YANG WEI JENNIFER AND ANOTHER v. HSBC PRIVATE TRUSTEE (HONG KONG) LTD

HCA 5073/2001 & HCAP 11/2002
(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5073 OF 2001

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(Heard together)

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D E C I S I O N

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1.  By two summonses both dated 5 November 2008, the defendants in the above two actions apply for security for their costs up to and including the trial of the actions.  The two actions were ordered to be tried together. The trial is scheduled to commence on 9 March 2008 with 14 days reserved.

The actions

2.  Briefly stated, the disputes between the parties concern the Estate of Mr Yeung Bing Ching Albert, deceased (“the Deceased”). Mr Yeung died on 27 November 1995. 

3.  The 1^st plaintiff in HCA5073/2001 (“the High Court Action”), who is also the plaintiff in HCAP11/2002 (“the Probate Action”),  (“Ms Yang”) was the lover of the Deceased. 

4.  The 2^nd plaintiff in the High Court Action (“Mannix”) is a BVI company that carries on business in Hong Kong, and in which the Deceased was actively involved during his lifetime. 

5.  The 2^nd and 3^rd defendants in the Probate Action are the beneficiaries under a will dated 12 July 1993 made by the Deceased (“the Will”).  By Letters of Administration dated 10 January 2001 with the Will annexed, the defendant in the High Court Action, who is the 1^st defendant in the Probate Action, (“the Administrator”) was appointed the administrator of the estate of the Deceased. 

6.  In the Probate Action, Ms Yang seeks to admit to probate what is claimed to be a codicil dated 20 July 1993 (“the Codicil”) written and signed by the Deceased.  She was the sole beneficiary to the legacies said to be bequeathed under the Codicil. Ms Yang also seeks a revocation of the existing grant and the grant of new Letters of Administration with the Will and the Codicil annexed.

7.  The claim is defended on a number of grounds that are pleaded in the alternative, namely, (i) the Deceased had no animus testandi, (ii) the Codicil was conditional, (iii) the dispositions in the Codicil are too vague, and (iv) the Deceased only used the Codicil to make inter vivos gifts.    

8.  In the High Court Action, Ms Yang claims against the Deceased’s estate for: (i) the return of four sums of money, totalling HK$20,658,442.80, which is said to be held by the Deceased on trust for her, and also (ii) the beneficial ownership of the shares in Mannix.  The claim of Mannix is for shares in a company called Maifolk International Holdings Inc. (“Maifolk”), which are said to be held by the Deceased on trust for Mannix.

9.  In respect of Ms Yang’s monetary claim, the Administrator puts her to strict proof that the four sums of money originated from her own funds.  On the beneficial ownership of Mannix, the Administrator claims that the Deceased was the beneficial owner even though Ms Yang held the two bearer share certificates in the company.  As for the shares in Maifolk, the Administrator contends that the share certificates previously issued to Mannix had been cancelled, that Mannix never paid for the shares and that if they were intended to be a gift, it had not been perfected by the Deceased before his death.

10.  The Administrator counterclaims for the return by Ms Yang of various sums of money said to be held by her in trust for the Deceased, totalling US$2.5 million, and also of a sum of HK$9,450,000, being the sale proceeds of a property (“Lotus Mansion Property”), which is said to be held by her in resulting trust for the Deceased.  The Administrator also counterclaims for declaratory, accounting and consequential relief in respect of the beneficial ownership of Mannix.

The applications

11.  The applications for security for costs are made under Order 23 rule 1 of Rules of the High Court on the ground that Ms Yang and Mannix are ordinarily resident outside Hong Kong. 

12.  The two actions had been commenced six or seven years ago. As mentioned above, the trial is estimated to last 14 days.  Both sides have been advised and will be represented by senior and junior counsel.  The estimated costs of the Administrator in the High Court Action is HK$4,552,513.67.  As for the Probate Action, the estimated costs of the defendants is HK$1,770,585.33.  For the purpose of the present applications, the defendants in the two actions are content with an order for security in the total amount of HK$5 million, representing about 80% of the estimated costs.

13.  The applications are opposed on the following grounds:

(1)  The defendants have not shown there is real difficulty in enforcing any judgment or order on costs made against Ms Yang.

