BIG ISLAND CONSTRUCTION (HK) LTD v. WU YI DEVELOPMENT CO LTD AND ANOTHER

HCA 1957/2005,
HCA 714/2007 &
HCA 886/2007

[2018] HKCFI 899

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1957 OF 2005

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 714 OF 2007

(Transferred from District Court Civil Action No 5174 of 2005)

____________

____________

AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 886 OF 2007

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____________

(Heard together)

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J U D G M E N T

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A. INTRODUCTION

1.  This decision is to be read with my decision dated 29 July 2016 (“the 1^st Stage Decision”).  I adopt the abbreviations therein here.

2.  The Wu Yi Parties are receiving parties pursuant to costs orders made against BIC in the present 3 cases (“the Actions”):

(a)   HCA 1957/2005: taxed costs in the sum of $650,872.89 for various interlocutory applications;

(b)   HCA 714/2007: taxed costs of $3,281,012.43 for the action; and

(c)   HCA 886/2007: taxed costs of $2,304,582.81 for the action.

3.  Mr Lee was and is a director of BIC.  The Wu Yi Parties seek an order under section 52A of the High Court Ordinance, Cap 4, for him to bear the above costs personally (“Section 52A Applications”).

4.  By an order dated 29 July 2016, Mr Lee has been joined as a party in the 1^st stage of the Section 52A Applications.  This is the substantive hearing in the 2^nd stage.

5.  The Wu Yi Parties claim that being 99.99% beneficial shareholder of BIC, its director, sole funder, and person in control of the Actions, Mr Lee stood to gain personally from the litigation.  He was the real party to the litigation (“the Real Party Ground”).  The trial judge, Poon J (as he then was), had found impropriety in Mr Lee's conduct, which included lies, fabrication of documents for the purpose of litigation and forgery.

6.  Mr Lee denies that he was the real party.  He opposes the applications on 4 grounds:

(1)   That there are dispute of facts and the summary procedure is not appropriate (“the Procedural Defence”).

(2)   That there has been gross delay on the part of the Wu Yi Parties in issuing the present application and such delay had caused prejudice to him (“the Defence of Delay”);

(3)   That there had been previous applications made to hold Mr Lee personally liable in August 2011 which had failed and there was no appeal (“the Defence of Failed Previous Applications”);

(4)   That it was open to the Wu Yi Parties to apply, as against BIC, for further security for costs in HCA 1957/2005 and HCA 886/2007 and yet they failed to do so (“the Defence of Security for Costs”).

Mr Lee submits that it is not appropriate for the court to embark upon an enquiry in this summary procedure.

7.  I shall deal with the Real Party Ground and the 4 Defences in turn.

B.  LEGAL PRINCIPLES

8.  Section 52A of the HCO confers a wide discretion on the court to determine “by whom and to what extent” costs of and incidental to the proceedings before the court are to be paid. The court only has to be satisfied, in the exercise of its discretion, that it is “in the interests of justice” to make an order to award costs against a non-party. 

9.  The legal principles have been set out in Section B of the 1^st Stage Decision.  I just recap a few principles.

(a)   Making an award of costs against a non-party is a summary procedure.  In the 2^nd stage, the court will only make such an order in plain and straightforward cases: Sun Focus Investment Ltd v Tang Shing Bor [2012] 5 HKLRD 853, §23, Mimmie Chan J.

(b)   Where the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs.  He is regarded as “the real party” to the litigation.  The Liberty Container (2007) 10 HKCFAR 256, at §§28 & 30, per Bokhary PJ, following Dymocks Franchise Systems (NSW) Pty Ltd v Todd & ors [2004] 1 WLR 2807, §§25(3) and 29.

(c)   A non-party costs order can be made against a director of an insolvent company if he fell within the Dymocks principle.

(d)   It is important not to allow a director or a controlling director of a one-man company to be made personally liable too readily: Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 BCLC 165 (CA), p 172, Millet LJ. 

