United Harvest Industries Ltd v. Ching Man Chun Louis and Others

HCA 159/2022

[2025] HKCFI 2773

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 159 OF 2022

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DECISION

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Introduction

1.On 20 February 2023, Master Roy Yu ordered the Plaintiff to pay security of HK$1 million in respect of the 1^st and 2^nd Defendants’ costs in these proceedings up to the stage of pre-trial review.

2.By summons dated 2 August 2024, the 1^st and 2^nd Defendants applied for further security for costs against the Plaintiff on the ground of material change of circumstances. Their application was dismissed by a master (the “Master”) on 24 December 2024.

3.This is the 1^st and 2^nd Defendants’ appeal against the Master’s order dated 24 December 2024.

4.It is trite that an appeal from a master’s decision to a judge in chambers is a de novo hearing, and the judge will deal with the matter in question as if it came before him or her for the first time: see Hong Kong Civil Procedure (2025) at para 58/1/2.

Material Background and Procedural History

The Plaintiff

5.The Plaintiff is a company incorporated in the British Virgin Islands.

6.Prior to February 2023, Mr Zhao Zecheng (“Mr Zhao”) was the Plaintiff’s sole shareholder and director. The current sole shareholder and sole director of the Plaintiff is Mr Zhu Bin (“Mr Zhu”). He is Mr Zhao’s then brother-in-law.

The 1^st and 2^nd Defendants

7.The 1^st Defendant is a well-known businessman. He was at all material times the chairman and managing director of a listed company.

8.The 2^nd Defendant is a company incorporated in Hong Kong. The 1^st Defendant was at all material times its sole shareholder and sole director.

The Claims in the Statement of Claim

9.The Plaintiff commenced the present action against the 1^st and 2^nd Defendants on 7 February 2022.

10.In the statement of claim, the Plaintiff pleaded that:-

(1)  In around September 2018, the 1^st Defendant approached Mr Zhu in regard to an opportunity to invest in the Hong Kong Stock Market. Mr Zhao was interested in investing via the Plaintiff. As such, Mr Zhao authorized Mr Zhu to liaise with the 1^st Defendant.  (see statement of claim, paras 6 to 8)

(2)  In the circumstances, the Plaintiff (through Mr Zhu) and the 1^st Defendant (on behalf of the 2^nd Defendant) orally agreed that (i) the Plaintiff should invest a sum of HK$166 million; and (ii) the 1^st and/or 2^nd Defendants should invest the sum received and account to the Plaintiff (the “Alleged Agreement”).  (see statement of claim, para 9)

(3)  Pursuant to the Alleged Agreement, from 12 to 16 October 2018, the Plaintiff paid an aggregate sum of HK$166 million into a bank account held by the 2^nd Defendant. (see statement of claim, paras 11 to 12)

(4)  However, wrongfully and in breach of the Alleged Agreement, the 1^st and/or 2^nd Defendants did not apply the sum of HK$166 million for investment; nor did they answer the Plaintiff’s enquiry. (see statement of claim, paras 13 to 16)

(5)  Accordingly, the Plaintiff accepted the 1^st and/or 2^nd Defendants’ repudiation, and it claims against the 1^st and 2^nd Defendants for (i) the sum of HK$166 million; (ii) damages; and/or (iii) account for profits. (see statement of claim, paras 17 to 18)

The 1^st and 2^nd Defendants’ Case 

11.The 1^st and 2^nd Defendants filed their defence on 28 June 2022.  Their case can be summarized as follows:-

(1)  The 1^st Defendant was the sole ultimate owner of a company incorporated in the Cayman Islands named UBezTT International Group (Cayman) Ltd (“UBezTT”).

(2)  On 5 October 2018, the 1^st Defendant and Ace Pride Holdings Ltd (“Ace Pride”) entered into a sale and purchase agreement whereby 1^st Defendant sold the interest in the UBezTT in favour of Ace Pride at the consideration of US$38 million (which was agreed to be paid in Hong Kong dollars in the sum of HK$303,438,000) (the “UBezTT Agreement”).