(2)  Ms Yang has a genuine and strong claim in the Probate Action.

(3)  The counterclaim in the High Court Action overlaps substantially with the claim therein.

(4)  The applications were late applications and the defendants are guilty of inordinate delay.  The delay has caused prejudice to the plaintiff.

(5)  Ms Yang has difficulties coming up with the funds if security is to be ordered.

(6)  The amount of security sought is excessive. 

Difficulties in enforcement

14.  Under Order 23 rule 1(a) of Rules of the High Court, if the plaintiff is ordinarily resident out of the jurisdiction and if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give security for the defendant's costs of the action. 

15.  The jurisdiction under the rule is discretionary and the Court is required to have regard to all the circumstances in the case.  The fact that the plaintiff is ordinarily resident outside Hong Kong is a necessary condition, but there is no inflexible rule that a foreign plaintiff must provide security for costs.  In considering the exercise of the discretion, whether the plaintiff has substantial property in the jurisdiction readily available for costs and the ease or difficulties faced by the defendant in the enforcement of a judgment of costs are matters that the Court can properly take into account: Hong Kong Civil Procedure 2009 Vol. 1 paras.23/3/1-23/3/6. 

16.  In the present case, there is no dispute that Ms Yang resides in the USA and Mannix is a BVI company.  Ms Yang had stated in her affirmations that apart from three bank accounts with credit balance totalling about HK$200,000, she has no other assets in Hong Kong.  She however has about US$70,000 and one property in Sacramento, USA and also some cash, shares and landed properties in Shanghai. 

17.  Mr Mak points out that the USA has a common law system and that judgments are reciprocally enforceable between Hong Kong and the USA. Referring to Izumo Mokko Co Ltd v. T S Lines Ltd [2007] 3 HKC 296, 303, in which the judgment of Mance LJ in Nasser v. United Bank of Kuwait [2002] 1 WLR 1868 para.63 was cited, he argues that it is incumbent upon the defendant to adduce evidence to show that there will be real difficulties in recovering costs against the plaintiff. 

18.  While not disputing that the USA has a common law system, Mr Miu submits, and I agree, that there is no reciprocal enforcement of judgments between Hong Kong and the USA under the Foreign Judgments (Reciprocal Enforcement) Ordinance, cap.319.  It is necessary for a successful party to institute proceedings in the USA to enforce a Hong Kong judgment or order on costs.  What Mance LJ had said in the Nasser case is that if the plaintiff resides in a common law country where there is legislation enabling reciprocal enforcement of judgment by registration, it may be incumbent upon an applicant to show some basis for concluding that enforcement would face substantial obstacle or extra burden meriting the protection of an order for security for costs.  This clearly has no application to the present case given that there is no legislative arrangement for reciprocal enforcement of judgments between Hong Kong and the USA.

19.  Although there is no evidence relating to additional difficulties or complications in enforcement of a Hong Kong judgment or order on costs in the USA, I can readily see that there will naturally be some delay and additional costs if the defendant has to enforce a judgment or order on costs against the plaintiff in the USA.

Strengths of the claims

20.  It is correct that the likelihood of the plaintiff succeeding is a relevant consideration for the Court in exercising the discretion under Order 23 rule 1.  However, the hearing of an application for security for costs is not the occasion for a detailed examination of the merits of the parties’ case.  It is not the Court’s function to make a preliminary run at deciding the ultimate success or failure of the plaintiff’s claim.  Hence, unless it can be easily demonstrated one way or another that there is a high degree of probability of success or failure, the parties at a security for costs application should not attempt to go into the merits of the case.  See Sunchase International Group (China) Ltd v. Vincor Group of Companies (Investment) Ltd [2004] 1 HKLRD 732, 733 and Porzelack K.G. v. Porzelack (UK) Ltd [1987] 1 WLR 420, 423.

21.  In the High Court Action, it is clear that there are a number of factual disputes, including the flow of funds between the Deceased and Ms Yang and the relationship and dealings between them, whether personally or in connection with Mannix and Maifolk.  Although the main oral evidence will come from Ms Yang because of the death of the Deceased, there is documentary and other evidence that the Court has to consider and weigh before coming to a finding.  It is not possible for the Court to form any view on the merits of the parties’ case, hence the strength of the plaintiffs’ claim.      

