC”)  which stipulates that:

“(1)  Office copies of writs, records, pleadings and documents filed in the High Court shall be admissible in evidence in any cause or matter and between all parties to the same extent as the original would be admissible.

(2)    Without prejudice to the provisions of any enactment, every document purporting to be sealed with the seal of any office or department of the High Court shall be received in evidence without further proof, and any document purporting to be so sealed and to be a copy of a document filed in, or issued out of, that office or department shall be deemed to be an office copy of that document without further proof unless the contrary is shown.”

14.With greatest respect, the said Order 38 rule 10 is self-explanatory, and simply does not have the effect which Mr Kwok advocated. 

15.There is in fact another rule in the RHC which may come closer to what Mr Kwok had in mind.  That is Order 32 rule 17 of the RHC which provides that:

“Any party –

(a)  filing an affidavit intended to be used by him in any proceedings in chambers, or

(b)  intending to use in any such proceedings any affidavit filed by him in previous proceedings,

must give notice to every other party of the filing or, as the case may be, of his intention to do so”

16.Assuming the plaintiff was minded to rely on this rule for the purpose of adducing previous affirmations filed in another action at the September Hearing[5], then in my view his solicitors should have informed the solicitors acting for the 1^st and 5^th defendants according to the timetable for filing affidavit evidence for the applications.  In other words, the plaintiff should have informed the other side no later than the time set for him to file and serve his affirmation in opposition.  This must be the case because it would be necessary for the other side to be alerted so that they would be able to respond to those affirmations when they filed their affirmation in reply.  It goes without saying that those affirmations filed by the plaintiff in a previous action should also be included in the hearing bundle for the consideration of the learned Master. 

17.In other words, Order 32 rule 17 does not give the plaintiff a licence to adduce evidence at any time he wants.  Obviously, the said rule only sensibly allows a party to use the same affirmation in different actions without having to file identical affirmations.  This would of course save time and costs.

18.In the event the affirmations filed in previous actions have not been relied on in the hearing before Master, and were only sought to be introduced at the appeal stage, then they must be regarded as new evidence, and Order 58 rule 1(5)  of the RHC would be applicable.

19.The situation is the same if the affirmations which the plaintiff would like to rely on were only made subsequent to the September Hearing, like his 3^rd and 4^th Affirmations.

20.In short, the fact that the affirmations which a party would like to rely on have already been filed in another action does not mean that such affirmations would not be subject to the rule governing the adducing of new evidence at the appeal stage.

21.Hence, the introduction of all 3 items set out in the New Evidence Summons by the plaintiff at the Appeal Hearing should in principle be subject to Order 58 rule 1(5)  which provides that:

“No further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made)  may be received on the hearing of an appeal under this rule except on special grounds.”

22.It is undisputed by the parties that before new evidence can be admitted for the purpose of the Appeal Hearing, the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 have to be satisfied.  Under those conditions, further evidence is admissible on appeal only when such evidence:

(1)  could not have been obtained with reasonable diligence for use at the hearing below;

(2)  would or might, if believed, have an important influence on the result of the case, though it need not be decisive; and

(3)  is apparently credible though it need not be incontrovertible.

23.In an attempt to demonstrate that the Ladd v Marshallconditions are satisfied, the plaintiff had filed his 5^th Affirmation in support of the New Evidence Summons. However, the said affirmation did not only contain matters which support the introduction of new evidence but also the new evidence itself.

24.Pausing here, I should point out that, in my view, it is inappropriate for the plaintiff to include the new evidence which he sought to introduce at the Appeal Hearing in the affirmation filed in support of the New Evidence Summons.  This is because, for the disposal of the application to adduce new evidence, in some cases the respondent might want to file an affirmation in opposition so as to put in facts in support of its argument that the Ladd v Marshallconditions are not satisfied at all.  However, at that stage, the respondent does not need to reply to the new evidence yet because leave has not yet been granted.  If an applicant includes both the evidence (i)  in support of the application to adduce new evidence and (ii)  for use at the substantive appeal, the respondent might not know (and should not be left to speculate)  which part of the supporting affirmation it should reply to at the “leave” stage as opposed to the “appeal” stage.  The end result is probably that the respondent, in order to play safe, might want to reply to all the allegations at one go.  This may lead to a wastage of time and costs if leave to adduce new evidence is ultimately refused.

25.Coming back to the plaintiff’s application, I will now deal with the proposed new evidence one by one.

B1.  The plaintiff’s 5^th Affirmation

26.By virtue of the plaintiff’s 5^th Affirmation, he attempted to adduce the following new evidence for use at the Appeal Hearing:

(1)  Documents which allegedly show that the 2^nd defendant had procured the 1^st defendant to sue 北京市國資委in 2009 in wrongfully ruling that the 1^st defendant, its assets and shares were state-owned (“the LDX-5 Documents”);

(2)  A copy of a testimony rendered by the 2^nd defendant in support of the aforesaid lawsuit against 北京市國資委in 2009 (“the LDX-6 Testimony”);

(3)  An agreement dated 22 February 2001 between the Beijing Company and the 1^st defendant (“the LDX-7 Agreement”)  which allegedly set out in unequivocal terms that the Beijing Company never funded the 1^st defendant;

(4)  Declarations from 張經健 and 黃紀蓉 dated 2 February 2010 and 1 February 2010 respectively (“the Loan Declarations”)  which allegedly show that these lenders have each lent the plaintiff $150,000 to fund the set up and finance of the 1^st defendant.

(collectively, “the New Documentary Evidence”)

27.The sole ground relied on by the plaintiff in support of his submission that the Ladd v Marshall1^st condition (i.e. evidence could not have been obtained with reasonable diligence for use at the hearing below)  had been satisfied could be found in the plaintiff’s 5^th Affirmation as follows:

“5. I was released from prison in China on 28 August 2024 after some 16 years of imprisonment and was not in Hong Kong until 11 September 2024, just days before the hearing before the master. It took me some time to recover in Beijing from years of imprisonment before returning to reside in Hong Kong.

6.  […]

7. […] I was cut off from communication with the outside world most of the time during the past 16 years imprisonment and had no opportunity to relate my version of the case to court or to retrieve documents in support […].

[…]

I was not able to retrieve [the New Documentary Evidence] while in prison.”

