MING HSIEH v. XU ZHE AND OTHERS

CACV 189/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 189 OF 2015

(ON APPEAL FROM HCMP 3072 OF 2014)

------------------------

------------------------------------------

REASONS FOR DECISION AND

ASSESSMENT OF COSTS

------------------------------------------

Hon Barma JA (giving the Reasons for Decision and Assessment of Costs of the Court):

1. This is the plaintiff’s application for security for the costs of this appeal, pursuant to RHC Order 59 rule 10(5) and section 905 of the Companies Ordinance (Cap 622). The application is made against all four defendants, although the grounds for the application against the 3^rd defendant differ from those for the application against the 1^st, 2^nd and 4^th defendants. At the end of the hearing, we dismissed the application and ordered that the plaintiff should pay the defendants’ costs, to be assessed on a gross sum basis. We now give our reasons for dismissing the application and make our assessment of the costs to be awarded to the defendants.

2. The proceedings below were brought by the plaintiff under section 21M of the High Court Ordinance, seeking interim remedies in aid of legal proceedings commenced by the plaintiff against the 1^st to 4^th defendants in California.  Shortly after the commencement of the proceedings, the plaintiff applied for and obtained from Deputy High Court Judge Lok (as he then was) Mareva injunctions against the 1^st to 4^th defendants.  The plaintiff’s claims in the California proceedings are for some USD54 million plus interest.  As a result of the Mareva injunction, assets of the 1^st, 2^nd and 4^th defendants in Hong Kong, totaling some USD21 million in value, have been frozen.  The defendants applied to Mimmie Chan J to discharge the Mareva injunctions.  By her judgment of 10 April 2015, the judge discharged the injunctions, but immediately re‑granted them against the 1^st, 2^nd and 4^th defendants.  The plaintiff did not seek the continuation of the injunction against the 3^rd defendant, who is the daughter of the 1^st and 2^nd defendants and is a student with no significant assets of her own.

3. By this appeal, which is brought by the leave of this court (granted by Lam VP on 10 August 2015) the 1^st, 2^nd and 4^th defendants appeal against the judge’s decision to re-grant the injunctions against them.  The 3^rd defendant separately appeals (also with the leave of this court, granted at the same time) against the costs order made against her below (by which she was granted 50% of her costs of the application), seeking in its place an order that she should be awarded 100% of her costs of the substantive application below.

4. RHC Order 59 rule 10(5) provides that “the Court of Appeal may, in special circumstances, order that such security shall be given for the costs of an appeal as may be just”.  While the categories of “special circumstances” are not closed, it is well established that impecuniosity of an appellant, or the difficulty or expense that a respondent would experience in seeking to enforce a costs order against appellants resident outside the jurisdiction, will constitute special circumstances that would ordinarily make it just to make an order for security.  Similarly, where it appears that an appeal is prima facie an abuse of the court’s process, this too will constitute special circumstances for the purposes of Order 59 rule 10(5).

5. So far as the application against the 1^st, 2^nd and 4^th defendants is concerned, neither side seeks to rely on the merits of the 1^st, 2^nd and 4^th defendants appeal for the purposes of this application, and it is therefore unnecessary to say anything further about them.  The application is based on the fact that the assets in Hong Kong which have been caught by the Mareva injunctions against these defendants are significantly less than the amount of the claims against them, so that, if the claims are successful and such assets are used in partial satisfaction of the claims, there will be nothing left over to meet the plaintiff’s costs of an unsuccessful appeal by these defendants.  The plaintiff contends that in these circumstances, they will have to seek to recover such costs by executing against foreign assets of these defendants, which is likely to be a costly and time-consuming process.  The plaintiff also argues that these defendants are likely to resist enforcement of any costs order by dissipating such assets as they may have abroad.

6. However, the fact that these defendants’ assets within the jurisdiction are less than the amount of the claim against them does not mean that they should be regarded as impecunious for the purposes of an application for security for costs.  A Mareva injunction prevents a defendant from dissipating his assets so as to deprive a plaintiff of the benefit of the judgment he expects to obtain, but does not operate to provide the plaintiff with security over the assets which are subject to the injunction.  Those assets remain the property of the defendant until such time as they are taken in execution, whether by the plaintiff or some other claimant, or are otherwise disposed of by the defendant if he is given permission by the court to do so, notwithstanding the injunction – for example, by using some of the assets to fund his defence of the proceedings, or to meet his pre-existing liabilities.  Until that happens, the assets remain available to satisfy any order for costs that the plaintiff may obtain, so that it cannot be said that the defendant is unable to meet any such costs order.  That this is so was clearly explained by Donaldson LJ (as he then was) in Hitachi v Viafiel [1982] 2 Lloyd’s Rep 498 (at pp 508‑509), where he said:

“… The Mareva injunction does not have the effect of securing Hitachi’s claims, leaving no assets available to meet a liability for costs. It merely puts Hitachi in the same position as they would have been if they had been sued by a United Kingdom resident or company or by a foreigner who had permanent assets in this country to a value which far exceed the amount of any costs which they were likely to incur. In such a case no order would be made giving Hitachi security for costs. By a parity of reasoning, no order should, in my judgment, be made in this case.”

