CS ASIA OPPORTUNITIES MASTER FUND v. ZHOU HAOHUI AND OTHERS

HCA 3001/2018

[2024] HKCFI 2233

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3001 OF 2018

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(By Original Action)

(By Counterclaim)

____________

________________________

REASONS FOR DECISION

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A.  THE APPLICATION

1.  This is the hearing of the Plaintiff’s application for stay of execution of the Order of Master Hew (dated 16 July 2024 (the “Order”) by summons dated 30 July 2024, pending the determination of the Plaintiff’s appeal against the Order (the “Application”).

2.  There were two summonses before Master Hew, namely,

(1)  The Plaintiff’s Summons dated 23 April 2024 (“P’s Summons”) for security for costs against the 1^st Defendant in the sum of HK$3,162,650 (or such other sum as the Court thinks fit); and

(2)  The 1^st Defendant’s Summons dated 6 May 2024 (“D1’s Summons”), seeking from the Plaintiff further security for the 1^st Defendant’s costs up to and including trial, in the sum of HK$7,502,700.00 (or such other sum as the Court thinks fit).

3.  On 16 July 2024, the Master dismissed the Plaintiff’s Summons and allowed the 1^st Defendant’s Summons, ordering the Plaintiff to pay further security for the 1^st Defendant’s costs into Court in the sum of HK$2,500,000 by 5 pm on 27 August 2024.

B.  APPLICABLE LEGAL PRINCIPLES

4.  The legal principles for ordering stay of execution pending appeal are well established and are set out in the leading judgment of Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at §§8 and 9. In short, the Plaintiff has to demonstrate that the appeal has at least reasonable prospects of success, and additional reasons why a stay is justified, for example, that the appeal would be rendered nugatory without a stay.

C.  THE PARTIES’ RESPECTIVE PLEADED CASES

5.  The respective cases of the parties are pleaded in the Re-Amended Statement of Claim (“RASOC”) and the Re-Re-Amended Defence and Counterclaim (“RAD&CC”).

6.  The present case concerns a dispute over an agreement known as a “Purported Equity Swap Confirmation”: RASOC §2I, whereunder the Plaintiff and the 1^st Defendant allegedly agreed to conduct an equity swap transaction in respect of shares in a listed company, Solartech International Holdings Ltd (“Solartech”).

7.  The Plaintiff’s pleaded case is that:-

(1)  On 20 March 2018, Frank Dominick (“Frank”), Cheung Sai Kei Linda (“Linda”), the 1^st Defendant had a meeting (“20.03.2018 Meeting”);

(2)  The Plaintiff pleads, and the 1^st Defendant denies that the 20.03.2018 Meeting was to discuss a proposed equity swap transaction (“Transaction”) of shares in Solartech;

(3)  After the 20.03.2018 Meeting, the Plaintiff and the 1^st Defendant executed a “Term Sheet” dated 21 March 2018, and a Side Letter between China Silver Asset Management Limited (“CSAML”) and the 1^st Defendant in relation to the Transaction;

(4)  The 1^st Defendant paid three sums (US$3,000,000, US$2,000,000, and US$1,750,000) in April and May 2018 to CS Asia Opportunities Dragon Feeder Fund (“Feeder Fund”);

(5)  On or around 7 September 2018, Frank emailed a copy of the Equity Swap Confirmation signed by him on behalf of Master Fund to the 1^st Defendant, and requested the 1^st Defendant to execute it (“the 07.09.2018 Email”);

(6)  The Plaintiff pleads, and the 1^st Defendant denies, that on a date after 7 September 2018, one Joshua Chan hand-delivered a copy of the Equity Swap Confirmation with the 1^st Defendant’s signature to the office of CSAML. The 1^st Defendant asserts that the signature in the Equity Swap Confirmation has been forged;

(7)  On around 2 November 2018, the 1^st Defendant paid a further sum of US$1,000,000 to Feeder Fund, i.e. the 1^st Defendant paid a total of US$7,750,000 (“the Sum”);

(8)  On 7 November 2018, the market price of Solartech shares fell to HK$0.182. Accordingly, on or around 7 November 2018 the Plaintiff demanded the 1^st Defendant to provide a collateral top-up of US$6,750,000, and the 1^st Defendant did not provide it ;

(9)  The Plaintiff pleads, and the 1^st Defendant denies, that the 1^st Defendant was in breach of the Equity Swap Confirmation, as read together with the 2002 ISDA Master Agreement. The Plaintiff claims against the 1^st Defendant for sums payable under the Equity Swap Confirmation and the 2002 ISDA Master Agreement, after taking into account the Sum.