28.I am of the view that, as far as the New Documentary Evidence is concerned, the plaintiff did not satisfy the 1^st Ladd v Marshallcondition:

(1)  Firstly, as the plaintiff accepted in paragraph 7 of his 5^th Affirmation, he was only “cut off from communication with the outside world most of the time[6]”. That means he was not completely cut-off from the outside world.  Indeed, this must be the case, otherwise he could not have started the present action at all in 2022 when he was in prison.  Further, it can be seen that a Cong Bo Wai had made an affirmation in opposition to the Striking Out Summons and the Security for Costs Summons, and that he had confirmed unequivocally that he had been authorised to do so by the plaintiff.  It can therefore be inferred that there must have been communication between them.  Moreover, the fact that the plaintiff has been represented by solicitors in the present action means that he had been able to, at least indirectly if not directly, give instructions to his solicitors.

(2)  Secondly, the New Documentary Evidence has been in existence for a long time.  Even though the plaintiff understandably could not retrieve the same personally before the September Hearing, there is no explanation as to why he could not have instructed his son Li Yuan[7] or Mr Cong to do that for him.  In that regard, it should also be borne in mind that the plaintiff has not put forward any assertion that it is difficult for him to recover those documents. 

29.That being so, I refused to grant leave for the plaintiff to rely on the New Documentary Evidence at the Appeal Hearing.

30.Given my above conclusion, theoretically there is no need for me to deal with the 2 other Ladd v Marshallconditions.  Be that as it may, I would like to say a few words as follows:

(1)  The plaintiff would like to rely on the LDX-5 Documents and the LDX-6 Testimony in support of his argument that the 1^st defendant’s lawsuit in 2009 is genuine and believable, pointing to the fact that the 1^st defendant was not state-owned.  However, taking such evidence to the highest, they cannot change the fact that there have been rulings in the PRC that the 1^st defendant was indeed state-owned.  Therefore, these documents would not have any important influence on the result of the case anyway.  Hence, the 2^nd Ladd v Marshallcondition cannot be satisfied;

(2)  The plaintiff is minded to rely on the LDX-7 Agreement which provided that the Beijing Company had never funded nor financed the 1^st defendant and its business.  However, it is noted that the said agreement was signed by a Dai Xiu Fong (“Dai”)  – the same person who executed the 2001 Agreement on behalf of the Beijing Company.  It is evident that Dai had been convicted by the PRC Court for, inter alia, entering into the LDX-7 Agreement without authority.  This new evidence is therefore not credible at all.  Hence, the 3^rd Ladd v Marshallcondition cannot be satisfied;

(3)  The plaintiff then intended to rely on the Loan Declarations and establish that he had borrowed money from his friends towards the end of 1990 for the purpose of setting up the 1^st defendant. However, it is the plaintiff’s pleaded case that the 1^st defendant was established by the Beijing Company as its branch in Hong Kong (see paragraph 5D of the Amended Statement of Claim), and that the 2001 Agreement was signed to deal with the beneficial interest in the plaintiff’s shares in the 1^st defendant formerly held by the plaintiff for the Beijing Company (see paragraph 6 of the Amended Statement of Claim).  Therefore, insofar as it is the plaintiff’s intention to prove that he was the beneficial owner of the 1^st defendant since the beginning, such a stance is contrary to the plaintiff’s own pleaded case.  Hence, the Loan Declarations cannot have any influence, not to mention important influence, on the result of the Striking Out Summons.  As a result, the 2^nd Ladd v Marshallcondition cannot be satisfied.

31.Even if the Ladd v Marshall conditions are all satisfied, that does not mean that the Court should necessarily grant leave for the plaintiff to adduce the new evidence.  The Court still has to consider whether it should exercise its discretion in allowing the introduction of such new evidence. 

32.In the present case, I am of the view that the Court should not exercise its discretion in favour of the plaintiff anyway because of the lateness of this application.

33.It may be recalled that the plaintiff filed his Notice of Appeal to a Judge in Chambers on 27 September 2024.  By then, he has already been released from the prison for around 1 month[8].  He should have had adequate time to gather the evidence which he allegedly could not retrieve personally while he was in the prison.  Further, he should have made the application for adducing the New Documentary Evidence as soon as possible once he has found the relevant documents.  However, for unknown reason, he has failed to make this application until 20 March 2025, that is, 8 days before the Appeal Hearing, and he has provided no explanation as to why he could not make this application earlier.

34.Because the application was made so late, it could only be fixed to be heard together with the appeals. 

35.At this juncture, it should be borne in mind that the 1^st and 5^th defendants are the applicants in respect of the Striking Out Summons and the Security for Costs Summons. Therefore, they should have the right to reply to the evidence filed by the plaintiff in opposition.  In other words, if leave was granted for the plaintiff to adduce new evidence for the purpose of the said summonses which was re-heard by this Court as if they were before this Court for the first time, either the 1^st and 5^th defendants would have no chance to reply to those new evidence, or the Appeal Hearing had to be adjourned so as to allow time for the 1^st and 5^th defendants to file reply evidence.  Neither of the above options is desirable. 

36.Although strictly speaking the Appeal Hearing is not a milestone date, I am of the view that the Court should not adjourn the matter lightly, as the 1^st and 5^th defendants should be entitled to assume that the appeals were heard as scheduled without delay.  Further, in the Civil Justice Reform era, there is no longer room for a party to allege that his delay should be forgiven so long as he has compensated the other side on costs.

37.Mr Kwok tried to refer this Court to various events which took place after September 2024 when he explained the said delay. Insofar as it was suggested that the plaintiff could not have made the present application earlier because of his own or the plaintiff’s engagement in other matters, I reject such an assertion as it was unsupported by evidence.  I do not agree that the Court could infer that the plaintiff could not make a much more timely application simply by reference to, for example, the other proceedings which the plaintiff had to deal with.

38.Hence, I held the view that because there was inexcusable delay on the part of the plaintiff in taking out the application to adduce the New Documentary Evidence, this Court should refuse the plaintiff’s application to introduce the same at the appeal stage.

B2.  The plaintiff’s 3^rd Affirmation

39.The plaintiff’s 3^rd Affirmation was filed in HCA 263/2012 on 3 January 2025, for the purpose of applying to the Court for an order that certain funds in the sum of $1,850,000 frozen by an injunction be released.