10.  Additionally, I have been referred by counsel to some other relevant principles.

11.  A non-party’s conduct in giving dishonest evidence or running a claim which he knows to be false in the primary proceedings is a relevant factor in deciding whether to order costs against him: R + V Versicherung AG v Risk Insurance & Reinsurance Solutions SA & ors [2005] EWHC 2586, §15, Moore-Bick LJ; and on appeal [2006] EWCA Civ 314, 8 March 2006, at §§15-16, Chadwick LJ; Oriakhel v Vickers [2008] EWCA Civ 748, 4 July 2008, §13, Jacob LJ.

12.  It is the  impropriety in relation to the litigation, for which the director or shareholder is regarded as responsible, which is relevant: Abdul Aziz Essa v Capital Globe Ltd & anor [2012] 6 HKC 472,at §22, Barma J (as he then was).

13.  In terms of evidence, where the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing the admission of the evidence in the original proceedings, the evidence in the original proceedings is admissible against him in the subsequent Section 52A Applications: Symphony Group Plc v Hodgson [1994] QB 179, 193G per Balcombe LJ; Globe Equities Ltd v Globe Legal Services Ltd [1999] BLR 232 at §20 per Morritt LJ. 

14.  The court must not deny the right of the non-party to be heard.  This is particularly important where serious allegations are made against him for having brought the action for improper motive, or for reliance upon fabricated or false evidence, which had not been put to him at the trial: Chung Wah Steel Works Co Ltd v Chan Kwong Kwan (unreported, DCCJ 4763/2011, 21 January 2014, HH Judge Wilson Chan (as he then was)) at §§13-14; Barndeal Ltd & anor v London Borough of Richmond-Upon-Thames [2005] EWHC 1377 (QB) Newman J at §§18-24.

15.  It would not be appropriate to resolve dispute of facts on affirmations without the benefit of discovery or oral evidence: cf Lingfield Properties (Darlington) Ltd v Padgett Lavender Associates [2008] All ER (D) 162, at §12.

C.  THE REAL PARTY GROUND

16.  This ground can be divided into 5 limbs: that (i) Mr Lee owned and controlled BIC; (ii) he had control and management of the Actions; (iii) he had funded the Actions; (iv) he would have benefited from the Actions; and (v) he had caused BIC to pursue a false claim or defence in the Actions.

C1.  Whether Mr Lee owned and controlled BIC

17.  Mr Lee’s own case was that he had sole ownership, directorship and control of BIC, as borne out by his own pleadings, affirmations and witness statements.  BIC’s opening submission at the trial stated that BIC was owned as to 99.99% by BIA; which in turn was owned as to 99.99% by Mr Lee at all material times.  Mr Lee’s sister (“Madam Li”) owned the remaining 0.01%.  Mr Lee himself repeatly confirmed in contemporaneous documents, on BIC’s letterhead, that BIC was his company. 

18.  Both Mr Lee and Madam Li had confirmed in their witness statements filed in HCA 1957/2005 that Madam Li was Mr Lee’s nominee shareholder.  Accordingly, Mr Lee was and is at all material times the sole owner of BIC.

19.  Mr Lee was a director of all companies in the Big Island Group including BIC.  Madam Li was the other director of BIC.  She was a company secretary of BIC, responsible for general secretarial service and bookkeeping (§5, CFI Judgment)

20.  Mr Lee’s own pleaded case was that the Big Island Group of companies consisted of BIA, BIC and Nationbuild Pacific Limited (“Nationbuild”). This was confirmed in his witness statements filed in HCA 1957/2005 and in HCA 886/2007.  It was also deposed to in Lee-7^th [1] filed in HCA 1957/2005.

21.  The structure of ownership of BIC formed part of the findings of Poon J and the Court of Appeal.  Poon J also observed that Mr Lee was the central figure in BIC and that he used BIC as his vehicle. 

22.  Not only did Mr. Lee own BIC, but he also controlled it.  This was stated in §2 of the CA Judgment in CACV 160/2011; §2 of the CFA’s Judgment in FACV 1/2015 . 