8.  The 1^st Defendant’s case is that:-

(1)  In the 20.03.2018 Meeting, Linda acted on behalf of and had authority to represent the Plaintiff and Feeder Fund;

(2)  Linda allegedly made seven representations (“the Representations”) to the 1^st Defendant and he relied on the Representations to sign the initial version of the Term Sheet and Side Letter, and the revised documents.

(3)  On around 11 July 2018:

(a)  The 1^st Defendant proposed to Linda that he would pledge 50,000,000 shares of Solartech to the Plaintiff to make up for the shortfall of his investment;

(b)  The 1^st Defendant and the Plaintiff entered into an agreement titled the Stock Borrowing Agreement (“the Stock Borrowing Agreement”) to pledge 50,000,000 shares of Solartech to the Plaintiff;

(c)  The 1^st Defendant further signed a document titled “Side Letter” (the “Stock Borrowing Side Letter”), which stated that when the 1^st Defendant could pay the balance of US$3 million (after deduction of brokerage costs and costs of settlement), the Plaintiff would redeliver 50,000,000 shares of Solartech to the 1^st Defendant within 7 business days.

(4)  On around 13 July 2018, the 1^st Defendant and Patrick Maloney on behalf of the Plaintiff signed and stamped bought and sold notes for the 50,000,000 shares of Solartech. Patrick Maloney countersigned the Stock Borrowing Side Letter;

(5)  After receiving the Equity Swap Confirmation by email, the 1^st Defendant refused to sign as the terms made no commercial sense to him;

(6)  The 1^st Defendant pleads that Linda (on behalf of the Plaintiff and Feeder Fund) fraudulently or recklessly made the Representations to him. The 1^st Defendant also pleads that the Representations could not have been discovered with reasonable diligence by him until he received a letter from the Plaintiff’s solicitors dated 14 November 2018;

(7)  The 1^st Defendant pleads that he has a proprietary interest in the funds and pledged Solartech shares transferred to Feeder Fund and the Plaintiff. It is unconscionable and in breach of trust for Feeder Fund and the Plaintiff to deal with funds deposited by the 1^st Defendant, and the pledged Solartech shares. The 1^st Defendant claims equitable compensation and/or an account of profits against the Plaintiff and Feeder Fund;

(8)  The 1^st Defendant also pleads that Linda has dishonestly assisted or procured the breaches of trust;

(9)  The Plaintiff, Linda, Frank and/or Feeder Fund unlawfully combined together and/or conspired with each other to injure the 1^st Defendant by unlawful means;

(10)  The 1^st Defendant seeks an order to return of the Sum, rescind or set aside all the agreements he signed with the Plaintiff and other parties, damages in lieu of rescission, declarations that Feeder Fund holds the Sum on trust on behalf the 1^st Defendant and the Plaintiff holds 50,000,000 Solartech shares on trust on behalf of the 1^st Defendant, together with reliefs of accounts and inquiries.

9.  The 1^st Defendant counterclaims the Plaintiff for the following:-

(1)  Tort of Deceit / Misrepresentation;

(2)  Constructive Trust / Knowing Receipt; and

(3)  Unlawful Means Conspiracy.

10.  In relation to the Purported Equity Swap Arrangement, the 1^st Defendant pleads that:-

(1)  The Purported Equity Swap Arrangement was forged.

(2)  The defence of non est factum.

(3)  In any event, any such Purported Equity Swap Confirmation (which is denied) was illegal, unlawful and/or contrary to public policy, and hence void and/or unenforceable as it (1) is in nature a gaming and/or wagering contract contrary to the Gambling Ordinance (Cap 148); and/or (2) involves the Plaintiff carrying on and/or holding out itself as carrying on a business in a regulated activity without a license in breach of the Securities and Futures Ordinance (Cap. 571).

D.  WHETHER THE APPEAL WOULD BE RENDERED NUGATORY

11.  Mr Ho for the Plaintiff fairly accepted that other than the fact that the Plaintiff did not pay for the security for costs in respect of its claims against the 2^nd and 3^rd Defendants in the present case, there is no positive evidence to show that the Plaintiff is not able to comply with the Order. If the Plaintiff’s appeal is successful, there is no question that it could obtain a release of its payments from the Court.