(3)  By two cheques dated 8 October 2018, Ace Pride paid the 1^st Defendant HK$137,438,000, leaving an outstanding balance of HK$166 million.

(4)  In the circumstances, the 4^th Defendant requested that the said outstanding balance of HK$166 million be paid via the Plaintiff.  The 1^st Defendant consented to this proposal.

(5)  Against this background, the 1^st Defendant nominated the 2^nd Defendant to receive the aggregate sum of HK$166 million from the Plaintiff.

(6)  Accordingly, the 1^st and 2^nd Defendants refute the Plaintiff’s suggestion that (i) the 1^st Defendant had offered the Plaintiff, Mr Zhu and/or Mr Chao an opportunity to invest in the Hong Kong stock market; (ii) the Alleged Agreement existed; and (iii) the sum of HK$166 million was received pursuant to the Alleged Agreement.

(see 1^st and 2^nd Defendants’ Defence, paras 11 to 15)

The Previous Security for Costs Application

12.As mentioned, the Plaintiff is a foreign company incorporated in the British Virgin Islands.

13.Pursuant to the 1^st and 2^nd Defendants’ application by summons dated 22 November 2022, on 20 February 2023, Master Roy Yu ordered the Plaintiff to pay security for costs of HK$1 million up to the stage of pre-trial review.

Amendments to the Writ and the Statement of Claim

14.On 28 June 2023, the Plaintiff amended its writ of summons and the statement of claim by joining Mr Sun Cho Hung Paul (“Mr Sun”) and Ace Pride as the 3^rd and 4^th Defendants in these proceedings.

15.In the amended statement of claim, the Plaintiff pleaded that:-

(1)  The Plaintiff had no knowledge of the dealings between the 1^st Defendant and Ace Pride in relation to UBezTT.

(2)  The Plaintiff had never agreed to pay the balance of the consideration under UBezTT Agreement.

(3)  If Mr Suen and/or Ace Pride had represented to the 1^st Defendant that the Plaintiff was willing to pay the balance of the consideration under UBezTT Agreement, such representation was false. Accordingly, Mr Suen and/or Ace Pride had caused the Plaintiff to suffer loss by unlawful means.

(see 1^st and 2^nd Defendant’s Defence, paragraphs 24 to 26)

The 3^rd Defendant’s Defence

16.On 22 September 2023, Mr Sun (being the 3^rd Defendant) filed his defence.  His case can be summarized as follows:-

(1)  The 3^rd Defendant had no knowledge of the dealings amongst the Plaintiff, Mr Zhu, Mr Zhao, the 1^st Defendant and the 2^nd Defendant.

(2)  Neither the 3^rd Defendant nor any person who was authorized to act for the 4^th Defendant had requested and/or represented to the 1^st Defendant that the balance of the consideration under the UBezTT Agreement (ie the sum of HK$166 million) could be settled through the Plaintiff.

(3)  The 1^st Defendant failed to deliver some documents pursuant to the terms of the UBezTT Agreement. As such, the sale and purchase had not been completed, and the 4^th Defendant had never been a shareholder of UBezTT.

(see 3^rd Defendant’s defence, paras 5(12) to (17))

Re-Amendments to the Statement of Claim

17.On 2 November 2023, the Plaintiff re-amended the statement of claim.

18.In the re-amended statement of claim, the Plaintiff pleaded that back in April 2017, the 1^st Defendant and Mr Chu agreed on the following framework for investments (the “Alleged Investment Framework”):-

(1)  The 1^st Defendant would introduce investment opportunities in connection with the Hong Kong stock market.

(2)  The 1^st Defendant would act as an agent in respect of the investments to be undertaken by Mr Zhu and/or his affiliates.

(3)  In return, the 1^st Defendant would be entitled to 50% of the net profits deriving from the investment opportunities that he introduced.