7. Here, the 1^st, 2^nd and 4^th defendants have assets amounting to some USD21 million in Hong Kong, consisting of real property, shares and cash in bank accounts.  These are more than sufficient to meet any liability for costs that they might incur in this appeal.  If the plaintiff is successful in the appeal, and obtains an order for costs in its favour, it will be open to it to execute that costs order against these assets, notwithstanding that they are subject to a Mareva injunction.  The fact that this will reduce the amount of assets available to meet any judgment that the plaintiff might ultimately obtain in the substantive proceedings abroad is neither here nor there.  It is no different in principle from a situation where a third party obtained a judgment against one or more of these defendants and sought to execute it against their assets that were subject to a Mareva injunction.  The result would likewise be that the plaintiff would ultimately have a smaller fund of assets against which you execute whatever judgment it might eventually obtain.  But the plaintiff could not complain about that, as the Mareva injunction does not, and is not intended to, given him security or priority in respect of his claim in any proprietary sense.

8. Another way of looking at the matter is this: the situation is similar to that where a plaintiff is respondent to an interlocutory appeal by a defendant, who has assets within the jurisdiction that are less than the amount of the claim against him, which has not yet been determined.  Such a plaintiff could not seek security for the costs of the appeal on the basis that his claim exceeded the defendant’s known assets.  If those assets were sufficient to cover the costs of an unsuccessful appeal, no security would be ordered.  Whether or not there would ultimately be sufficient assets to pay the plaintiff’s claim if it should ultimately be successful would not be a relevant factor.  The existence of a Mareva injunction over those assets makes no difference, as it does not affect the plaintiff’s ownership of the assets.

9. The plaintiff suggests, relying on Chimbusco Pan Nation Petro-Chemical Co Ltd v Owners and/or Demise Charterers of Ship or Vessel Decurion, that there is Hong Kong authority to suggest that the existence of a Mareva injunction over a defendant’s Hong Kong assets would amount to special circumstances for the purposes of Order 59 rule 10(5).  But in that case, the evidence disclosed that while the proceeds of sale of the vessel, amounting to some USD5 million, were subject to a Mareva injunction, there were already some seven outstanding judgments against the appellant totaling some USD9 million.  The position was therefore that, quite apart from the Mareva injunction, the whole of the proceeds of sale would be exhausted by the other judgments, leaving the appellant clearly impecunious. That is very different from the situation here, where is no evidence of any judgments or other liabilities on the part of the 1^st, 2^nd and 4^th defendants that would or might exhaust the value of the assets within the jurisdiction.

10. The plaintiff also suggests that they will be put to inconvenience and expense in enforcing any costs order they may obtain, as it may be necessary to make an application to vary the Mareva injunctions to enable payment of the costs to be made, or to seek garnishee orders in respect of the monies in bank accounts.  However, these costs are, in our view, unlikely to be particularly significant, and cannot be regarded as special circumstances that would justify the making of an order for security where one would not otherwise be made.

11. The analysis above also leads to the conclusion that it cannot be said, for the purposes of section 905 of the Companies Ordinance, that the 1^st, 2^nd and 4^th defendants will be unable to pay the plaintiff’s costs of the appeal, so that the plaintiff is not entitled to security for costs on that basis either.

12. For the foregoing reasons, we do not consider that special circumstances exist in this case which would make it just to make any order for security against the 1^st, 2^nd and 4^th defendants, and we therefore dismiss the application against them.

13. Turning to the position of the 3^rd defendant, the argument is that her appeal is an abuse of process because she is seeking to obtain a more favourable costs order against her, and should have done so by applying out of time to vary the judge’s costs order nisi, rather than by way of appeal.  Further, it is suggested that in the light of the plaintiff’s acceptance that it should bear the whole of the 3^rd defendant’s costs of the substantive hearing below, it would be an abuse for her to persist in her appeal.

14. While it may be that it would have been more sensible for the matter to have been dealt with by way of an application to the judge to vary the costs order nisi, the parties do not appear to have been able to agree on the necessary directions to enable this to be done. Given that the plaintiff now accepts that the 3^rd defendant should have 100% of her costs of the substantive hearing below, which is what she seeks by her appeal, it seems to us that the appeal cannot be characterized as an abuse.  On the contrary, it would seem likely that the plaintiff will have to concede that the 3^rd defendant should be given the costs order that she seeks.  We therefore do not think that it would be appropriate to make any order for security, and would dismiss this aspect of the application also.  We would hope that in these circumstances, rather than incurring further costs on the 3^rd defendant’s appeal, the parties will be able to resolve it without the further expenditure of time, money or the resources of the court.

15. For all of the foregoing reasons, we dismissed the plaintiff’s application.

16. So far as the costs of the application are concerned, we ordered these to be paid by the plaintiff to the defendants. However, when we sought to assess them, we were informed by Mr Chan, appearing for the defendants, that the statement of costs submitted with the defendants’ written submissions had not been updated, due to an oversight on the part of those instructing him.  This court has repeatedly reminded practitioners of the need for statements of costs to be lodged with skeleton arguments, and updated prior to the hearing where an oral hearing is directed.  There is no excuse for failing to do so, and practitioners should not expect to be given the opportunity to provide such a statement after the hearing.  The failure to provide a statement of costs where one is needed is likely to result in the court simply assessing the costs of the application before it as best it can on a conservative basis, making use of the available material supplemented by the court’s own experience in such matters.  In the present case, adopting that approach, we assess the defendants’ costs in the amount of HK$70,000.