23.  The findings of the courts were never challenged by BIC.  

24.  However, in opposition to the present application, Mr Lee claimed that 300,00 shares in BIC had been transferred from BIA to a BVI company called Sutcliffe Properties Ltd (“SPL”) on 28 June 2006 (“the Purported Transfer”).  In addition, Mr Jeaffreson was another director. Mr Lee had made decisions after discussion with Mr Jeaffreson.

25.  There had been at least 2 applications for security for costs in 2007 and 2009 respectively before the trial when the issue of Mr Lee’s ownership and control of BIC might have been relevant.  Yet the Purported Transfer was only first raised by Mr Lee in BIC’s skeleton submission for the CFI Costs Hearing dated 28 March 2012. 

26.  Mr Lee’s explanation was that the ownership and control of BIC was only background information in the Actions and not the subject matter of the claims. He had omitted to inform BIC’s legal team of the change in shareholding in June 2006 and so the error in shareholding was not corrected by way of amendment to pleadings. 

27.  If Mr Lee’s explanation is accepted, he had caused submissions and eventually judgments to proceed on the basis of that omission.  He had no one to blame but himself.

28.  Moreover, the evidence of Mr Lee was equivocal.  On the one hand, it appeared that the Purported Transfer was a sale of the shares to SPL owned and controlled by a Chan family.  Mr Sam Chan of the family was a good friend of Mr Lee who had allegedly been his business partner.  Mr Lee claimed not to have interest in SPL but no evidence as to SPL’s ownership was before the court. 

29.  On the other hand, Mr Lee said that it was a loan that Mr Chan advanced and the Purported Transfer was made a condition for the loan.  So Mr Lee caused BIA to transfer 300,000 shares of BIC to SPL for a consideration of $300,000. 

30.  There was no proof of Mr Lee’s receipt of the consideration or the loan.  More importantly, the Purported Transfer defied commercial sense.  It was indisputable that at the time of the Purported Transfer, BIC was insolvent, dormant since 1991 and was engaged heavily in litigation.  There was no apparent reason why a third party would be willing to buy 30% equity in such a company. And this third party (Mr Chan or someone from his camp) has never become a director of BIC. 

31.  Anyway, as a 70% shareholder, Mr Lee was still in control of BIC.  Mr Jeaffreson was a director of BIC since about 1991/1992 until his demise on 30 October 2008.  He had never held any shares in BIC and so the exercise of powers would have been for the benefit of Mr Lee.  Even after the death of Mr Jeaffreson, it was Madam Li who became a director.

32.  I find this limb established.  The Purported Transfer was not credible when considered in the light of the surrounding circumstances.  Even if it had taken place, it had no impact on my decision at all.

C2.  Whether Mr Lee had control and management of the Actions

33.  Ms Yu, counsel for Mr Lee, reminds this court that in determining whether Mr Lee (rather than BIC) was the real party to the Actions, the court should be careful not to infer that, because of the misconduct of the non-party in relation to the conduct of the underlying action, it should be concluded that he must have had an interest in the outcome of the proceedings and had controlled the proceedings: Barndeal, above.  She also reminds me not to resolve factual disputes on affirmations: Lingfield Properties.

34.  Mr Lee admitted having personal knowledge of the facts and was the person who dealt with the Wu Yi Parties in relation to the subject loans in the Actions.

35.  From issue of statutory demands, to issue of writs (in HCA 1957/2005 and what became HCA 886/2007) or defence (in HCA 714/2007) and handling of interlocutory applications, Mr Lee played a prominent and indispensible role. Poon J observed in §25 of the CFI Judgment that Mr Lee was the key witness and Madam Li, the only other witness for BIC, just came along to support Mr Lee’s untrue story.

36.  In the affirmations filed in opposition to the present applications, Mr Lee has not denied that he had control and management of the Actions.  So any “authority” from BIC would necessarily have come from himself as controlling shareholder and director of BIC.

37.  His assertion that all the important decisions concerning BIC, including its litigation were discussed and agreed to by Mr Jeaffreson and SPL, was a bare assertion unsupported by eg minutes.

