China Metal Recycling (Holdings) Ltd (in Provisional Liquidation) and Another v. Chun Chi Wai and Others

HCA 1412/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1412 OF 2013

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DECISION ON COSTS

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Introduction

1.Shortly before the hearing, the parties agreed that the Mareva injunction against the 1^st and 13^th defendants (collectively “the defendants”) was to continue until the determination of this action or further order.

2.The only dispute remaining is the costs of the application for the said injunction (“the injunction application”).  On the plaintiffs’ part, they argue that they should have those costs.  On the defendants’ part, they argue that those costs should be in the cause of this action (alternatively, should be reserved), save that they should have the costs of the hearing before me.

Background

3.The background leading to the injunction application has been helpfully set out in a decision handed down on 17 November 2014.  I will gratefully quote from it:

“The 1^st plaintiff is a company incorporated in the Cayman Islands with its principal place of business in Hong Kong. It was listed on the main board of the Stock Exchange of Hong Kong in June 2009. The 2^nd plaintiff, a company incorporated in the Macau Special Administrative Region, was one of the 1^st plaintiff’s principal operating subsidiaries. The main business of the 1^st plaintiff and its subsidiaries is the trading of scrap metal and production of scrap metal products.

The 1^st defendant was the Chairman and Chief Executive Officer of the 1^st plaintiff. He is also the sole shareholder of the 13^th defendant, which is the registered owner of 52.1% of the issued share capital of the 1^st plaintiff.

In December 2009, the Securities and Futures Commission (‘the SFC’) commenced investigations into the affairs of the 1^st plaintiff.

Trading in the shares of the 1^st plaintiff has been suspended since 28 January 2013.

On 26 July 2013, the SFC presented a petition for the winding up of the 1^st plaintiff pursuant to section 212 of the Securities and Futures Ordinance, Cap 579. On the same date, upon the application of the SFC, the court appointed Mr Cosimo Borrelli and Ms Chi Lai Man Jocelyn (‘the Provisional Liquidators’) as provisional liquidators for the 1^st plaintiff.

On 30 July 2013, Tong J granted a worldwide Mareva injunction against (inter alia) the 1^st defendant restraining him from in any way disposing of, dealing with or diminishing the value of his assets up to the value of HK$1,682,198,420.

The order imposing the worldwide Mareva injunction on the 1^st defendant also required him to inform the plaintiffs in writing within 48 hours of service of the order on him of all his assets of an individual value of HK$50,000 or more, whether in or outside Hong Kong, whether in his own name or not, and whether solely or jointly owned, giving the value, location and details of all such assets, and to confirm such information in an affidavit to be served on the plaintiffs’ solicitors within five days after the date of service of the order on him.

On 31 July 2013, the writ herein was issued.

On 7 August 2013, the plaintiffs amended the writ to join the 13^th defendant. On the same date, Deputy High Court Judge Geiser granted a worldwide Mareva injunction against the 13^th defendant in terms similar to those against the 1^st defendant. The 13^th defendant was also required to make disclosure of any asset of an individual value of HK$50,000 or more within 48 hours of service of the order on it, and to confirm such information in an affidavit within five days after service of the order on it.

In what follows, the orders of Tong J and Deputy High Court Judge Geiser (as amended on various occasions) against the 1^st and 13^th defendants respectively will collectively be referred to as ‘the Mareva Injunctions’.

On 8 August 2013, the 2^nd plaintiff was put into provisional liquidation, and Mr Cosimo Borrelli and Ms Chi Lai Man Jocelyn were also appointed as provisional liquidators for the 2^nd plaintiff”.

(para 2 to 12 thereof). The decision then summarized the nature of the plaintiffs’ claims as follows:

“On 4 October 2013, the plaintiffs filed the statement of claim herein. For the present purposes, it is not necessary for me to set out in detail the plaintiffs’ allegations raised in the statement of claim which are of considerable complexity. In essence, what is being alleged is that the 1^st defendant was engaged in large scale frauds and dissipation of the plaintiffs’ funds through a series of fictitious transactions and ‘round robin’ circulation of funds involving various other defendants in this action. The total value of the claims in this action is estimated to exceed HK$5 billion. Obviously, it is not the court’s function in the present applications to determine the validity of the plaintiffs’ allegations and claims against (inter alia) the 1^st and 13^th defendants, save to point out that various judges presumably took the view that the plaintiffs had established a ‘good arguable case’ on the evidence before granting or continuing the Mareva Injunctions against them” (para 18 thereof).

This costs application

4.The reason put forth by the plaintiffs in support of their stance is this.  Hong Kong Civil Procedure 2015, Vol 1, para 29/1/55 observes:

“… It has for many years, been the normal practice for a successful plaintiff granted an interlocutory injunction to be granted his costs in the cause and for a successful defendant to be granted his costs in the cause. But the rationale of that practice is perhaps not clear and the courts are showing a greater willingness to depart from it … ”.