Application for Summary Judgment

19.Shortly after the statement of claim was re-amended, the Plaintiff took out a summons on 7 November 2023 seeking summary judgment against the 1^st and 2^nd Defendants.

20.The application for summary judgment was heard by Master Patrick Siu on 10 April 2024. Although the Plaintiff was represented by eminent senior counsel, its application was dismissed with costs.

Application for further Security for Costs

21.On 2 August 2024, the 1^st and 2^nd Defendants took out a summons seeking further security for costs in the sum of HK$1,063,600 up to the stage of pre-trial review.

22.On 24 December 2024, the Master dismissed the 1^st and 2^nd Defendants’ summons dated 2 August 2024 with costs.

23.On 6 January 2025, the 1^st and 2^nd Defendants took out a notice of appeal.

Legal Principles on Further Security for Costs

24.In Hing Yip Holdings (Hong Kong) Ltd (in liquidation) v Cellmark China Ltd [2018] HKCFI 1653 at paras 6 to 8, Lisa Wong J set out the legal principles in relation to granting further security for costs:-

“6. The court retains a residual discretion to vary an order for security for costs (even one made by consent) or make further orders for security. The test for the award of further security for costs for a stage of the proceedings for which security has already been provided (whether by agreement without an order or pursuant to an order whether made by consent or not) is well established. The question to be asked is whether there has been a material change of circumstances that justifies the application for further security…

…

8. In short, the insufficiency of the existing security should be caused by a material change of circumstances and not, for example, the miscalculation or under estimation or budgeting of how much a known step in the litigation would cost or of the impact

9. Even where a material change of circumstance has been shown and the question of quantum arises, the application is not an opportunity to reopen argument about security for costs already ordered. One would expect the further security that might be ordered to be limited to the costs referable to the changed circumstances…

10. In this regard, bearing in mind the broad brush approach adopted by the court in assessing quantum for security for costs, what is expected from the applicant is not “a line by line review of voluminous work items covering an extended period and pulling out the exact time which relates to the item of additional work”, as feared in paragraph 5 of Mr Leung’s written reply submissions. However, where the court is asked to revisit the security for costs for a stage of the proceedings already provided for based on a material change of circumstances, the court and the plaintiff are entitled to be told, in round ballpark terms, the amount of the additional costs said to be occasioned by the change of circumstances. This should not be a matter of any or any great difficulty where the applicant is able to identify a material change of circumstances.” (emphasis added)

Deliberation

25.As pointed out, after Master Roy Yu ordered security for costs against the Plaintiff on 20 February 2023, the following events took place:-

(1)  The Plaintiff amended its writ of summons and statement of claim by joining Mr Sun and Ace Pride as the 3^rd and 4^th Defendants herein, and Mr Sun filed his defence herein.

(2)  The Plaintiff re-amended its statement of claim by pleading the Alleged Investment Framework.

(3)  The Plaintiff applied for summary judgment against the 1^st and 2^nd Defendants and the application was dismissed with costs.

26.In the premises, Mr Bernard Mak together with Mr Bryan Lee (for the 1^st and 2^nd Defendants) submitted that that there had been “material change of circumstances”.

27.Mr Mak emphasized that when the 1^st and 2^nd Defendants took out the first application for security for costs by summons dated 22 November 2022, they could not have budgeted the “additional” costs arising from the matters mentioned in paragraph 25 above.

The amendments and the re-amendments

28.When Mr Roy Yu ordered security for costs on 20 February 2023, neither the court nor the 1^st and 2^nd Defendants could have foreseen the subsequent development mentioned in paragraph 25 above.

29.In my view, the amendments for joining Mr Sun and Ace Pride have a substantial impact on the landscape of the dispute in these proceedings. It is apparent that the Plaintiff will seek to rely on Mr Sun’s response in his defence to refute the 1^st and 2^nd Defendants’ case that the Plaintiff agreed to utilize the sum of HK$166 million for defraying the balance of the consideration under the UBezTT Agreement. Indeed, Mr Sun went so far as to aver that due to the 1^st Defendant’s wrongdoings, the transaction under the UBezTT Agreement had not been completed at all.