38.  Even if what Mr Lee said about Mr Jeaffreson were true, it only meant that Mr Jeaffreson might be at risk of a personal costs order against him as well.  What Barma J (as he then was) stated in Abdul Aziz Essa equally applied here:

“33. I cannot accept [the non-party’s] evidence that [the other director] participated fully in the defence of the petition. Nothing concrete in the way of correspondence in any form has been put forward to substantiate this bare assertion. … [The non-party’s] evidence as to [the other director’s] involvement is in the most general of terms, and there is nothing to suggest that [the other director] was somehow also responsible for the unreasonable and improper conduct of and in relation to the proceedings. Even if he was, this would not assist [the non-party] – all that it would mean would be that [the other director] might be at risk of having a personal costs order made against him as well.”

39.  In fact, it is not necessary for the non-party to be the only real party to the litigation, but it is sufficient if he is a real party in very important and critical aspects: Kebaro Pty Ltd v Saunders [2003] FCAFC 5, Full Court of the Federal Court of Australia, at §§96, 103 and 111. This principle aptly covers Mr Lee’s position if the Purported Transfer was genuine.

47.   I find this limb established.

C3.  Whether Mr Lee had funded the litigation

48.   On his own admission (Lee-1^st, §30; Lee-2^nd, §34) Mr Lee had funded or borrowed to fund the Actions.  In the Decision dated 26 October 2007, at §37, Chu J (as she then was) held that Mr Lee had solely funded the Actions but he was silent about his own financial resources. I find this limb established.

C4.  Whether Mr Lee would have benefitted from the Actions

49.   BIC’s claim in HCA 1957/2005 was for repayment of loans of over $100 million.  If BIC had been successful, Mr Lee would have benefitted substantially as the only beneficial owner (or at least 70% shareholder if the Purported Transfer was genuine).  Moreover, having funded the litigation, Mr Lee would have benefitted as a creditor as well.

50.   Mr Lee denies these.  He claims that BIC’s creditors also included Ms Natalia Lie (lending HK$102 million), Nationbuild, BPL Investment Management Ltd, BIA and other creditors.  The claims/defences in the Actions were for their benefit as well. 

51.   However, BIC’s case that Ms Lie was the source of funds was disbelieved and rejected by Poon J.  Mr Lee’s reliance on BIC’s Reports and Financial Statements for the year ended 31 March 2005 and the so-called other creditors referred to therein was disingenuous and highly misleading because Poon J has already found the same to be non-contemporaneous and fabricated (§102, CFI Judgment).

52.   I find this limb established.

C5.  Whether Mr Lee caused BIC to pursue a false claim or defence in the Actions

53.   Any impropriety or the pursuit of speculative litigation may of itself support the making of an order against the non-party: Dymocks, §33, per Lord Brown.

54.   Poon J completely rejected BIC’s case.  He found that the Loan Agreement did not exist and the sums advanced were not loans as alleged. There was no iota of truth in the alleged source of funds.  The CFI Judgment was replete with examples where Poon J found instances of impropriety, all connected to Mr Lee:

(a)   Mr Lee made up his story as he went along (§§73, 76, 97, 109, 136, 138, 178, 185, 190) and even alleged that the Wu Yi Parties forged minutes (§95);

(b)   Mr Lee fabricated or forged documents (§§85-86, 108, 113, 114);

(c)   Mr Lee lied to the court (§94);

(d)   Mr Lee abandoned a case that was doomed to fail (§180); and

(e)   Mr Lee raised a matter to confuse the real issue and evade liability (§188).

See also §§7-8 of the Costs Judgment which summed up Poon J’s views on BIC’s primary claim.

55.   Madam Li was equally held to be untruthful and had gone to corroborate Mr Lee’s case.  She was found to have fabricated records for the purpose of litigation (§101 of the CFI Judgment). 

56.   BIC was found to have invented the claim and had gone to the extent of fabricating evidence to pursue it.  Its litigation conduct was described as “most reprehensible”.  Specifically in relation to HCA 714/2007, Poon J found that, to counter the undisputable documentary evidence, Mr. Lee “made up the incredible and convoluting defence”, that BIC “knew full well that it had no defence to the claim but resorted to inventing the dressing up defence to avoid liability”, that BIC’s litigation conduct was “an affront to the court”.  Poon J ordered costs against BIC on an indemnity basis: Costs Judgment, at §§8, 15-16.