12.  In the circumstances, it strikes this Court that this is not an appropriate case to stay the execution of the Order pending appeal. It simply will not render the appeal nugatory.

13.  Mr Yeung for the 1^st Defendant is correct that, normally, unless there is proper evidence before the Court that an order for security for costs would stifle a claim or appeal, such order should not be stayed pending appeal. In China Art Bank Co Ltd v Xu Zhiqiang (unrep., HCA 2178/2015, 26 July 2017), Mr Recorder Stewart Wong SC at §22 observed:

“Regarding the stay of execution of the orders to pay security for costs pending appeal, in the light of my refusal to grant leave to appeal against the orders, there is no basis to order a stay of execution. In any event, no ground for a stay of execution has been provided, even if I were to grant leave to appeal. There is no proper evidence before me that the plaintiffs are unable to pay those sums, or that any such sum (if paid into court, as I ordered) would not be recoverable should they succeed to overturn the orders on appeal…” (emphasis added)

14.  The application before this Court is not supported by any affirmation evidence. There is no evidence suggesting that the Plaintiff will be unable to pay the security for costs ordered by Master Hew. The Court can only conclude that the fact that no evidence to such effect was filed is because there is no evidence which can show that the Plaintiff could not comply with the Order and thus its claims against the 1^st Defendant would be stifled.

15.  As astutely observed by Yuen J (as she then was) in China Everbright Holdings Co. Ltd. v Hung Fung Holdings Ltd. (In Liquidation) (unrep., HCA 10150/2000, 3 May 2002) at §2:

“However, as has been pointed out by Mr Ng, there has been no affidavit put before the court at any stage of the means of any of the 2^nd to 6^th Defendants. In this regard, I refer to Fung Wai Kwong William v. Insider Dealing Tribunal [2001] 1 HKC 44 at page 49 in which the Court of Appeal said that in the absence of an affidavit of means the Court of Appeal in that case saw no basis for delaying execution. In the present case, one cannot assume that the Defendants would be unable to pay when the Defendants have chosen not to put forward any evidence as to their means.” (emphasis added)

16.  Mr Yeung is also correct that in the court below, the Plaintiff has not asserted that its claims will be stifled as a result of the security for costs ordered as a ground for resisting the 1^st Defendant’s Summons.

17.  Finally, as I mentioned earlier, the fact the present action against 2^nd Defendant and 3^rd Defendant has been dismissed upon the Plaintiff’s failure to pay security for their costs on 13 June 2024 does not ipso facto, proves that the Plaintiff’s claims will be stifled. I am informed that Mr Ho at the court below submitted that there may be many reasons why a party chooses not to pay security.

18.  At the end of the day, if there are real difficulties in complying with the Order, proper evidence should be presented to this Court. Mr Yeung is correct that in a regular security for costs application, a plaintiff asserting that “an order for security would stifle his claim” has the “burden” of proving “it is more likely than not that funds are not available from any source (whether from him, through commercial borrowing or from other backers) to provide security”: Edward Walecki v The General Fiduciary Co Ltd and others [2020] HKCFI 2921, §18(3). There is no such evidence here to support an assertion that the Plaintiff’s appeal will be stifled by its inability to pay security. I agree that the recent default, which could be due to the Plaintiff’s unwillingness to pay the price (whether out of its own pockets or from other sources) to pursue its claim against the 2^nd and the 3^rd Defendants, falls short of such evidence required.

19.  For the above reasons, I am not satisfied that the appeal will be rendered nugatory if no stay of execution of the Order pending appeal is granted.

E.  MERITS OF THE APPEAL

20.  Mr Ho for the Plaintiff submitted that the Plaintiff’s case is that it has strong grounds of appeal and a stay of execution of the Order should be granted on that basis alone.

21.  Mr Yeung rightly submitted that if the Plaintiff relies on this as the sole ground for this application, then it has a very high threshold to meet. It has to show that its appeal is almost bound to succeed. In Wenden Engineering Service Company Limited v Lee Shing Yue Construction Company Limited (unrep., HCCT 90/1999, 17 July 2002), at §§6-8 held that:

“6…It is apparent from that case that the requisite strength of the appeal must be such that the court takes the view that “something has grievously gone wrong with the process of law in the court below.