30.As regards the re-amendments relating to the Alleged Investment Framework, they are new assertions that did not feature anywhere in the pre-existing pleadings. In my view, the new assertions also have a substantial impact on the dispute between the parties. They do shed light on whether it was likely that the parties would enter into the Alleged Agreement.

31.I accept that the Plaintiff’s amendments and re-amendments and Mr Sun’s averments are related to the matters arising from the pre-existing pleadings. However, I am unable to accept the submissions of Mr Byron Chiu (for the Plaintiff) that they do not have a material impact on the landscape of the dispute in these proceedings. Had the new matters been insignificant as alleged, the Plaintiff would not have made the amendments and re-amendments at all. After all, it is trite that pleadings should only contain material averments that are pertinent to the issues in dispute.

32.In my view, there is no question that the 1^st and 2^nd Defendants’ legal representatives need to spend time on:-

(1)  studying and analyzing the amendments and re-amendments in the statement of claim;

(2)  studying and analyzing the averments in Mr Sun’s defence;

(3)  providing advice on the evidence to be adduced for responding to the Plaintiff’s amendments and re-amendments as well as the averments made by Mr Sun;

(4)  studying and analyzing the previous dealings amongst the 1^st Defendant, Mr Zhu and the entities that were affiliated to Mr Zhu; and

(5)  preparing and compiling the evidence to be adduced for responding to the Plaintiff’s amendments and re-amendments as well as Mr Sun’s averments.

33.I agree with Mr Mak that there had been material change of circumstances. When the 1^st and 2^nd Defendants pursued the previous application for security for costs, they could not have “budgeted” the costs arising from the aforesaid matters.

The application for summary judgment

34.Likewise, when Master Roy Yu ordered security for costs against the Plaintiff on 20 February 2023, neither the court nor the 1^st and 2^nd Defendants could have foreseen that the Plaintiff would subsequently take out the summons dated 7 November 2023 seeking summary judgment. At the time, there was no indication from the Plaintiff that such an application would be taken out.

35.The 1^st and 2^nd Defendants had incurred substantial costs in resisting the Plaintiff’s application for summary judgment, and Master Patrick Siu ordered that the costs of the application be to the 1^st and 2^nd Defendants to be taxed if not agreed (with certificate for two counsel).

36.However, since Master Patrick Siu did not order that taxation be commenced forthwith, the 1^st and 2^nd Defendants are only in a position to commence taxation when these proceedings are concluded: see Big Boss Investment Ltd v So Lai Kei [2010] 1 HKLRD 793, 797-799 (per Registrar Queeny Au-Yeung, as she then was); at Seridom Servicios Integrados Idom SAU v Heng Wen Trade Co Ltd [2019] HKCFI 761 at paras 12 to 13 (per Marlene Ng J); Dyson Technology Ltd & Anor v German Pool Group Co Ltd (HCA 838/2011, 19 September 2014) at para 47 (per To J); Hong Kong Civil Procedure (2025) at para 62/9D/1.

37.Be that as it may, the court has already awarded costs in favour of the 1^st and 2^nd Defendants. What remains outstanding is taxation, which may only be commenced after these proceedings are concluded.

38.In my view, this is not a valid reason for refusing security in respect of the costs incurred by the 1^st and 2^nd Defendants in resisting the Plaintiff’s application for summary judgment:-

(1)  Had Master Siu ordered that the 1^st and 2^nd Defendants’ costs be taxed forthwith or summarily assessed, I would have exercised my discretion differently. In this scenario, the 1^st and 2^nd Defendants would be entitled to enforce the costs order immediately. Thus, they could not use the mechanism of security for costs as a means for enforcement.