57.   The findings against BIC  were affirmed on appeal. The Court of Final Appeal (Tang PJ) further held that Poon J ought to have found in favour of the defence of the Wu Yi Parties based on the Fund Exchange Agreements (at §§33 & 34 per Tang PJ).

58.   A person like Mr Lee who causes litigation to be pursued for the purpose of advancing a claim which he knows to be false has no reason to feel affronted or aggrieved if, when the falsity is exposed, he should be required to meet the cost of that litigation. R + V Versicherung AG (CA), Chadwick LJ.

59.   I find this limb established.

D.  THE PROCEDURAL DEFENCE

60.   The Wu Yi Parties rely on Oriakhel v Vickers at §31(d) for the proposition that “where a non-party effectively has controlled the primary litigation, it is, in the language of estoppel, ‘a privy’ and will be bound by the result”.  Accordingly, Mr Lee is bound by the findings in CFI, CA and the CFA in the Actions.

61.   Ms Yu, however, submits that there are dispute of facts which cannot be resolved without discovery and oral evidence.  The first 4 limbs in Section C to establish that he was the real party were not material issues in the Actions and Mr Lee had not been cross-examined on them at the trial.  No issue estoppel could arise in relation to a point not distinctly put in issue: Halsbury’s Laws of Hong Kong, 2^nd ed, Vol 26, §170.027.

62.   With respect to Ms Yu, the connection of Mr Lee with the original proceedings was very close.  One can confidently say that without him BIC simply could not pursue its case at the trial.  The evidence in the underlying proceedings is admissible against him as sole beneficial owner and a director in control of BIC in these proceedings.

63.   Ms Yu submits that BIC had an arguable case in those Actions, although it was not in the end successful. Whilst BIC failed in the Actions on the balance of probabilities, Poon J also found that the Wu Yi Parties’ version of events was “on the whole quite unsatisfactory” and in part incredible (§§139, 144-161, CFI Judgment).  She draws attention of this court to the findings of egregious conduct on the part of the Wu Yi Parties by Poon J (§§139. 144-162, CFI Judgment).

64.   Ms Yu’s submission in the preceding paragraph had been considered by Poon J in his Costs Judgment.  He had deprived the Wu Yi Parties costs of HCA 1957/2005 save for interlocutory matters.  However, Tang PJ subsequently vindicated the Wu Yi Parties (§34 of the CFA Judgment).  There is no room for Ms Yu to invite this court to come to a different view.

65.   The procedure in the 2^nd stage is usually summary but I cannot see why a judge would not allow cross-examination on one or more aspects of the applications if justice demands it.  In Deutsche Bank AG v Sebastian Holdings Inc [2014] EWHC 2073 (Comm), the hearing took 2 days before Cooke J. 

66.   However, in the present application, Mr Lee has not even shown matters capable of belief when tested against contemporaneous circumstances and Poon J’s findings.  There was nothing which would have caused this court to consider turning this summary procedure into one for discovery or cross-examination.  The procedural ground fails and the evidence at the trial is admissible against Mr Lee.

E.  THE DELAY GROUND

E1.  General principles

67.   I adopt the principles set out in paragraphs 19-25 of the 1^st Stage Decision.  Just to recap:

(a)   There is no restriction as to the stage at which the order can or should be made.  However, it should be made at an early opportunity.

(b)   Where there was no cause of action against a non-party, the time to join him for costs is usually after judgment in an action. 

(c)   There is a view for an application for non-party costs to be made before an appeal on the final judgment is heard: Leung Chung Ching Edwin v The Estate of Leung On Mei Amy [2016] 2 HKLRD 365, Zervos J at §16.  But note thatZervos Jwas dealing at the same time with applications to vary the costs order nisi of the trial and the non-party costs order.

(d)   Delay is often a matter for the court to take into account.

(e)   Delay in itself is not sufficient. The non-party has to show real prejudice to him caused by the delay.