40.It should be noted at the outset that, with respect, it is irresponsible for the plaintiff to simply refer to an affirmation filed in another action without specifying in the New Evidence Summons which part(s)  thereof would be relied on in this application.  Although the plaintiff did refer to paragraphs 6 to 11 of the 3^rd Affirmation in his supporting affirmation for the New Evidence Summons, I do not think this is adequate, because I do not think it is fair to the other side for having to find out themselves what exactly the plaintiff’s application is about.

41.At the hearing, Mr Kwok for the plaintiff confirmed that the application to adduce new evidence in this regard would be limited to paragraphs 6 to 11 of the 3^rd Affirmation.

42.The plaintiff had the following to say in his 5^th Affirmation in relation to the purpose of relying on the 3^rd Affirmation at the Appeal Hearing:

“6. First and foremost, I crave leave to refer to paragraphs 6 to 11 of the 3^rd affirmation of Li Dianxiao filed on 3 January 2025 in relation to a Mareva injunction taken out by the 1^st defendant in HCA 263/2012, showing that I have re-established residence in Hong Kong. The exhibit marked ‘LDX-1’ thereto shows the payments of the outstanding expenses to establish my present residence in Hong Kong.

7.  Paragraphs 6 to 11 of my 3^rd affirmation are relevant and crucial to the issue of security for costs in the 1^st and 5^th defendants’ cross-appeal on security.  I was only able to file my 3^rd affirmation after the last hearing upon returning to Hong Kong from over 16 years of imprisonment in China. […]”

43.For completeness, I set out paragraphs 6 – 11 of the plaintiff’s 3^rd Affirmation below:

“6. For the money I withdrew from the BOC account, I offer the following explanations.

7. When I first returned to Hong Kong on 11 September 2024, I was told that the defendants in HCA 751 of 2022 has applied for security of costs in the sum of $2.6 million on the ground that I did not reside or have been habitually resident in Hong Kong. I was advised and verily believe that to resist the application for security, I need to show that I return to residing in Hong Kong.

8. I have only one property left in my name after the judgment and that is the Kashi Court […]. To re-establish my residence at Kashi Court, I must repay all outstanding fees relating to my residence there. That includes repaying arrears of management fees, repayment of rates and utility bills, payment for inspection of window frames and some property tax. Over the years, such expenses have piled up to cover tens of thousands of dollars. I have no funds or other resources save for those now restrained under the injunction.

9. I went to enquire with each of the banks listed in the injunction to find out whether my accounts had been frozen. Those accounts were frozen. When I enquired with the Bank of China, they told me that my account had not been frozen. I thought that particular account did not come under the injunction. As I returned with very little money my son gave me, I therefore withdrew money from the BOC account to defray these charges, mistakenly believing that the BOC account did not come within the ambit of the injunction.

10. Out of the money I withdrew from the BOC account, I repaid those outstanding expenses in order to resume residing at my former residence. Such move was partly needed in reality and partly done to forestall the application for security because that way I can show to the court that I reside in Hong Kong, hence exempted from security for costs.

11.  Produced and shown to me marked ‘LDX-1’ are the receipts of money under these bills and demand notes.  I paid these bills in the sum of HK$121,000.00 with money from the BOC account.”

44.Mr Cheng for the 1^st and 5^th defendants accepted that the plaintiff was not obliged to put forward special grounds as required under Order 58 rule 1(5)  of the RHC in order to obtain leave because the matters in the plaintiff’s 3^rd Affirmation as quoted above took place after the September Hearing.

45.Therefore, the sole question for this Court was whether it should exercise its discretion in allowing paragraphs 6 to 11 of the 3^rd Affirmation to be introduced as new evidence for the purpose of the Security for Costs Summons.

46.In my view, the Court should not exercise its discretion in favour of the plaintiff.

47.First, I took the view that there was inexcusable delay on the part of the plaintiff to make this application.  Having gone through the invoices and receipts exhibited as “LDX-1”, it was obvious that the plaintiff could have made the present application by mid-December 2024 if not November 2024.  There was no explanation as to why the plaintiff did not do so earlier.  I refer to the discussion at [32] – [38] above which I would not repeat here.

48.Second, insofar as it is the plaintiff’s intention to defeat the other side’s application for security for costs on the ground of he not being an ordinary resident in Hong Kong, it should be noted that it has been held in Chris Au v Steve Yoon Soo Kim (HCA 1285/2014, unreported, 25 November 2016)  at [22] that:

“In the context of Order 23 rule 1(1)(a)  of the RHC, the question of ‘ordinary residence’ is one of fact and degree; it does not depend upon the duration of the residence, but upon the way a man’s life is usually ordered, and it connotes a degree of continuity being required, and contrasts with occasional or temporary residence. The phrase ‘ordinarily resident’ should be construed according to its ordinary and natural meaning, and that a person is ordinarily resident in a place if he habitually and normally resides lawfully in such place from choice and for a settled purpose, apart from temporary or occasional absences, even if his permanent residence or ‘real home’ is elsewhere. When determining whether a plaintiff is ‘ordinarily resident’ outside the jurisdiction, it does not necessarily matter that the plaintiff has spent significant amounts of time abroad. One has to consider the reasons for the absence from the jurisdiction and whether the plaintiff has ‘up-rooted’ and relocated him- or herself abroad. A holder of a Hong Kong identity card is not necessarily ordinarily resident within Hong Kong.”

49.In the plaintiff’s 3^rd Affirmation, he was quite frank in admitting that it was partly because of his intention to defeat the applicability of Order 23 of the RHC that he re-established his residence in Hong Kong.  However, his evidence fell short of telling the Court his future plan in terms of residence, particularly in the light of his original intention to retire in Beijing (which he actually did).  In other words, he did not adduce any evidence to show that he had already changed the position which he pleaded in paragraph 6B of the Amended Statement of Claim (that due to his declining health and aging problem, he returned to Beijing to retire and to seek medical care in his home town in about 2007/2008).

50.Hence, the plaintiff’s 3^rd Affirmation could not assist him in any event.

51.Given paragraphs 6 – 11 of the plaintiff’s 3^rd Affirmation had no probative value in relation to the Security for Costs Summons, I refused the plaintiff’s application to adduce his 3^rd Affirmation at the Appeal Hearing.