7. In other words, if the party applying for a stay of execution can demonstrate that it is almost bound to succeed in the appeal, this by itself will almost invariably tilt the balance in favour of granting a stay.

8. On the other hand, if all that can be demonstrated is that the appeal is arguable or even that good arguments exist, something more needs to be shown by the appellant in order to obtain a stay of execution. This is a consequence of the starting point in all applications for a stay pending appeal, namely that, the successful party in the court below is not to be deprived of the fruits of his success…” (Emphasis added).

22.  On the merits of the appeal, the Plaintiff relies mainly on two grounds. First, Mr Ho submitted that as both the Plaintiff and the 1^st Defendant are foreign parties, as a matter of law, the proper order is no security should be ordered. Mr Ho cited the case of The “Silver Fir” [1980] 1 Lloyd’s Rep 371 at 374 where Lawton LJ at the right column said:

“In my judgment, where, as in this case, both parties carry on business outside the jurisdiction, both are claiming against the other as parties who had been badly treated and have suffered damage, and it was mere chance that one started the arbitration before the other could get in a claim both should be treated alike. If one gets an order for security for costs then the other should too.” (Emphasis added.)

23.  Further, in Apex Global Management Ltd & Anor v FI Call Ltd & Ors [2014] EWHC 779 (Ch), Newey J held at §§42 and 43 that:

“42. Mr Fenwick drew an analogy with The “Silver Fir”. As, however, was pointed out by Black LJ in Autoweld Systems Ltd v Kito Enterprises LLC, that case concerned arbitration between foreign corporations and the Court was influenced by the practice relating to such arbitrations elsewhere in Europe. The present case, in contrast, involves Court proceedings.

43. In my view, the right approach in the present case is not to order both sides to give security for costs, but to make no order for security. To my mind, the existence and implications of the Global petition make it inappropriate for me to exercise my discretion to order Apex to provide security for costs in respect of its claims. Had I not already decided against requiring security from Mr Almhairat (see paragraph 25 above), I would have also have declined to make an order against him on this ground.” (Emphasis added.)

24.  In my view, Mr Ho has a reasonably arguable point here. However, Mr Yeung also has a point that on the facts of the present case, the 1^st Defendant has offered an undertaking to the effect that if the Plaintiff’s claims are dismissed or if the Plaintiff drops its claims against the 1^st Defendant, the 1^st Defendant will also drop its counterclaims against the Plaintiff. Hence, this is not a case where it was a mere chance as to who started the proceedings first.

25.  Further, every case depends on its own facts. I am not entirely sure that it is inevitable that if there are two foreign parties who are claiming against each other, irrespective of the nature and amount of their claims, the default position is that no security for costs should be ordered.

26.  Insofar as the Plaintiff contends that it is unfair that the Master only orders security for costs against the Plaintiff but not against the 1^st Defendant, the answer is that if it succeeds on its appeal in securing an order to oblige the 1^st Defendant to also put in a sum as security for costs, then it would not be unfair. But it does not follow that the Plaintiff should not be ordered to pay any security for costs.

27.  Pertinently, I also note that by the order of Master Ho dated 9 April 2021, the Plaintiff was previously ordered to provide security for the 1^st Defendant’s costs of the Plaintiff’s claims up to and including the preparation of witness statements by paying into court the sum of HK$785,000. The order of Master Ho was not appealed against.

28.  Secondly, Mr Ho relies on the Crabtree principle for the unjust situation as set out by Parker LJ at BJ Crabtree (Installations) Ltd v GPT Communications Systems Ltd (1993) 59 BLR 43 at 55

“Here the situation is that, if the money is not paid into court and the plaintiff’s claim is therefore stayed, the defendant will still raise issues on the counterclaim which are precisely the same as the issues which he would raise on the claim.” (Emphasis added.)

29.  Mr Ho also referred to the dicta of Park J in Anglo Petroleum Ltd v TFB (Mortgages) Ltd [2003] EWHC 1177 (Ch), as cited in §27 of Eminent Energy Ltd v Krässik Oü & Ors [2016] EWHC 2585 (Comm):

“[30] It sometimes happens that a single underlying dispute between two persons gives rise to 2 actions: each sues the other. There might be a claim and counterclaim within one legal action; there might be two separate actions. Suppose that A is in dispute with B about some underlying issue or other. A sues B; B defends A’s claim. B also sues A and A defends B’s claim. Essentially, each says the same thing in each case. So the ground on which B defends A’s claim is also the ground on which B sues A; and the ground on which A sues B is also the ground on which A defends B’s claim.

