SMARTWORLD INTERNATIONAL LTD v. CHAN KWOK SHUNG, MICHAEL AND OTHERS

HCA 1136/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1136 OF 2011

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BETWEEN

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D E C I S I O N

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1.  By summons dated 3 August 2011, the Defendants in this case, namely D2 to D9 inclusive, seek an order for security for their costs of the action, to be paid within seven days from the date of such order being made, in the sum of $556,200.

2.  At the time, all the Defendants so named were represented by Mr Hui from Messrs Robertsons.  Latterly, the 6th Defendant has hived off his defence and has instructed a separate firm to represent his interest, namely Mr Kenneth Sit, of Messrs Kenneth Sit.

3.  The principles governing the application for security for costs are not in dispute.  It is also not in dispute that the Plaintiff is a foreign person with no assets within Hong Kong save and except the amount of money which it says has been paid under escrow agreement into Messrs. K&L Gates to the Defendants.  That of course is a matter of much controversy and will have to be dealt with ultimately at trial if the proceedings proceed thus far.

4.  So for present purposes, it would appear to me that the Plaintiff does not have any assets within Hong Kong and is clearly not resident within the jurisdiction.

5.  All things being equal, the principles indicate that it would be just and fair for an order for security for costs to be made against a foreign litigant suing as Plaintiff.  In this case, both Mr Hoy and Mr Sit, for the Defendants, have cumulatively submitted that there is a genuine uncertainty over the possibility of recouping costs if the Defendants are to be ultimately successful at trial.  There is no reciprocity for the enforcement of any costs orders between the BVI and Hong Kong, the Plaintiff being domiciled in the BVI.

6.  It would be unfair, indeed, were the Defendants to succeed only to be frustrated in their attempts enforce court orders on costs against the Plaintiff.

7.  In this balancing exercise, which invariably it must be, the court must look and see how good the Plaintiff’s case is.  From the affidavits thus far filed in these proceedings, there are plainly substantial conflicts of facts that need to be determined and resolved at trial.

8.  Mr Hoy, as well as Mr Sit, take issue with the payments of money allegedly under escrow agreements into K&L Gates, of which the Defendants were members of the firm.  At issue is the fact that K&L Gates was principally concerned or, in fact, solely concerned, with the provision of legal services.  It did not undertake any other business.  If escrow business had been undertaken by the Defendants, then it was obviously outside the normal work of the firm.  That is an issue of contention.  The moneys were paid to and through Mr Navin Kumar Aggarwal, the first-named Defendant in this suit.  He was, from the papers, a rogue solicitor, and there can be very little uncertainty about that.

9.  The Defendants dispute that escrow business had been conducted at any time, and that remains a matter to be resolved.

10.  In respect of the moneys actually paid in by the Plaintiff, some were attributed directly to Mr Stephen Hong Ming-sang. Certain sums directly attributed to him were handed over to the firm into the Defendants’ client or trust account.  There are other funders also claiming through the Plaintiff and they are numerous.

11.  On the issue of the cause of action premised on money had and received by the Defendants, whether or not these other funders, be they private individuals or corporate entities, have a good prospect of success on their claim is a matter which is clearly arguable.  It cannot be said with certainty that the Plaintiff’s claim must necessarily succeed.  It is my view that it cannot be concluded with any degree of conviction that the Plaintiff’s claim is more than likely to succeed.

12.  The Plaintiff also says that looking at the moneys paid in, there is certainly a minimum balance of $4.5 million with K&L Gates, and that should be sufficient for meeting any security for costs.

13.  Whether or not there is any balance there, or whether or not, as Mr Hoy and Mr Sit have contended, that more money has been paid out than received by K&L Gates, that is an area that needs to be fully ventilated and explored.  It cannot be said that the conclusion is plain one way or the other.

14.  On the evidence before me and on the principles as to the grant of orders for security for costs which the parties have adumbrated in their respective submissions, I consider that it would be just and fair and indeed proper in this case that an order for security for costs should be made against this foreign Plaintiff.

15.  As to quantum, having looked at all the matters pertaining to disputes of fact, one can see that the matter is likely to go beyond the Order 14 stage, it being clear, in my view, on the evidence so far adduced, that the probability of success of the Order 14 application is not particularly high, but I say no more than that.  But I do make reference to this because I think it would be right in this case to order adequate and sufficient security up to discovery.

16.  As to quantum, I shall hear particularly from Mr Tang, but before I invite him to address me, I agree that whatever security should be ordered in this case, there should be no stay so as to keep the Order 14 proceedings on track.  It is in everyone’s interest that in the meantime directions for the filing of affidavits for that very application should proceed in a normal and expeditious manner.