B3.  The plaintiff’s 4^th Affirmation

52.The plaintiff’s 4^th Affirmation was filed on 17 January 2025 in response to the 1^st defendant’s application for account and enquiry in HCA 263/2012.  The plaintiff intended to rely on paragraphs 14 – 47 of this Affirmation as it had been explained therein how he had set up, financed, and operated the 1^st defendant independently of the Beijing Company.  It was said that this was relevant to the question of whether the 1^st defendant was state-owned.

53.Although the plaintiff’s 4^th Affirmation was indeed only made in January 2025 and therefore after the date of the Striking Out Order, it is noted that all the relevant matters deposed therein took place long time ago.  I therefore took the view that the Ladd v Marshall conditions had to be satisfied pursuant to Order 58 rule 1(5)  of the RHC before leave could be granted.  However, apparently the Ladd v Marshall 1^st condition was not satisfied, despite the fact that the plaintiff had been imprisoned for a long time, because he could have asked his son or Mr Cong to make an affirmation on his behalf to cover the relevant historical matters.  For that reason, the application in relation to the plaintiff’s 4^th Affirmation should be refused on this ground alone.

54.Even if the Ladd v Marshall conditions were not applicable, the plaintiff had failed to explain why he did not take out the present application earlier.  In my view, he did not have to wait until he filed an affirmation in HCA 263/2012 (which was actually filed for another purpose).  He should have made an affirmation for the present appeal specifically and took out an application as soon as the appeal had been lodged. 

55.Even if for any reason there was any justification for the plaintiff to wait until he had made the 4^th Affirmation for HCA 263/2012 (I could see none), there was, in any event, no reason why he could not take out an application to adduce new evidence herein right away after the said 4^th Affirmation was filed on 17 January 2025.

56.Such undue delay has led to the undesirable situations which I mentioned in [35] above.

57.This reason per se was adequate to justify a dismissal of the plaintiff’s application in relation to his 4^th Affirmation. 

B4.  Expert evidence

58.The plaintiff applied to adduce expert opinion of a lawyer from the Mainland (“the New Expert Evidence”)  covering 2 matters, namely:

(1)  The authority of the liquidator in the winding up of the Beijing Company;

(2)  The adjudication by the 北京市國資委 that the 1^st defendant is state-owned asset.

59.There is no doubt that the plaintiff had to satisfy the Ladd v Marshall conditions before he might be granted leave to adduce the New Expert Evidence.

60.In this regard, the plaintiff explained in the 5^th Affirmation that:

“20. I was told that, in the last hearing, the master asked whether the plaintiff also had an expert legal opinion in counter. Those representing me informed the master that I had none but would reserve my right to produce one in due course. It was impossible for me to obtain an expert legal opinion to assist the master within the short span of time after my return to Hong Kong.

21. I now tender and crave leave to rely on the expert legal opinion of 陈国利律师 as now provided and shown to me marked ‘LDX-10’.  Essentially, 陈国利律师 explained that the ruling in the 北京市國資委覆函 was invalid without a court decision and that the liquidator’s function is personal to him.  He cannot delegate his power and authority to the 5^th defendant.”

61.I do not understand (and the plaintiff did not explain)  why the fact that the plaintiff was in prison would necessarily prevent him from causing a PRC legal opinion to be obtained.  If he could instruct his solicitors directly or indirectly to act on his behalf for the purpose of this action, he could equally have instructed a PRC expert in the same way.  Therefore, the assertion that “it was impossible for him to obtain an expert legal opinion within the short span of time after his return to Hong Kong” was made to be rejected, for he did not have to wait until he was in Hong Kong in the first place.

62.The Ladd v Marshall 1^st condition was therefore not satisfied, and the New Expert Evidence should not be allowed to be admitted on this ground alone.

63.Even if for whatever reason the plaintiff could only engage a PRC legal expert while he was in Hong Kong (which I do not accept), there had been a long delay between the time when he arrived in Hong Kong on 11 September 2024 and the time when the present application was made on 20 March 2025.  No explanation had been given for such delay.  This would constitute another stand-alone reason as to why leave to adduce such new evidence should not be granted.

B5.  Orders

64.For the above reasons, the New Evidence Summons was dismissed.

65.I will deal with the costs of the New Evidence Summons at the end of this Decision.

C.  THE STRIKING OUT SUMMONS

C1.  Legal principles

66.This is not a typical striking out application in that the 1^st and 5^th defendants are not arguing that the plaintiff has no reasonable cause of action[9].  Instead, it is submitted that the plaintiff’s case against the 1^st and 5^th defendants is bound to fail.  This involves the Court’s determination of the merits of the claim at this early stage on the basis of the pleaded case and the evidence.  Less common as it may be, it is not impossible that such an approach may be followed in appropriate circumstances. 

67.An example may be found in the case of Infinity Development (Holdings)  Co. Ltd. & Another v Bank of China & Others (HCA 3202/2001, unreported, 19 July 2003).  In this case, Chu J (as her Ladyship then was)  held that the Court may strike out a claim if it may be demonstrated to be plainly unsustainable, unarguably bad and impossible.  She also held that the mere fact that the plaintiff supports his claim by sworn evidence does not mean that the Court must assume the evidence to be accurate.  If, having regard to the inconsistency with contemporaneous documents, inherent implausibility and other compelling evidence, the claim is incredible, the Court may strike the claim out. 

68.The reminders given by Au-Yeung J in Sealegend Holdings Ltd v China Taiping Insurance (HK)  Co Ltd (HCAJ 95/2012, unreported, 24 October 2014)  are also important:

“29. The power to strike out should only be exercised in plain and obvious cases where the claim is obviously unsustainable. A claim must be so obviously unsustainable, the pleading unarguably bad, and it must be impossible, not just improbable, for the claim to succeed before the Court would strike it out. That a case may be weak and unlikely to succeed is no ground for striking it out. See Hong Kong Civil Procedure 2014, at §18/19/4, paragraph (1).

30. Strike out is not justified merely because the story told is highly improbable, and one which it is difficult to believe would be proved. A party’s claim or defence would be struck out only if it is a sham so that to rely on it must be an abuse of the process of the court. Even if one side has a ‘formidable case’, it does not mean that the other has no case. See Hutchvision Asia Ltd v Asia Television Ltd, HCA 6757/1992, 8 September 1993, per Godfrey J (as he then was), p6.