22.  As for the Probate Action, Mr Mak points out that the defendant has not advanced any positive case or evidence to contradict Ms Yang’s case that she and the Deceased were lovers, that the Codicil was executed just days after the Deceased made the Will and that the Deceased had at the same time given instructions to his personal secretary in a letter and so on.  He argues that the alternative defences raised by the defendants in the Probate Action are speculative, misplaced and has no real prospect of success.   Mr Miu on the other hand, cites In re Morgan (1887) 35 Ch D 492 and emphases that it is understandable that the Administrator (and also the beneficiaries), who is not privy to the relationship between the Deceased and Ms Yang, cannot be expected to run a positive case on these aspects of the disputes.  It is also, he argues, proper and legitimate for the defendants to put the plaintiff to strict proof of her case and to run the alternative defences.

23.  In my view, the status and effect of the Codicil, which is the central issue in the Probate Action, is a question of mixed facts and law.  The determination requires findings on issues of facts relating to, among others, the relationship between the Deceased and Ms Yang and the circumstances under which the Deceased made out the document.  Although the broad factual matrix is probably uncontroversial, it is not a case that the Court can readily or easily come to a conclusion on the factual and legal disputes. 

24.  I am not persuaded that the plaintiffs in both actions have demonstrated that it is possible or appropriate for the Court to conclude that they have a high probability of success or that there is a strong prima facie presumption that the defendants will fail in the defences.  This is a case where the Court should proceed on the basis that the plaintiffs have    genuine and reasonably arguable claims and the defendants also have reasonably arguable and viable defences.

The counterclaim in the High Court Action

25.  In connection with the High Court Action, Mr Mak also submits that the Administrator’s counterclaim overlaps with the plaintiffs’ claim and raises the same issues such that the Court should decline to order security for costs.

26.  In Dragages et Travaux Public v. Hong Kong Chinese Insurance Co Ltd & Anor [1993] 1 HKC 617, a construction case in which an application for security for costs was made under Order 23 rule 1(b) and section 357 of Companies Ordinance, Kaplan J accepted that in exercising the discretion and striking a balance between what would be too oppressive to the plaintiff and what would give the defendant a measure of security, the Court will take into account the bona fide nature of the claim and any element of overlap between the claim and the counterclaim. This is of course in the context of assessing the amount of security to be ordered: at 624E-F.

27.  In BJ Crabtree (Insulation) Ltd v. GPT Communication Systems Ltd 59 BLR 43, the plaintiff claimed for the price of work done and the defendant counterclaimed for damages for defective and incomplete work, which exceeded the plaintiff’s claim.  The English Court of Appeal held on the facts of the case that it would not be fair and just to order the plaintiff to give security for costs.  The Court of Appeal was primarily concerned that if the plaintiff was ordered to provide security and if security was not given, the plaintiff would be prevented from pursuing its claim leaving the defendant free to pursue the counterclaim. However, the plaintiff would be free to defend the counterclaim, which would involve all the same matters and issues if the plaintiff were to pursue its claim.   

28.  Referring to the purpose of the English equivalent of section 357 of Companies Ordinance, namely, to give a measure of protection to a defendant who is put to the costs of defending himself against a claim by an impecunious corporate plaintiff, Bingham LJ said (at p.53):

“It may in some cases be fair and just to make such an order even though the defendant is himself counterclaiming, but I am persuaded that it would be wrong to do so here because the costs that these defendants are incurring to defend themselves may equally, and perhaps preferably, be regarded as costs necessary to prosecute their counterclaim.  Of course, as Mr Phillips points out, they may decide later not to prosecute their counterclaim, but they would be a different situation from that which now presents itself before the court and upon the basis of which we have to rule. The fact that the plaintiffs are plaintiffs and the defendants are counterclaiming defendants instead of the other way round appears on the facts here to be very largely a matter of chance.”