68.   In paragraph 23 of the 1^st Stage Decision, I have stated that the applicant should wait for the outcome of the appeals because if the outcome is against him, there would be little purpose in his seeking costs against the non-party: To Pui Kui, the Administratrix of the estate of Ng Po Sum, deceased v Ng Oi Che & ors (unreported, CACV 67, 156/2014, 27 February 2015),at §34, Yuen JA.  That principle was taken out of context.

69.   In To Pui Kui, the non-party (Andrew) was funding his mother in the litigation against his sister.  The mother appealed.  The sister obtained an order to join Andrew as a party for a non-party costs order.  Yuen JA’s observation in §34 was made in relation to Andrew’s application to join as an interested party under Order 15, rule 6(2)(b)(ii), RHC, after his mother withdrew the appeal and not in relation to the sister’s application for joinder/for costs.  Clearly, there was no prejudice to Andrew as he was already subject to a non-party cost order.  What Yuen JA was saying was simply that there was no delay in his application to join as an interested party when he made the application after the mother abandoned her appeal because the grounds of appeal were similar.

70.   This court is grateful to Ms Yu for pointing out my error.  Accordingly, paragraph 23 of the 1^st Stage Decision should not be regarded as a correct statement of the law.

E2.  The delay

71.   In the present case, the Actions were commenced in 2005.  The trial took a total of 43 days, in January and February 2010.  It was adjourned part heard and resumed in November to December 2010.  Judgment was handed down on 28 July 2011 with cost orders nisi.  The Costs Judgment was 10 months later, on 25 May 2012.  The appeals by BIC to the Court of Appeal were dismissed on 25 April 2014.  BIC’s appeal to the Court of Final Appeal was dismissed on 26 June 2015.  The Section 52A Applications were made 5 months later.

72.   The Wu Yi Parties had seen fit to make a Section 52A Application for Mr Lee to bear personal costs on 10 August 2011.  Poon J dismissed them on procedural and substantial grounds.  In the Costs Judgment, he noted that the Wu Yi Parties had not applied to join Mr Lee as a party to the Actions pursuant to Order 62, rule 6A RHC, which was fatal to the Section 52A Applications.  He also held that:

“22. In any event, the application must fail on substance. Of particular importance to the present case are the questions whether Mr Lee had procured the claims or defence in the three actions, if he was in control of the actions; if he had funded the actions; and if he was to be regarded as the real party interested in the outcome of the actions. The court cannot determine Mr Lee’s personal liability on costs without any investigation into these matters. And Mr Lee has never been offered an opportunity to answer these questions. It is wrong simply to invite the court, as the Wu Yi Parties did, to make a determination on those crucial questions based on submissions alone.” (emphases added)

73.   The Wu Yi Parties appealed against part of the Costs Judgment but not that part relating to the Section 52A Applications. 

74.   The present Section 52A Applications were only issued 3½ years later on 1 December 2015.

75.   The Wu Yi Parties explained that they had been waiting for the outcome of all the appeals before launching the present applications, relying on To Pui Kui.  In view of my holding in paragraph 70 above, this is not a good explanation.  

76.   In the present case, the Previous Section 52A Applications were first issued 4 years after trial without joining Mr Lee.  Plainly, the Wu Yi Parties saw that as the appropriate time to seek costs against Mr Lee. 

76.   After the Failed Previous Applications, to wait for the outcome of the Appeals was an honest but mistaken belief.  The time was genuinely spent on the appeals.

78.   In relation to HCA 1957/2005, costs stemmed from many interlocutory orders, which should be and were taxed in one go after trial: Order 62, rule 9D(1). The Appeals would not have impact on the costs in HCA 1957/2005. However, the Wu Yi Parties appealed to Court of Appeal on costs, although they failed.  The Appeals were complex and the 3 Actions proceeded as one.  It was in the CFA that the Wu Yi Parties were vindicated by Tang PJ on the facts. The outcome was relevant to the Section 52A Applications.

79.   The delay was exacerbated by lack of warning to Mr Lee.  In Symphony Group Plc v Hodgson, 193A-D, Balcombe LJ stated, in relation to a non-party against whom the applicant had a cause of action, that even if the applicant could provide a good reason not to join the non-party, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. 