‘But any lawyer with any experience of private practice will be able to remember, only too well, those cases which appeared to be certainties but which, to his surprise, nevertheless failed and, by the same token, those cases which seemed bound to fail but which, to his surprise, nevertheless succeeded. It is for just this reason that the court will not embark, at this stage of an action, on a consideration whether the case of one side or the other is true or false. It will consider only whether the nature of the defence is such that it has to be characterised as an abuse of the process of the court, which is something else altogether.’

31. Where a party seeks to strike out another’s case as unsustainable, he will have to show the other party’s case to be ‘wholly imaginary, a myth or not bona fide’: Overseas Trust Bank Ltd v Coopers & Lybrand & Ors, CACV 109/1989, Fuad VP, 15 December 1989, p15.

32.  It is not sufficient to adduce evidence that is relevant for consideration.  The lack of proper explanation from the party whose pleading is sought to be struck out is not enough.  See Viva Steamship Co Ltd v Chow Lim Choy & Ors [2003] 1 HKLRD 663 (CA), at §11.”

C2.  Discussion

69.The plaintiff’s pleaded case has been summarised at [2] above.  Properly understood, it is contended by the plaintiff thereunder that while he was only holding the 1^st defendant on trust for the Beijing Company when it was first set up, the beneficial interest thereof had been passed to him by virtue of the 2001 Agreement.

70.Pausing here, it is noted that Mr Kwok has in his submissions gone as far as to suggest that the 1^st defendant has never been state-owned, and that the plaintiff has been the beneficial owner of the 1^st defendant from the very beginning.  This line of submission is not understood because it is plainly contradictory to the plaintiff’s pleaded case (see [2(6)] above)  and therefore it is impermissible for Mr Kwok to make such submissions which must be rejected.

71.The sole ground of the striking out application relied on by Mr Cheng for the 1^st and 5^th defendants is that the 2001 Agreement involves unauthorised dealing of the shares in the 1^st defendant which are national assets and is therefore unenforceable and illegal under Mainland law.  It was said that since the plaintiff’s claim herein is premised entirely on the 2001 Agreement, such a claim is therefore hopeless.

72.The foreign illegally principles have been explained in Ryder Industries Ltd v Chan Shui Woo (2015)  18 HKCFAR 544 at [39]:

“The basic principles (which have to be read in the light of the fact that Hong Kong and the PRC are separate law districts rather than different countries)  are helpfully summarised in Johnston, Conflict of Laws in Hong Kong, 2^nd ed, 2012, at para 5.012 (footnotes omitted):

The following principles appear to represent Hong Kong law. The underlying rationale is international comity coupled with Hong Kong public policy.

First, if the contract is unenforceable under its proper law (whether chosen by the parties or otherwise), then it will not be enforced by the Hong Kong court. The importance of this principle is that it applies to limit the enforceability of the contract regardless of the place of required, intended or actual performance. Moreover, it is irrelevant whether the bar on enforcement is a foreign penal law of the sort which will not be directly enforced by a Hong Kong court.

Secondly, if the performance of the contract requires or necessarily involves conduct which is illegal under the laws of the place where it is required to be performed, then it will not be given effect regardless of its proper law.

Thirdly, the contract will not be given effect regardless of its proper law ‘if the real object and intention of the parties [at the time of concluding the contract] necessitates them joining in an endeavour to perform in a foreign and friendly country some act which is illegal by the law of such country notwithstanding the fact that there may be, in a certain event, alternative modes or places of performing which permit the contract to be performed legally’ [citing Foster v Driscoll [1929] 1 KB 470, 521, per Sankey LJ].

Fourthly, violation of foreign laws in the actual performance of a contract may, even though not required or initially intended, lead to the unenforceability of the contract before a Hong Kong court, regardless of its proper law. It has recently been stated in England at first instance that a contract will not be enforced if it has been ‘performed in such a way that one party (or both parties)  commits a legal wrong’. It is, however, respectfully suggested that this is to state the principle too rigidly, and that a more flexible approach having regard to the seriousness of the foreign illegality is required to determine whether public policy and comity really require enforcement of the contract to be denied in such a case.

Fifthly, the above four principles apply irrespective of whether the illegality under foreign law existed at the time of contracting or arose subsequently.”

73.The 4 principles identified by Conflict of Laws in Hong Kong and endorsed by the Court of Final Appeal have been described as Type 1 to Type 4 cases respectively in a number of subsequent Hong Kong authorities.  I will also adopt the said categorization herein.

74.Mr Cheng submitted that the present is a Type 1 and/or Type 2 and/or Type 4 case.  I will consider these different types of cases in turn below.

C2.1  Type 1 Case

75.If the contract is unenforceable under its proper law (whether chosen by the parties or otherwise), then it will not be enforced by the Hong Kong court.

76.This principle applies to limit the enforceability of the contract regardless of the place of the required, intended or actual performance. 

77.The first question which has to be considered is what the proper law of the 2001 Agreement should be.

78.The applicable principles in this regard have been explained by the learned authors in The Conflict of Laws in Hong Kong (3^rd Edition, 2017)  at §5.004 as follows:

“Hong Kong courts’ general approach to choice of law in contracts is as follows: (1)  the primary rule is that if the parties have expressly agreed upon the law to govern their contract, then this will generally be respected, subject to certain points noted below; (2)  in the absence of an express choice, the court will consider whether there is a factual basis for inferring such an agreement; (3)  failing that, a residual rule (closest and most real connection)  is applied. […] It is possible in principle for parties to be held to have implicitly agreed to change the governing law of their contract, though examples are scarce.”

79.It is apparent that the 2001 Agreement itself has not provided for the governing law applicable thereto.  Neither is there any evidence of facts in the present case on reliance of which this Court may infer what the proper law of the 2001 Agreement should be.  The Court therefore has to rely on the residual rule, that is, to consider which system of law by reference to which the 2001 Agreement was made or that with which the transaction has the closest and most real connection: The Conflict of Laws in Hong Kong (supra), at §5.009. 

80.The learned author of The Conflict of Laws in Hong Kong (supra)  stated that various case authorities have suggested certain factors that may be of particular importance in determining the closest and most real connection. They are as follows:

(1)  Location of subject matter of the contract;

(2)  Place of intended performance;

(3)  Place of making or negotiating the contract;

(4)  Domicile or residence of parties;

(5)  Adoption of particular legal terminology;

(6)  Language;

(7)  Express choice of a place for dispute resolution;

(8)  Exemption clauses;

(9)  Currency;

(10)  Related transactions.