[31] Now let me add the further assumption that A is impecunious but B is wealthy. B applies to the courts to order A to provide security for B’s costs of defending A’s claim against him. If the court ordered A to provide that security, A could not provide it. But, quite apart from arguments about whether the court should make an order which would stifle A’s claim, it would not make much sense for the court to make that order. Suppose that the court did make the order and A failed to provide the security. The court would stay A’s claim against B. But B’s claim against A is still on foot, and when B brings it to trial, A can defend it. The court has no power to order a defendant to provide security for costs.

[32] In my example A could, and presumably would, defend B’s claims by advancing essentially the same arguments as those which he, A, wanted to advance in his own claim. It would, in my view, be largely pointless for the court to have ordered A to provide security for the costs of his own claim. Suppose that A’s defence of B’s claim succeeds. In that situation it must be expected that the court would lift the stay on A’s claim against B so that the claim would proceed after all, notwithstanding A’s original [in]ability to provide security for the costs of it.

[33] In general, the courts recognise that, where there are cross-proceedings, the position is as I have described, and the courts do not order a person in the position of A to provide security for costs of the claim which he is making himself .. Another application of the same underlying policy is the proposition that, if the defendant advances a counterclaim but the counterclaim is in substance a defence to the original claim, the counter-claimant will not normally be ordered to provide security for costs of his counterclaim ..”

30.  Mr Ho for the Plaintiff submitted that in the hearing before Master Hew, the 1^st Defendant had not cited any case to the effect that where both parties reside out of jurisdiction and claim against each other, only one of the parties shall be ordered to pay security for costs. Yet, Master Hew decided that only the Plaintiff had to pay security for costs, and the 1^st Defendant did not have to do so.

31.  In the oral decision, Master Hew did not refer to the equal treatment principle in The “Silver Fir”, and asked himself whether the Defendant’s counterclaim flowed from the same facts and transactions, and whether the 1^st Defendant’s counterclaim was the “flip-side” of the Plaintiff’s claim. In the oral decision, Master Hew expressly referred to Perpetual Wealth (Hong Kong) Ltd v Be Solutions Co Ltd [2022] 2 HKLRD 546 (“Perpetual Wealth”), in which K Yeung J held at §30 that:

“30. I have considered the parties’ pleaded case in substance. I do not dwell upon formality or pleading. D1 has denied all 5 causes of action pleaded by P. In respect of the cause of action of breach of contract, and relevantly, it denies that it has committed any breach, and denies that it was the one which repudiated the Agreements. It raises the positive defences of Extension and P’s Early Unilateral Termination. They are on the face of pleading legitimate defences. They flow from the same set of facts and transactions. The circumstances in which P demanded D1 and its staff to leave the Property, whether D1 had repudiated the Agreements, and whether P was entitled to accept any repudiation, are some of the factual and legal issues which will need to be considered in any event even as part of P’s case. The defences do not enlarge the ambit of the action in any material or substantial way. Whilst some additional evidence might become necessary, any additional factual issues they raise are discreet ones, and are not expensive or time-consuming to investigate. They may not even be regarded as aggressive defences. The Counterclaim then just flows from them. As Mr Lai has submitted which I agree, the Counterclaim may be looked at as the flip-side of P’s claim — if D1’s defences are established, it naturally flows that D1 is entitled to claim outstanding payments under the Agreements.”