80.   However, in Deutsche Bank AG v Sebastian Holdings Inc & anor (CA) [2016] 4 WLR 17, at §32, it was held that there was no obligation on an applicant to explain why it had not warned the non-party of the risk that he faced.  The importance of a warning would vary from case to case and might depend on the extent to which it would have affected the course of the proceedings.  If the third party against whom an order for costs was sought was the real party to the litigation, the absence of a warning might be of little significance.

81.   Similarly, in R + V Versicherung AG (CA), Chadwick LJ made this observations at §§18-19:

“18. … It is not open to a person who has been held knowingly to have given false evidence in support of a claim advanced by the company at his instigation to assert that, if he had realised that he was at risk as to the costs, he would have decided not to give the evidence which he did in support of that claim. The proposition only has to be stated to be exposed as risible.

19.   This was a case in which [the non-party] decided to pursue the claim with dishonest evidence in an attempt to deceive the court. The judge was not deceived. He held that [the non-party] must bear the consequences of that exercise.”

82.   The lack of warning in itself was irrelevant in view of the litigation misconduct of Mr Lee.

E3.  Prejudice to Mr Lee caused by the delay

83.   Prejudice is a question of fact: Pickering Phipps v London and North Western Railway Company [1892] 2 QB 229 at p 237 per Lord Herschell.

84.   Although Mr Lee did not assert prejudice at the 1^st stage, it is not too late for him to do so in the 2^nd.  He asserts that the delay and lack of warning have caused him 3 types of prejudice:

(i)   He was deprived of an opportunity to seek legal advice to ascertain the extent of his personal risk as to costs;

(ii)   He would not have continued to fund the Actions or the Appeals or he would have tried to seek other sources of funding to cover BIC’s costs exposure;

(iii)   Mr Jeaffreson was no longer available as a witness.

85.   With regard to limbs (i) and (ii) of alleged prejudice, in these Actions, even the Wu Yi Parties accepted that the appeals were complex and it had taken substantial time to run their natural courses. 

86.   BIC had been asked to provide security for costs twice as the Actions progressed, to cover costs up to trial.  Although the Wu Yi Parties did not seek security for costs at the Court of Appeal level (they themselves also appealing on costs), they did seek security for more than the usual $400,000 as security for costs of the appeal to the CFA.

87.   BIC was represented by high quality counsel all along.  He was the funder.  The alleged loan of $300,000 from SPL was small compared to the overall amount of security and the value of BIC’s claim.  It would have been obvious to Mr Lee that he could not hide behind BIC and litigate for free.

88.   In my view, R + V Versicherung AG (CA) (paragraph 81 above) was equally applicable to the Appeals which were launched despite the strongly worded findings of improprieties against Mr Lee.  Any suggestion that if he had been informed of the potential liability for personal costs order, he would not have pursued the Appeals, simply begged belief.

89.   With regard to limb (iii) of alleged prejudice, Ms Yu points out that the Actions were commenced in 2005 and Mr Jeaffreson died in October 2008. 

90.   With respect, it was not clear before October 2008 that there was a case that Mr Lee should be personally liable for costs.

91.   The Wu Yi Parties rely heavily on findings of Poon J and subsequent holdings of the CA and CFA in support of the Section 52A Applications.  Those findings could hardly have been known before October 2008.

92.   I also repeat my views regarding Mr Jeaffreson’s limited role in paragraph 31 above.

93.   I find there to be gross delay for about 4 years since the CFI Judgment in taking out the Section 52A Applications and lack of warning. However, the time was genuinely used to wait for outcome of the Appeals and there was no abuse of process by the Wu Yi Parties.  I do not find prejudice to Mr Lee in the circumstance of these Actions. 

F.  THE DEFENCE OF FAILED PREVIOUS APPLICATIONS GROUND

94.   Mr Lee was not a party to the Previous Applications in 2011. Issue estoppel arising from the Costs Judgment would not apply to Mr Lee. 

95.   Ms Yu submits that inaction on the part of the Wu Yi Parties for 3½ years since the Costs Judgment in 2012 might have lured Mr Lee into a false sense of security as regards personal costs.