81.Mr Cheng submitted that:

“On the facts, the 2001 Agreement was signed in Mainland. Furthermore, the substance of the 2001 Agreement is concerned (primarily)  with P’s employment status with the Beijing Company and (secondarily)  with the ownership rights over national assets – ie. D1’s shares. That the proper law is Mainland law is self-evident given that P’s special employment status with the Beijing Company was the primary topic of the 2001 Agreement. To the extent that the 2001 Agreement deals with and effects the transfer of D1’s shares, the shares are intangible assets and only one facet to the 2001 Agreement. That the shares are issued by D1 as a company in Hong Kong is therefore of limited relevance. More importantly, the transfer of such shares, being national assets, necessarily required PRC authority approval. The only possible place of performance of the 2001 Agreement is therefore in the Mainland, notwithstanding the fact that the shares were issued by D1, ie. the Hong Kong branch office of the Beijing Company. Moreover, the 2001 Agreement employed Mainland legal terminology for dispute resolution (“3、双方同意，如有其它未尽事宜，将本着友好合作的精神，协商解决。”). These factors ought to be read with similar conclusions in Ds’ [Expert Report], which applied a very similar, if not the same, test. Ds submit that such factors conclusively establish that the proper law governing the 2001 Agreement is Mainland law.”[10]

(original emphasis)

82.It was further submitted that, once it is established that the proper law of the 2001 Agreement is the PRC law, then according to the PRC legal expert evidence adduced by the 1^st and 5^th defendants[11] which is not contradicted herein:

(1)  Pursuant to PRC law, while a national enterprise may register a Hong Kong branch office under an individual’s name, any transfer of national assets to, inter alia,private individuals must first adhere to prescribed jurisdictional and reporting procedures in order to obtain proper permission;

(2)  Any such transfers must be reported to the relevant national assets management department for evaluation, asset valuation, approval and administration of ownership transfer;

(3)  Any private transfers of national assets without adhering to the procedures set out above would not only render the relevant transfer agreement unenforceable, but would also attract criminal liability for the parties involved.

83.It was said that since no permission has been obtained by the plaintiff from the Mainland authority before any transfer of beneficial interest in the shares in the 1^st defendant was made, the 2001 Agreement must be illegal under the PRC law, and therefore unenforceable.

84.In my view, whether such a line of submission would succeed depends on what the proper law of the 2001 Agreement should be. 

85.In this regard, as pointed out above, the 1^st and 5^th defendants have drawn this Court’s attention to the following factors which they contend that would support their case that the proper law should be the PRC law:

(1)  The 2001 Agreement was signed in the Mainland;

(2)  The 2001 Agreement was primarily concerned with the plaintiff’s employment status with the Beijing Company;

(3)  The 2001 Agreement was secondarily concerned with the ownership rights over national assets;

(4)  Since the transfer of the shares in the 1^st defendant (i.e. national assets)  would necessarily require the approval of the Mainland authority, the performance of the 2001 Agreement is in the Mainland.

86.I do not accept the submission that the performance of the 2001 Agreement is in the Mainland, because on the face of the said agreement, it was not anticipated that anyone would be obliged under the contract to seek the approval of the Mainland authority.

87.Apart from the factors highlighted by the 1^st and 5^th defendants, there are other relevant factors:

(1)  The subject matter of the 2001 Agreement was shares in the 1^st defendant which is a Hong Kong company;

(2)  Since the transfer of beneficial interest in the shares of a Hong Kong company is involved, the place of performance of the 2001 Agreement must be in Hong Kong.

88.It is noted that the intended place of performance of contract has always been of great weight at common law when deciding on the proper law of the contract: First Laser Ltd v Fujian Enterprises (Holdings)  Co Ltd (2012)  15 HKCFAR 569 at [56].

89.It must be borne in mind that this is a striking out application on merits of the plaintiff’s claim.  The threshold is high.  In my view, it cannot be said that it is totally unarguable that the proper law of the 2001 Agreement is Hong Kong law. 

90.I therefore do not think the Court can conclude at this stage that this is bound to be a Type 1 case.

C2.2  Type 2 Case

91.Under Type 2 Case, if the performance of the 2001 Agreement requires or necessarily involves conduct which is illegal under the laws of the place where it is required to be performed, then it would not be given effect regardless of its proper law.

92.In the present case, it is undisputed that no permission has been granted by the Mainland authority for the transfer of the beneficial interest in the shares in the 1^st defendant.

93.However, as aforesaid, the 1^st defendant is a Hong Kong company.  Hence, the performance of the 2001 Agreement (i.e. the transfer of the beneficial interest in the 1^st defendant)  must be in Hong Kong. 

94.As a result, I do not think it can be concluded at this stage that this is bound to be a Type 2 Case.

95.I should further add that it is not suggested by the 1^st and 5^th defendants that the performance of the 2001 Agreement would be in breach of any Hong Kong law either.

C2.3  Type 4 Case

96.When deciding whether this is a Type 4 case, the Court has to consider the seriousness of the foreign illegality and decide whether public policy and comity really require enforcement of the contract to be denied.

97.In this regard, what was stated by Lord Collins of Mapesbury NPJ in Ryder Industries Ltd v Chan Shui Woo (supra)  must be borne in mind:

“56. It has been suggested (obiter)  that a contract which is valid by the governing law of the forum, English law, or in this case, Hong Kong law, may be refused enforcement if it has been ‘performed in such a way that one party (or both parties)  commits a legal wrong’: Barros Mattos Jnr v MacDaniels Ltd [2004] EWHC 1188, [2005] 1 WLR 247, [30] (Laddie J). But, as Johnston, Conflict of Laws in Hong Kong, para 5-012, text at note 80, rightly points out, this obiter suggestion states the principle much too widely. Thus in Re O’Connor’s Bill of Costs [1993] 1 Qd 423 a Queensland solicitor was entitled to recover on his bill of costs although he had done some of the work in New South Wales where he was not entitled to practise, and where therefore his work was illegal (and must have been contrary to an implied term of the retainer). But he was entitled to recover because the contract did not require an illegal mode of performance and he did not seek to enforce any illegal mode of performance by the client.