29.  The case was applied by in Goal Setting Consulting Co v. Unigraphics Solutions Asia / Pacific Incorporated (HCA994/2003, unreported, 25 October 2004).  Sakhrani J considered that the claim of the plaintiff and the defendant’s counterclaim in that case raised essentially the same issues which had to be fully litigated anyway so that it would not be fair and just in the circumstances to order the plaintiff to provide security for costs. 

30.  These and several other cases had recently been considered in Success Wide Ltd v. Dynamic (BVI) Ltd [2006] 1 HKC 149, which involved an unsuccessful application for security for costs made under section 357 of Companies Ordinance.  Mr Recorder B Yu SC observed obiter (at paras.11-20) that where the counterclaim was made substantially by way of defence to the plaintiff’s action and did not stand as an independent claim, the Court would ordinarily decline to order security. It was, however, acknowledged at the same time that the Court had a wide discretion and must do what was just in the circumstances.

31.  In the High Court Action, although the counterclaim goes beyond the scope of the claim, the issues in the counterclaim do overlap with those of the claim, including the origins of the funds that form Ms Yang’s monetary claim and the beneficial interests in Mannix.  This is an important factor that the Court has to consider in exercising the discretion.

32.  In meeting this objection of the plaintiffs, the Administrator through its solicitors indicates that if the claim in the High Court Action is stayed because of failure to meet the order for security for costs, it will not seek to proceed with the counterclaim and will be contented with an order staying all the proceedings in the action.  The Administrator explains that it is driven by the claim to make the counterclaim.  Mr Mak criticises this indication saying that it shows that the Administrator is not serious about the counterclaim.

33.  In my view, the High Court Action stands in a different light from the cases discussed above.  As Mr Mak accepts, the disputes in the action are disputes relating to the administration of the Deceased’s estate, which are dependent on the outcome of the Probate Action.  Indeed some of the factual disputes are common to both sets of proceedings.  Had the parties agreed, it would have been proper or appropriate to stay the High Court Action pending the adjudication of the Probate Action.  Thus viewed, I do not agree that the Administrator can be said to be not serious in proceeding with the counterclaim when it suggests that both the claim and counterclaim should be stayed if the plaintiffs fail to comply with the order for security for costs.  I further do not accept in the circumstances of the case, the overlap between the claim and counterclaim makes it unfair or unjust to make an order for security for costs in the High Court Action.

Delay and late application

34.  The plaintiffs also complain that there had been inordinate delay in making the applications in that the defendant have known since the commencement of the actions that Ms Yang is resident outside Hong Kong.  It is further said that the present applications were late applications given that it is now less than three months from the commencement of the trial in March 2009.  In her affirmations, Ms Yang said that she had been prejudiced by the delay in that she would be in a position to provide the security if the applications were made earlier either in 2004 or in 2007 and that due to the fall in the property and share market in Shanghai since the beginning of 2008, she now has difficulties meeting the security asked for by the defendants.

35.  The defendants explain, and I accept, that it was only after the filing of Ms Yang’s 2^nd witness statement in June 2007, disclosing the sale of the Lotus Mansion Property in 2004, that they saw the need to seek security.  Previously, although they knew that Ms Yang is resident outside the jurisdiction, they did not think it would be appropriate to seek security for their costs as the Lotus Mansion Property would be regarded as a substantial property held by Ms Yang within the jurisdiction.  Considering that the Lotus Mansion Property was purchased for over $9 million in 1994 and sold for over $6 million in 2004 and that it was mortgage free, I accept that the defendants are justified in taking a view that security for costs would not be appropriate when Ms Yang remained a registered owner of it, even though the beneficial interest in the property is in issue between the parties. 

36.  After receiving the 2^nd witness statement of Ms Yang, the defendants’ solicitors conducted a land search on Lotus Mansion Property in September 2007, which confirmed the sale of it in February 2004.   Some months later on 12 February 2008, the defendants’ solicitors wrote and made the first request for security.  The plaintiffs’ solicitors made a holding reply on 19 February 2008.  After some chasers and further exchange of correspondence, the defendants’ solicitors wrote on 9 October 2008 enclosing the skeleton bills and requested security to be provided in accordance with the amounts set out therein.  By letter dated 13 October 2008, the plaintiffs’ solicitors indicated agreement to provide security for both actions in the total amount of $3,050,000 to be paid by two instalments.  This was rejected by the defendants and communicated in a letter dated 28 October 2008.  On 5 November 2008, the defendants took out the present summonses.  Meanwhile on 2 April 2008, the two actions were set down for trial and on 30 April 2008 the trial dates were fixed.

