MARYO DEVELOPMENT LTD v. TSANG YAU MAY

CACV 101/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 101 OF 2015

(ON APPEAL FROM HCA NO 2297 OF 2012)

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AND

(ON APPEAL FROM HCA NO 271 OF 2013)

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(Consolidated by the Order of Master J Wong dated 30 August 2013)

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REASONS FOR DECISION

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Hon McWalters JA (giving the reasons for decision of the court):

Introduction

1.  The plaintiff applied by inter-partes summons for the 3^rd defendant in HCA 2297/2012 (Wong Yat Man Sunny) to provide security for costs in the sum of $265,000 in respect of his appeal from a refusal by Deputy High Court Judge Marlene Ng (“the judge”) to set aside a regularly entered default judgment.

2.  At the hearing of the application we decided that the defendant should be required to provide security for costs, that such security should be in the sum of $220,000, that the defendant should have 35 days to provide it and that the costs of this hearing should be costs in the appeal.

3.  These are our reasons for so deciding.

The litigation

4.  For the purpose of these Reasons for Decision it is not necessary to go into the underlying proceedings in any detail.  Suffice it to say that the 1^st and 2^nd defendants, who were directors of the plaintiff, are alleged to have, in breach of their fiduciary duties, fraudulently extracted a total of $10,130,000 from the plaintiff.[1]  They did this by drawing cheques on the plaintiff’s bank account payable to the 3^rd defendant in payment of a quantity of jadeite that was purportedly purchased by the plaintiff from the 3^rd defendant pursuant to a written agreement dated 22 July 2011.  Under the terms of this agreement the plaintiff agreed to buy 200 pieces of jadeite for $12,000,000. 

5.  In addition to commencing this litigation the plaintiff also reported the matter to the police.  The 3^rd defendant and the police both engaged different experts to value the jadeite.  The 3^rd defendant’s gemologist assessed the value of the jadeite at about $1,168,400 to $1,394,900 as at 3 December 2014.  The police expert assessed the retail value of the jadeite as at June 2011 as being $276,440 to $405,045 and wholesale value as being $193,508 to $324,036.

6.  The 1^st to 3^rd defendants are being prosecuted and their criminal trial has been fixed for hearing on October 2015.

7.  In the course of the litigation the 3^rd defendant’s bank accounts were made the subject of a Mareva injunction and to date the plaintiff has received $7,820,010.70 in satisfaction of the judgment debt.  The judgment against the 3^rd defendant was entered on 11 July 2013 and the summons to set it aside was filed on 20 January 2014.

The application to set aside

8.  The 3^rd defendant’s case was that after failed attempts to go into business with the plaintiff through the 1^st defendant in the trading of jadeite and precious stones, the 1^st defendant offered to purchase from the 3^rd defendant his personal collection of jadeite.  This led to the signing of the agreement dated 22 July 2011.  When he subsequently found out about the low value of the jadeite the 3^rd defendant said he spoke to the 1^st defendant who told him that a valuer known to them both had assessed the jadeite at $16,068,000.

9.  The 3^rd defendant argued that the plaintiff’s case was built on thin circumstantial evidence and that the 3^rd defendant’s case was credible, carrying the degree of conviction that would provide it with a real prospect of success.

10.  The plaintiff argued to the contrary asserting that it defied common sense and was internally inconsistent.

11.  The judge, after setting out the background and history of the litigation directed herself on the legal principles to be applied to a setting aside application.  She went on to discuss in detail the defence being advanced by the 3^rd defendant and concluded that there were material aspects of his case that did not make commercial or common sense and which cried out for explanation.  Noting the absence of any cogent or convincing explanation from the 3^rd defendant the judge found that he failed to satisfy the threshold requirement for setting aside the judgment of having a defence that had a real prospect of success.  She also said that her finding that his explanation for his delay in making the application was not credible, and other considerations which she listed, added weight to the exercise of her discretion not to set aside the judgment.

The appeal

12.  There are four grounds of appeal.  The first two complain that the judge erred in finding that the 3^rd defendant had failed to show a meritorious defence and erred in concluding his evidence was inherently unbelievable.  The third ground of appeal asserts that the judge failed to take into account the possibility of inconsistent verdicts should the plaintiff fail in its claim against the 1^st and 2^nd defendants.  The final ground of appeal claims that the judge failed to conduct a fair and balanced exercise in her adjudication of the application.

Discussion

13.  The 3^rd defendant presents himself as impecunious and so there is the very distinct likelihood, on his own case, that should his appeal fail he will be unable to meet the plaintiff’s costs of the appeal should a costs order be made against him.  That being so it is appropriate to consider the merits of the appeal.

14.  At this stage of the proceedings, and for the purpose of determining this application, it is not appropriate for us to comment in any depth on the merits of the appeal.  While the grounds may be arguable with varying degrees of strength, there is nothing in them that stands out as having a strong prospect of success.

15.  We also note that notwithstanding the 3^rd defendant’s claim to being impecunious he has not accounted for the $2.3 million remaining from the monies he received from the plaintiff but which have not yet been repaid.

16.  In our view there are special circumstances present in this case which justify us in ordering that the 3^rd defendant give security for the costs of the appeal.  There are no countervailing factors to justify not making an order.

17.  As we are minded to make the costs of this application costs in the appeal, the amount of security that we order should contain allowance for the costs of today’s application.  The plaintiff has assessed the costs of the appeal as being $265,850 and the costs of this application as being $122,000.

18.  We were not persuaded that given the nature and complexity of the appeal and of today’s hearing that such amounts could be fully justified.  For this reason we ordered that the 3^rd defendant give security for the costs of the appeal in the amount of $220,000.  The 3^rd defendant sought 35 days in which to pay and as the plaintiff did not oppose that request, we so ordered.