32.  Mr Ho submitted that Master Hew clearly erred in drawing a parallel between the present case and Perpetual Wealth:

(1)  In Perpetual Wealth, the plaintiff sought security for costs against the 1^st defendant (§1). There was no cross-application from the 1^st defendant against the plaintiff (§22). Perpetual Wealth was not about a case with foreign parties claiming against each other and seeking security for costs against each other. It is wrong to draw parallel between Perpetual Wealth and the present case;

(2)  In Perpetual Wealth, no security for costs was ordered. This is consistent with the Plaintiff’s position that both parties should be treated equally;

(3)  Master Hew’s reasoning that the 1^st Defendant’s counterclaim flows from the same fact and transaction, and is the “flip-side” of the Plaintiff’s claim, reinforces the conclusion that ordering security for costs against the Plaintiff (but not the 1^st Defendant) is unreasonable and wrong. If the Plaintiff fails to pay the security for costs, the 1^st Defendant will still pursue his counterclaim against the Plaintiff, and the Plaintiff Fund will still have to deal with all the points raised in the 1^st Defendant’s counterclaim, particularly the Representations and all the causes of action based on the Representations. This is exactly the situation discussed in Crabtree, and shows that ordering the Plaintiff to pay security for costs to the 1^st Defendant is to give the 1^st Defendant tactical advantage. The tactical advantage is obvious:

(a)  If the Plaintiff’s claim is dismissed, the 1^st Defendant, being ordinarily resident out of Hong Kong, is prima facie liable to pay security for costs. Can the Plaintiff seek security for costs against the 1^st Defendant? If the answer is yes, then it would be wrong for Master Hew to order security for costs against the Plaintiff only. If the answer is no, then it will be plainly unfair to the Plaintiff;

(b)  If the 1^st Defendant’s counterclaim is dismissed and the trial judge effectively finds for the Plaintiff in its claim, then the prejudice against Master Fund is obvious and irreparable. In Crabtree, it was suggested that the plaintiff could still be given judgment by lifting the stay. However, this course is not open as the Plaintiff’s claim will be dismissed.

33.  Mr Ho, thus, submitted that the decision of Master Hew is plainly wrong and the Plaintiff is almost bound to succeed on its appeal.

34.  However, a key feature in the present case is the undertaking offered by the 1^st Defendant which renders the unfair situation as submitted by Mr Ho for the Plaintiff unlikely to happen. At the hearing, the 1^st Defendant was willing to give an undertaking in the following form:

“The 1^st Defendant undertakes that, in the event that the Plaintiff fails to put up security and his action is struck out and/or dismissed, the 1^st Defendant will discontinue its counterclaim as against the Plaintiff only”.

35.  The above wording were adopted by the parties in Dumrul v Standard Chartered Bank [2010] EWHC 2625 (Comm) at §15. The 1^st Defendant confirms it is still willing to do so, insofar as required by the Court.

36.  Mr Yeung submitted that as a matter of law, this renders the 1^st Defendant not the “real attacker”, and avoids the “difficulty raised by” the Crabtree principle: Dumrul at §§6, 19. This is because the 1^st Defendant would not be afforded any tactical advantage if the Plaintiff’s claim is stayed or dismissed by reason of the Plaintiff’s inability to pay security for costs – by reason of the 1^st Defendant’s undertaking, the 1^st Defendant would withdraw his claim in these circumstances.

37.  On the contrary, if the Plaintiff were able to pay the security for costs pursuant to the Order, the only potential unfairness is whether the 1^st Defendant should also be ordered to pay security for costs. This is a matter for the appeal.

38.  I am of the view that the undertaking brings the present case out of the scenario where the “equal treatment principle in The “Silver Fir”” applies, since the “equal treatment principle” only applies if “it was mere chance that one started the arbitration before the other could get in a claim”, and thus “both should be treated alike”: The “Silver Fir” at 374. The undertaking makes clear that the 1^st Defendant would not have advanced its counterclaim against the Plaintiff had the Plaintiff not commenced the present action against the 1^st Defendant. It also makes it clear that if the Plaintiff’s claims are dismissed or withdrawn for whatever reasons, the 1^st Defendant will also drop all its counterclaims against the Plaintiff.

39.  Additionally, Mr Yeung for the 1^st Defendant submitted that:

(1)  Security for costs cannot be required from a defendant who is merely exercising his right to defend himself against attack: Hong Kong Civil Procedure 2024 at §23/3/16.

(2)  This principle applies even if the defendant makes a counterclaim against the plaintiff, unless the counterclaim “arise[s] out of different matters” than the plaintiff’s claim: Hong Kong Civil Procedure 2024 at §23/3/8.

(3)  The main question is thus whether the counterclaim of the defendant overlaps, or “arise[s] out of different matters” than the plaintiff’s claim.