5.In Korea Exchange Bank, Hong Kong Branch and Another v SSCP Holdings (Hong Kong) Ltd and 4 Others HCA 146/2013 (26 June 2013), the court (referring to King Fung Vacuum Ltd v Toto Toys Ltd [2006] 2 HKLRD 785, at para 27) regarded the above as “the traditional order” (para 11 thereof).  The court there also said:

“It is not necessarily the case that costs should be in the cause. The court is entitled to look at the merits of the injunction at the time of its application” (apparently relying on an observation to that effect in Mendlowitz & Associates Inc v Winner International Group Ltd & another, HCA 574/2009 (14 May 2010), para 28) (para 12 thereof).

6.Other cases relied on by the plaintiffs include:

(a) Bushbury Land Rover Ltd v Bushbury Ltd [1997] FSR 709 (interlocutory injunction for passing-off refused on ground of balance of convenience and costs ordered against the applicant);

(b) Cheung Sai Lun v Lau Tai Chin Francis and Another HCCW 677/2004 (19 September 2007) (ex parte injunction continued on inter partes application; costs of the ex parte application were ordered against the respondent but with no order as to costs for the inter partes application).

7.Based on the above, the plaintiffs seek the costs of the injunction application against the defendants.  They contend that those costs are in essence the costs thrown away by the defendants’ failure (or at least their undue delay) to withdraw their earlier objection to the injunction application.

8.The defendants disagree with that way of looking at what has happened.  They contend that, as stated in para 2 above, those costs should be in the cause (alternatively, be reserved) because (so they say) they have been acting reasonably, proportionately and efficiently by:

(1) focusing on only one out of several issues in the injunction application;

(2) agreeing subsequently to the continuation of the Mareva injunction. 

They further argue that a respondent to an interlocutory injunction who has unsuccessfully opposed it can expect an order of costs to be in the cause of the action; the defendants should not be penalized for having acted even more reasonably and proportionately as set out in sub-para (1) and (2) above.

9.The last-mentioned argument should be qualified in the light of the authorities referred to above.  In other words, costs may not be in the cause of the action by reason of matters such as:

(a) the merits of the application for injunction (for example, the application is totally baseless) (the King Fung Vacuum Ltd decision; the Mendlowitz & Associates Inc decision; the Bushbury Land Rover Ltd decision);

(b) the reasonableness of a party’s conduct in the litigation (a party having acted improperly may face an order for costs against it in any event) (the King Fung Vacuum Ltd decision; the Cheung Sai Lun decision).

Because of sub-para (a) and (b) above, it is necessary to have regard to what was in dispute in the injunction application when deciding its costs.

10.The plaintiffs’ case in the injunction application was that the defendants tried to conceal their assets by causing their interests in substantial companies to be held through nominee companies. For this reason, the injunction application was to cover 22 companies and a commercial property in Guangzhou.

11.In response, the defendants admit that they have interests in four of the said companies.  Further, they assert that:

(1) the transfer of US$82 million was in fact a genuine transaction;

(2) their apparent connections with the other of the said companies was due to (i) business management transition needs, and/or (ii) misunderstanding caused by faulty documentation

(in view of these matters, they considered it more sensible not to oppose the injunction application).  The above assertions are disputed by the plaintiffs.  

12.The difficulty with assessing the merit of the injunction application in the context of this action is, as observed in the decision of 17 November 2014, the plaintiffs’ claims “are of considerable complexity”.  It is therefore unsuitable at this stage to come to a conclusion over this aspect other than to observe that a good arguable case has clearly been established.

13.On the other hand, an application for interlocutory injunction has “a life of its own”.  As has been observed in the Bushbury Land Rover Ltd decision:

“… [there is a] clear distinction between entitlement to interlocutory relief and final judgment which … the criteria on which the court should exercise its discretion whether to grant the former. The fact that a plaintiff may succeed ultimately does not demonstrate that he should have been granted interlocutory relief when the merits of the matter were still unresolved and the court was balancing convenience. Final judgment provides no hindsight, tipping the earlier balance one way or the other” (p 712 thereof).

Conclusion

14.The plaintiffs have obtained substantially what they sought in the injunction application; however, that “success” has to be judged in the light of the relatively light burden they bear in an application of this kind.  In these circumstances, the appropriate costs order should be that the costs of the injunction application should be the plaintiffs’ costs in the cause.

15.Having so concluded, as can be seen from para 2, 7 and 8 above, neither party has prevailed in the outcome of the costs application to the extent that the costs of the hearing (whether the hearing be regarded as that of the injunction application, or that for costs) should be treated differently from the earlier costs of the injunction application.  The costs of the hearing before me should thus be made part of the costs of the injunction application (see para 14 above).

Ms Eva Sit, instructed by Hogan Lovells, for the plaintiffs

Mr Bernard Man & Mr Val Chow, instructed by Anthony Siu & Co, for the 1^st & 13^th defendants