96.   I am unable to agree.  Mr Lee was the central figure in the Actions, including the time of the proceedings that led up to the CFA.  On any analyses, Poon J declined to deal with the applications on the basis of submission alone.  His dismissal of the Section 52A Applications was on procedural grounds, as opposed to the merits.  The Wu Yi Parties did nothing positive to waive their rights against Mr Lee.  This Defence does not assist Mr Lee.

G.  THE DEFENCE OF SECURITY FOR COSTS

97.   The availability of an option for security for costs that could but was not taken is a strong argument against an order for costs against a non-party.  Sun Focus, at §§25-26; Metalloy Supplies, p 172; Chung Wah Steel Works, at §18.

98.   However, security for costs is not a remedy in all cases: Knight v FP Special Assets Ltd [1992] 174 CLR 178 (at pp190-191 per Mason CJ and Deane J):

“… there are limitations attaching to the availability of security for costs. These limitations are such that security for costs is not a remedy in all cases in which justice calls for an order for the award of costs against a non-party. Security cannot be ordered against a defendant … The amount awarded as security is no more than an estimate of the future costs and it is not reasonable to expect a defendant to make further applications to the court at every stage when it appears that costs are escalating so as to render the amount of security previously awarded insufficient. And the availability of the remedy is scarcely a reason for denying the existence of jurisdiction to make an order for costs against the ‘real party’ at the end of the trial of an action …”

9.   The modern trend is that a failure to apply for security does not preclude a successful application for an order for costs against a third party: Deutsche Bank (CA), at §49 per Moore-Bick LJ; Petromec Inc v Petroleo Brasileiro SA Petrobras [2006] EWCA Civ 1038, at §14, per Longmore LJ. Both cases were decided after Sun Focus.

100.   In the present case, the Wu Yi Parties had already obtained orders for security for costs up to trial.  They could have asked for further security when the trial was adjourned with more dates allotted but did not do so but that should not undermine their rights in the present Section 52A Applications.

101.   The defence of security for costs does not apply to HCA 714/2007, wherein the Wu Yi Parties (being the plaintiff) could not have applied for security. 

H.  FINDINGS

102.   Mr Lee is the real party to the litigation.  There is no basis for the court to turn these summary procedure into one for discovery and cross-examination.  The evidence in the underlying proceedings is admissible against him.  There was gross delay in the Wu Yi Parties in taking out the Section 52A Applications and the lack of warning.  However, there was no prejudice to Mr Lee.  To deny Wu Yi Parties the claim for costs in the face of Mr Lee’s relentless pursuit of a $102 million false claim through an impecunious company all the way up to CFA would be a disproportionate punishment.  Any “prejudice” to Mr Lee arising from delay could have been remedied by reducing the amount of interest that the Wu Yi Parties could charge him.  In the interest of justice I order Mr Lee to bear costs personally.

103.   Costs should follow the event and be to the Wu Yi Parties.  In line with the Costs Judgment, costs in relation to HCA 714/2007 shall be on indemnity basis and in the other Actions on party-and-party basis.  I make an order nisi accordingly.

104.   I therefore order that:

(1)   Mr Lee do personally bear costs of the Wu Yi Parties referred to in paragraph 2 above (this is of course subject to any prior payments out from the security in court);

(2)   On a nisi basis, such sums do bear interest at judgment rate from 1 December 2015 (the date of the Section 52A Applications) to the date of payment; and

(3)   On a nisi basis, costs should follow the event and be to the Wu Yi Parties.  In line with the Costs Judgment, costs in relation to HCA 714/2007 shall be on indemnity basis and in the other Actions on party-and-party basis.

105.   Just a reminder to practitioners.  It is not the purpose of submission in reply to rehearse all the arguments in the main submission.  Nor is it appropriate, in reply, to cite additional cases that establish the same proposition contained in the main submission.  The 14-page reply submission of the Wu Yi Parties was almost half as long as the main submission.  Lack of focus defeats the purpose of a reply.

106.   I thank counsel for their assistance.