57.  There may nevertheless be cases in which a sufficiently serious breach of foreign law which reflects important policies of the foreign state or separate law district may be such that it would be contrary to public policy to enforce a contract. But there is no basis in authority or principle for holding that every breach of foreign law would come into this category. In Euro-Diam Ltd v Bathurst [1990] 1 QB 1 diamond dealers exported diamonds to the Federal Republic of Germany and when the diamonds were stolen from the warehouse insurers refused to pay on the ground that the dealers had misrepresented their value in an invoice in order to reduce VAT payable in Germany. This was a criminal offence in Germany. The Court of Appeal decided that it was not contrary to public policy to enforce the insurance contract because (among other reasons)  the false invoice did not involve any deception of the insurers and the dealers were not relying on the invoice in their action against the insurers. Aspects of this decision must be treated with considerable reserve because its ‘public conscience’ discretionary approach to illegality was disapproved in Tinsley v Milligan [1994] 1 AC 340, at 360-361, and in Apotex [14]-[15] and Bilta at [61], although it may be consistent with Hounga v Allen.”

98.The question here is whether the breach of the PRC law in transferring the beneficial interest of national assets without approval is of such a serious nature that the 2001 Agreement should be held to be unenforceable in Hong Kong. 

99.According to the expert evidence adduced by the 1^st and 5^th defendants, illegal conversion of national assets may bring very serious legal consequence and the accused may be liable to be imprisoned for up to 7 years.   

100.Such evidence is not contradicted by any expert evidence adduced by the plaintiff.

101.In my view, in the above circumstances, it is clear that public policy and comity require enforcement of the 2001 Agreement to be denied.

102.That being so, the Amended Statement of Claim as against the 1^st and 5^th defendants should be struck out.

C2.4  Queries raised by the plaintiff

103.In the written submissions lodged by Mr Kwok for the plaintiff, several points had been raised.

104.Firstly, it was alleged that the 1^st defendant was not state-owned “right from the start”.  He also suggested that the plaintiff had been the beneficial owner right from the time when the 1^st defendant was incorporated.

105.As discussed, this argument is simply not open to the plaintiff because it is contradictory to his own pleaded case: see [2(6)] and [2(7)] above.

106.Secondly, it is argued that the facts show that the 1^st defendant has never been dealt with as state-owned.  For example, the shares in the 1^st defendant had not been included in the list of assets to be auctioned when the Beijing Company was wound up. Further, there is no explanation as to why the liquidation of the Beijing Company was said to have been completed when the shares in the 1^st defendant are still held by some of the defendants.  It was therefore submitted that it is not plain and obvious that the 1^st defendant has ever been state-owned.

107.The difficulty of the plaintiff’s argument is that he had accepted in his pleaded case that the 1^st defendant was a state-owned company when it was first incorporated and that at that time he only held the shares in the 1^st defendant as a trustee for and on behalf of the Beijing Company.  He is bound by such a case (which was added to his pleaded case when he amended his Statement of Claim).  That being so, in order to make the claim herein on the basis as the beneficial owner of the 1^st defendant, the plaintiff is obliged to plead the time and the means by which he has become such beneficial owner.  The plaintiff did do so, but the only basis that he had so pleaded is the 2001 Agreement. 

108.In the circumstances where there is no doubt that this is a Type 4 case, the 2001 Agreement must be held to be unenforceable in the Hong Kong Court, and it follows that there is no longer any basis for the plaintiff to claim that he is a beneficial owner of the 1^st defendant.  The claims against the 1^st and 5^th defendants would necessarily collapse as a result.

109.Hence, subject to Section C2.5 below, the plaintiff’s claims against the 1^st and 5^th defendants should be struck out.

C2.5  Position of the 1^st defendant

110.It can be seen that Striking Out Summons was taken out by only 2 out of the 5 defendants. 

111.In relation to the 2^nd and 3^rd defendants, the plaintiff has claimed for, among other things, an order that they shall take all steps necessary to effect the transfer of the shares in the 1^st defendant held by them and to vest the same in the plaintiff.  

112.The plaintiff further asked for an order that the 1^st defendant shall rectify its register of members accordingly. In this regard, the 1^st defendant, being a subject company, is just a nominal defendant in such circumstances.  However, it is a necessary party because it has to be joined to be bound by the Court’s finding on the shareholding of the company.

113.Viewed in this light, this Court has raised a question at the hearing as to whether the 1^st defendant should remain a party in the present action even if the learned Master’s decision is upheld, since the action would still be alive vis-à-vis the 2^nd and 3^rd defendants.

114.Mr Cheng for the 1^st defendant accepted that the 1^st defendant should remain a nominal party in this action. 

115.On the other hand, Mr Kwok submitted that the Court should adopt an “all or nothing” approach – it was argued that if the 1^st defendant should remain a nominal defendant herein, the Court should not strike out any other claims against it at all, and the Striking Out Summons vis-à-vis the 1^st defendant should be dismissed accordingly.  With greatest respect, such kind of opportunist argument is totally groundless and must be rejected.

116.Therefore, an order will be made accordingly.

D.  THE SECURITY FOR COSTS SUMMONS

117.At the end of the September Hearing, because the learned Master took the view that the 1^st and 5^th defendants should not have taken out the Security for Costs Summons before the outcome of the Striking Out Summons was known, the learned Master:

(1)  dismissed the Security for Costs Summons; and

(2)  ordered the 1^st and 5^th defendants to bear the plaintiff’s costs of the Security for Costs Summons.

118.The 1^st and 5^th defendants were not satisfied with the orders made by the learned Master.  They contended that:

(1)  In the circumstances where the Security for Costs Summons was not without merit but it was only unnecessary for the Court to deal with such an application upon the striking out of the plaintiff’s claims, the learned Master should have made “No order” as to the application rather than dismissing it;

(2)  The 1^st and 5^th defendants should be awarded costs of the Security for Costs Summons, or alternatively, there should be “No order as to costs”. 

D1.  Disposal of the Security for Costs Summons

119.While I agree that normally the Court would make “No order” in relation to a summons if the application thereunder is no longer necessary by the time it is heard, it seems to me that the present complaint made by Mr Cheng on the learned Master’s dismissal of the Security for Costs Summons at the September Hearing is a red herring, as, in substance, there is no difference between such an order and an order of “No order” as presently advocated by Mr Cheng for the 1^st and 5^th defendants. 