(4)  In this regard, the case of Perpetual Wealth was instructive:-

(a)  The Court was concerned with a plaintiff who had sued the defendants for misrepresentation, breach of contract and conspiracy. The defendants denied these claims, and further counterclaimed for outstanding payments due from the plaintiff under the contract.

(b)  Mr Justice K Yeung in dismissing the plaintiff’s security for costs application regarding the 1^st defendant’s counterclaim at §30 held that the defendant’s counterclaim “flow[s] from the same set of facts and transactions” as the plaintiff’s claim, concerns “the factual and legal issues which will need to be considered in any event even as part of P’s case ”and “do[es] not enlarge the ambit of the action in any material or substantial way”. In other words, “the Counterclaim may be looked at as the flip-side of P’s claim.”

40.  Mr Yeung submitted that Master Hew made the Order on the correct basis that the Defendant was not the “real attacker” for two good reasons:-

(1)  The 1^st Defendant’s counterclaim arises out of the very same issues as part of the Plaintiff’s claim; and

(2)  In any event, the Defendant is willing to give an undertaking to withdraw his counterclaim against the Plaintiff should the Plaintiff fail to pay security for the 1^st Defendant’s costs and the Plaintiff’s claim against the 1^st Defendant is dismissed.

41.  Mr Yeung submitted that the Crabtree principle does not apply by reason of the undertaking. He further submitted that the Crabtree principle does not apply in any event:-

(1)  The Crabtree principle applies if there is symmetry between the plaintiff’s claim and the defendant’s counterclaim.

(2)  Although the 1^st Defendant’s counterclaim is the “flip-side” of the Plaintiff’s claim, the Plaintiff’s claim concerns more issues than the 1^st Defendant’s counterclaim. Put another way, there is no precise symmetry. The greater (the Plaintiff’s claim) includes the lesser (the 1^st Defendant’s counterclaim). In these circumstances, it is just to only order security against the Plaintiff, but not the 1^st Defendant.

(3)  The Plaintiff’s claim herein goes above and beyond the matters canvassed by the 1^st Defendant’s counterclaim because, apart from the factual matters that transpired during the meetings as pleaded, the Plaintiff’s claim additionally relies on (and in fact, is largely based upon) the Purported Equity Swap Confirmation.

(4)  The 1^st Defendant’s additional defences in relation to the Purported Equity Swap Confirmation (including in particular the issue of forgery, which is factually complex and necessitates expert evidence). The 1^st Defendant’s four defences are all in addition to the 1^st Defendant’s case concerning the Representations, and solely necessitated by the Plaintiff’s claim being in reliance on the Purported Equity Swap Confirmation. They are not dependent on the validity of the Purported Equity Swap Confirmation. Indeed, even if these four defences fail and the Purported Equity Swap Confirmation is held to be valid, the 1^st Defendant’s counterclaim (based on the Representations) may still well be made out.

(5)  Consequently, the Crabtree principle does not apply as there is no precise symmetry between the Plaintiff’s claim and the 1^st Defendant’s counterclaim. In other words, this is not a situation where “findings might be made on the counterclaim which clearly showed that the plaintiff’s claim which had been stayed would be lifted and there would then be judgment for the plaintiff on the claim (notwithstanding the fact that he had not paid money into court) with appropriate orders as to costs”: Crabtree at 55. Even if the Court finds against the 1^st Defendant’s counterclaim, the Plaintiff may still not have a claim by reason of the additional defences set out above.

42.  This application was fixed for 30 minutes before this Court. This Court is not dealing with the appeal proper. Doing the best it can, this Court, by reason of the matters set out above, is of the view that there are fairly arguable grounds of appeal but is not convinced, at this stage, that the Plaintiff’s grounds of appeal are almost bound to succeed.

F.  DISPOSITION

43.  For all the reasons stated above, the Plaintiff’s application for stay of execution is dismissed with a costs order nisi that costs to be paid by the Plaintiff to the 1^st Defendant, to be taxed on a party to party basis, if the parties cannot reach an agreement. This is on the condition that the 1^st Defendant’s undertaking as set out in paragraph 34 above is accepted by this Court.

44.  The above costs order nisi will be made absolute within 14 days from the date hereof unless an application is taken out to vary the same within the said 14-days period.

45.  Finally, it remains for me to thank Mr Ho for the Plaintiff, Mr Wong SC and Mr Yeung for the 1^st Defendant for their helpful assistance.