(2)  However, this is not the scenario before the court. As mentioned, whilst the court awarded costs in favour of the 1^st and 2^nd Defendants, they are only entitled to commence taxation after the present proceedings are concluded.

(3)  I bear in mind that if no security for costs were ordered, the 1^st and 2^nd Defendants may suffer an injustice, in that they may not be able to recover costs from the Plaintiff. Since the underlying rationale of the procedural mechanism of security for costs is to avoid such a risk of injustice, there is plainly no reason why the court should refuse to order security.

39.For all the above reasons, I am satisfied that:-

(1)  there has been material change of circumstances; and

(2)  justice and fairness require that security be ordered in regard to the costs incurred by the 1^st and 2^nd Defendants in resisting the Plaintiff’s application for summary judgment.

Alleged Delay

40.Lastly, I deal with Mr Chiu’s submissions that the 1^st and 2^nd Defendants were guilty of inordinate delay in pursuing the present application.

41.First of all, I am of not of the view that there was inordinate delay on the part of the 1^st and 2^nd Defendants. The present proceedings were still at a fairly early stage. The parties have not even exchanged witness statements.

42.Second, I am of the view that it was reasonable for the 1^st and 2^nd Defendants to pursue the present application for further security for costs after the Plaintiff’s application for summary judgment was disposed of. Had the Plaintiff managed to enter summary judgment against the 1^st and 2^nd Defendants, the costs incurred in pursuing the application for further security for costs would have been wasted.

43.Third, in any event, even if there were inordinate delay on the part of the 1^st and 2^nd Defendants (which was not the case), it does not appear to me that the Plaintiff has suffered any prejudice, such that it would be unjust to order further security for costs. Whilst it cannot be said that the 1^st and 2^nd Defendants’ summons dated 2 August 2024 came as a surprise, there is no suggestion that the Plaintiff was impecunious and thus unable to pay the further security, such that the previous costs incurred in pursuing the claims in these proceedings would be wasted.

Disposition and Order

44.For all the above reasons, I am minded to order further security for costs in favour of the 1^st and 2^nd Defendants.

45.I have reviewed the skeleton bill of costs prepared by the 1^st and 2^nd Defendants’ solicitors. Adopting a broad brush approach and bearing in mind that the further security should be confined to the costs referable to the changed circumstances and that some of the costs involved overlapped, I am of the view it would be fair and proportionate to order the Plaintiff to provide further security for costs up to the stage of pre-trial review in the sum of HK$600,000.

46.In the premises, I order that:-

(1)  The Master’s order dated 24 December 2024 be set aside and the 1^st and 2^nd Defendants’ appeal be allowed.

(2)  Unless the Plaintiff do within 42 days pay into court a sum of HK$600,000 as further security for the 1^st and 2^nd Defendants’ costs up to the stage of pre-trial review, the proceedings herein against the 1^st and 2^nd Defendants be wholly dismissed forthwith without further order, with costs be paid by the Plaintiff to the 1^st and 2^nd Defendants to be taxed forthwith if not agreed.

(3)  The proceedings herein against the 1^st and 2^nd Defendants be stayed until the said further security of HK$600,000 is given by the Plaintiff in compliance with paragraph (2) above.

(4)  The 1^st and 2^nd Defendants be at liberty to apply for further security.

47.Costs should follow the event.

48.However, in exercising my discretion on costs, I take into account that whilst the 1^st and 2^nd Defendants claimed further security of HK$1,063,600, I only allow a sum of HK$600,000.

49.In the premises, I order the Plaintiff to pay 85% of the 1^st and 2^nd Defendants’ costs in respect of the present appeal and the summons dated 2 August 2024 to be summarily assessed by this court.

50.Whilst the 1^st and 2^nd Defendants should lodge and serve their statement of costs within 7 days, the Plaintiff should lodge and serve its statement in opposition within 7 days thereafter.

51.I thank Mr Bernard Mak, Mr Bryan Lee and Mr Byron Chiu for their helpful assistance.