120.The real complaint of the 1^st and 5^th defendants is that the learned Master should not have made a costs order against them in respect of the Security for Costs Summons.

121.However, it is apparent from the transcripts of the September Hearing that the costs order in relation to the Security for Costs Summons against the 1^st and 5^th defendants were made by the learned Master not because the said summons was dismissed, but because of the Master’s view that the said summons should not have been taken out that soon. The label[12] actually does not play a part in the learned Master’s decision on costs. 

122.Viewed in that light, I am of the view that, in substance, the present appeal brought by the 1^st and 5^th defendants is actually an appeal on costs only, which I will consider in the following Section.

D2.  Costs order made by the learned Master

123.Where an appeal from a decision of Master is on costs only, the appeal would not be dealt with by an actual rehearing of the matter.  The Judge in chambers would not allow an appeal from a Master’s costs order unless it is unreasonable or the Master had erred in law.[13]

124.Order 62 rule 3(2A)  of the RHC 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 this Order, order the costs to follow the event or make such other order as it sees fit.”

125.As recognised by Mr Cheng, the Court has a wide discretion on costs.  The discretion is to be exercised in accordance with principles and with a view to reality and justice[14].

126.The relevant principles on the exercise of discretion as to costs have been summarised by Lam VP (as he then was)  in YBL v LWC (No 2) [2017] 2 HKLRD 783 at [10] as follows:

“(a)  Whilst the courts often started with the proposition of costs following the event, it was no longer the general rule but a starting point, see Hung Fung Enterprises v Agricultural Bank of China [2012] 3 HKLRD 679;

(b)  There have to be some justifications for depriving a successful party of his costs;

(c)  In measuring who was the successful party and the extent of his success, the court must examine the reality and justice of the case. Thus, in Hysan Development Co Ltd v Town Planning Board (No 2) (2016)  19 HKCFAR 635, the Court of Final Appeal made no order as to costs notwithstanding the success of the appellants in reversing the Court of Appeal’s decision because they did not achieve the full objects of their appeals;

(d)  In addition, under Order 62 Rule 5, the court in exercising its discretion shall take into account the matters set out in Rule 5(1)  as may be appropriate in the circumstances;

(e)  Rule 5(2)  highlights some conduct which the court may take into account including whether it is reasonableness for a party to take an issue, the manner in which the matter was pursued or defended, the extent of success, and conduct before, as well as during the proceedings;

(f)  If a successful party had brought the litigation upon himself or had done some wrongful act in the course of the transaction, he could be deprived of his costs.”

127.In the present appeal, Mr Cheng submitted that costs should follow the event, and that since the 1^st and 5^th defendants should be regarded as the victors, they should be entitled to the costs of the Security for Costs Summons.  Alternatively, the learned Master should at most have made an order of “No order as to costs”.

128.I reject these submissions:

(1)  While the 1^st and 5^th defendants have indeed successfully struck out the plaintiff’s claims against them, they should not be regarded victors of the Security for Costs Summons, which had not been considered by the learned Master at all;

(2)  That being the case, the principle of “costs follow the event” would not assist them;

(3)  In any event, that is just a starting point but not the end point.  The Court is at liberty to take all circumstances into account and make the most appropriate cost order.

129.In the present case, the learned Master took the view that the 1^st and 5^th defendants should not have taken out the Security for Costs Summons so early, and should instead have waited until the outcome of the Striking Out Summons was known.  With respect, I agree with the learned Master’s view.  As a matter of fact, the reality is that much time and costs have been incurred for the purpose of the Security for Costs Summons which could have been avoided if the 1^st and 5^th defendants adopted a wait-and-see attitude instead.

130.Mr Cheng submitted that the simultaneous pursuit of security for costs in the alternative was to promote procedural economy and reduce time spent on interlocutory applications.  With greatest respect, this is a very bold submission.  In my view, the 1^st and 5^th defendants were doing exactly the opposite.

131.Indeed, when this Court enquired whether the 1^st and 5^th defendants’ interest would be prejudiced in any way if they only apply for security for costs upon the dismissal of the Striking Out Summons, Mr Cheng accepted that they would not be prejudiced at all, save that they would probably have to wait for several months before they would be able to obtain security for costs.

132.In my view, the learned Master was certainly entitled to take into account the timing of the Security for Costs Summons and the time and costs which could have been avoided.  The cost order made was not unreasonable, nor had the learned Master erred in law.

133.In his submissions, Mr Cheng had also referred this Court to a number of authorities in which the Court had made cost orders which are different from that made by the learned Master in similar situation. However, they cannot assist the 1^st and 5^th defendants, because those authorities did not lay down any legal principles as such.  In a given case, it is not surprising that there is more than one suitable cost order which may be made by the Court.  The fact that one Court has decided the matter on cost in a particular way does not mean that that must be the only way to deal with the matter.

134.In such circumstances, the appeal of the 1^st and 5^th defendants should be dismissed.

E.  DISPOSITION

135.I make the following orders:

(1)  The plaintiff’s Amended Statement of Claim be struck out and the action against the 1^st and 5^th defendants be dismissed, save that:

(a)  the 1^st defendant shall remain a nominal defendant in this action;

(b)  Relief (3)  against the 1^st defendant shall not be struck out.

(2)  The appeal of the 1^st and 5^th defendants against the learned Master’s order dated 16 September 2024 in respect of the Security for Costs Summons be dismissed.

F.  COSTS

136.I make the following order nisi:

(1)  The plaintiff shall bear the costs of the 1^st and 5^th defendants  of the plaintiff’s appeal, to be taxed if not agreed;

(2)  The 1^st and 5^th defendants shall bear the plaintiff’s costs of their appeal in respect of the Security for Costs Summons, to be taxed if not agreed;

(3)  The plaintiff shall bear the costs of the 1^st and 5^th defendants of the New Evidence Summons, to be taxed if not agreed.

137.The above order nisi shall become absolute in the absence of application to vary (which, if any, will be disposed of on paper)  within 14 days hereof.

Mr Kwok Kam Kwan, instructed by C. S. Chan & Co, for the plaintiff

Mr Griffith Cheng, instructed by Jingtian & Gongcheng LLP, for the 1^st and 5^th defendants