37.  As accepted by Mr Miu, the defendants could have proceeded with greater expedition.  It can also be said that they did not necessarily have to wait for the responses from the plaintiffs and could have gone ahead to issue the summonses.  However, I am not prepared to say that the defendants were wrong in attempting to seek out the views of the plaintiffs or that they had been guilty of inordinate delay in making the applications. There was progress in the communications between the solicitors, albeit slow and did not produce any agreement in the end.  It is also the case that the plaintiffs did not respond to the requests as expeditiously as they should, considering that they knew since May 2008 that the trial dates are in March 2009.

38.  The plaintiffs further refer to the checklists filed by the defendants in the two actions, in which it was indicated that application for security of costs was not contemplated.  So far as the checklist filed in the Probate Action is concerned, that was before the defendants learnt of the sale of the Lotus Mansion Property.  In respect of the checklist in the High Court Action, the defendants’ solicitors accepted that it was an error and stated on oath that it was made inadvertently.  I agree that the mistake should have been avoided.  But there is no basis for the Court not to believe the explanation offered by the solicitor or to conclude that there was sharp practice or deliberate overreaching.  In any case, it was clear by February 2008 that the defendants were pursuing security for costs.  Despite that knowledge, the plaintiffs were contented with the setting down of the actions for trial and fixing the trial dates.  In the circumstances, I do not regard the mistake in the checklist as a factor of any significant weight.   

39.   As to the prejudice to Ms Yang, it is to be noted that as recent as October 2008, she was prepared to provide security to the tune of some $3 million, which must be indicative of her financial strength.  Indeed, her affirmations do not show her to be a person of little means.  I further note that the affirmations only give a broad picture of her financial position and assets.  For instance, while she mentioned she had several landed properties and shares in Shanghai, she had not given the details and the value of the properties.

40.  In short, although the defendants’ applications could have been made earlier, the defendants had given a plausible and reasonable explanation for it.  I do not accept that the prejudice said to have occasioned to the plaintiffs or the difficulties she might have in meeting an order for security are such that the discretion should be exercised against ordering security for costs.  However, I accept that the proximity of the trial dates is a factor that I should take into account when considering the amount of security.

Amount of security

41.  Turning finally to the amount of security to be ordered, the plaintiffs point out, and the defendants do not seem to dispute, that the skeleton bills were drawn on the basis of solicitor-own client costs.  The defendants argue that it is not invariably the case that costs are awarded on party-and-party basis.  Having regard to the nature of the two sets of proceedings and the fact that the Administrator is acting on behalf of and defending the interest of the estate, I accept that it is possible that costs may be awarded on a higher scale.  But for the purpose of providing a measure of security (as opposed to full security) for the defendants and in light of the proximity of the trial dates, I am of the view that it is more appropriate to proceed on a party-and-party basis.  Taking a broad-brush approach, I consider HK$3 million and HK$1.2 million to be the appropriate amount of security to be ordered in the High Court Action and the Probate Action respectively.    

Conclusion

42.  For the reasons stated above, I make the following orders:

HCA 5073/2001

(1)  The plaintiffs do within 28 days from the date of this Decision or such longer time as may be agreed between the parties, provide security for the defendant’s costs up to and including trial by way of payment into court in the sum of HK$3,000,000.

(2)  Until such security is provided, all further proceedings (including both the claim and counterclaim) in the action be stayed.

HCAP 11/2002

(3)  The plaintiff do within 28 days from the date of this Decision or such longer time as may be agreed between the parties, provide security for the defendants’ costs up to and including trial by way of payment into court in the sum of HK$1,200,000.

(4)  Until such security is provided, all further proceedings in the action be stayed.

(5)  In the event of the plaintiff failing to provide the security as ordered above, the action be dismissed with costs to the defendants.  

43.  Applying the normal rule of costs follow event, there is an order nisi in both actions that the respective plaintiffs pay the respective defendants the costs of the applications, to be taxed if not agreed.