RE ABC COMMUNICATIONS (HOLDINGS) LTD

CACV 262 /2011
CACV 51/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 262 OF 2011 AND 51 OF 2012

(ON APPEAL FROM HCMP NO. 2248 OF 2011)

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D E C I S I O N

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1. This is an application for security for costs by the Financial Secretary in respect of two appeals to be heard together in February next year with 3 days reserved. The appeals are against the determination of the Market Misconduct Tribunal (“MMT”) and are concerned with dealings in the shares of ABC Communications (Holdings) Ltd (“ABC”). At the conclusion of the inquiry on 20 October 2011, Sze Chun Ning Vincent was identified as an insider dealer. On 4 November 2011, the MMT determined that Mr Sze was culpable of market misconduct. It was ordered that he shall not, without leave of the court, be a director of a listed company or take part in the management of such a company for 4 years. He was also required to pay costs of $3.6 million to the Financial Secretary and costs of $507,000 odd to the Securities and Futures Commission (“the Costs Order”). Mr Sze brought the appeals to challenge the determination on questions of law and findings of fact.

2. On 2 August 2012, the Department of Justice wrote to Mr Sze’s solicitors seeking security for costs of the appeals in the amount of $1.59 million, having considered Mr Sze’s affirmation filed on 31 July 2012 to stay the Costs Order pending appeal, which gave them concern about the financial position of Mr Sze.

3. The Financial Secretary issued the present summons for security for costs of the appeal on 6 August 2012.

4. I do not propose to rehearse the principles in an application of this kind.  Suffice it to say I have borne in mind the legal principles referred to by the parties.

If special circumstances exist for ordering security

5. Mr Jonathan Kwan submitted on behalf of the government that special circumstances exist here for ordering security, and that the government has made out a case that if security were not provided, the government would be put to undue delay and expense in enforcing any costs order that may be made in its favour in the appeal.  He pointed to the following matters in support.

6. The Costs Order made in November 2011 was only satisfied in August 2012 after much delay and measures of enforcement taken by the government.  Shortly after the Costs Order was registered as a court order in November 2011, Mr Sze applied to stay that order pending his appeal.  His application was scheduled to be heard on 29 August 2012.  On 22 May 2012, the Department of Justice wrote to Mr Sze’s solicitors requiring him to satisfy the costs payable to the Financial Secretary with interest in the sum of $3.8 million within 14 days.  His solicitors offered instead to pledge his shares in ABC in a form to be agreed by the parties, pending the determination of the appeal.  In answer to the further inquiry of the government on 1 June if he has any other forms of security to offer, Mr Sze’s solicitors replied that he has no other shareholding, real estate or bank deposit that could be offered as security, apart from his ABC shares.

7. On 29 June 2012, a public announcement was made by ABC that due to the delay in publication of its final results for the year ended 31 March 2012, trading in its shares on the Hong Kong Stock Exchange would be suspended with effect from 3 July 2012 and would remain suspended until the release of an announcement regarding its final results.  To date, the suspension of trading in the ABC shares has not been lifted.

8. The government then issued a statutory demand for the costs due to the Financial Secretary on 17 July 2012.  This was served on Mr Sze personally on 3 August.  The judgment debt was eventually paid on 23 August prior to the hearing of stay pending appeal from financial sources not known to the government.

9. Mr Sze deposed to his financial situation in his affirmation filed on 31 July 2012.  He said that apart from his “significant investment” in ABC, he does not hold “much cash or any liquid assets in the form of stocks, bonds or otherwise.”  The government is concerned that unless and until the suspension of trading in the ABC shares is lifted, the shares held by Mr Sze are practically useless for satisfying any costs order against him.  Further, as he had deposed in his said affirmation, he had explored the possibility of placing his shares in ABC to raise funds for satisfying the Costs Order and had apparently not succeeded in doing so.  This lends support to the government’s view that the ABC shares are not good security.

10. Furthermore, Mr Sze made a witness statement to the MMT in August 2010 that he married a PRC national in 2007 and lived with his wife in Shenzhen.  In his first affirmation filed in opposition of the present application, he admitted that he maintained a home in Shenzhen and commuted frequently between Hong Kong and Shenzhen for business and personal reasons.  He claimed that when he was in Hong Kong, he stayed with his parents in his mother’s property in Kennedy Town.  He claimed to be working in Hong Kong as a free lance business consultant.

11. The movement records of Mr Sze between November 2011 and September 2012 showed that he commuted frequently between Hong Kong and the Mainland during November 2011 and June 2012 and each time he entered Hong Kong, he did not stay overnight.  He has not left Hong Kong since June 2012.  His claim that he stayed in his parents’ home was not borne out by the clerical assistant of the Department of Justice who went to that address to serve him with the statutory demand in late July 2012.  On that occasion, the process server was told by Mr Sze’s mother that he does not live there but lives in the Mainland and that he had not returned to the home of his parents “for years”.

12. Given the above circumstances, it was submitted on behalf of the government that it could readily be inferred that the Financial Secretary is likely to encounter undue delay or be put to undue expense in enforcing any order for costs against Mr Sze in the appeal.

13. Mr Jean-Paul Wou submitted on behalf of Mr Sze that no special circumstances are made out for security to be ordered.  He pointed to the substantial stake Mr Sze has in the ABC shares, which were trading at $0.475 at the last closing price in July 2012.  On that basis, Mr Sze’s stake of 33.75% in the ABC shares would be worth $102 million.  Thus, the assertion that Mr Sze is impecunious is baseless.  Mr Sze has fully satisfied the Costs Order in August 2012.  He has deposed that he is a Hong Kong resident and his wife has obtained the status of a Hong Kong permanent resident since April 2012.

14. On the face of it, Mr Sze would appear to hold assets of substantial value in Hong Kong.  However, this must be looked at in the totality of the available evidence.  It cannot be disregarded that trading in these shares has not resumed after more than 3 months.  Mr Sze had earlier explored the possibility of placing these shares to raise funds to satisfy his costs liability and had apparently not succeeded in doing so.  The financial statements of ABC for 2010 and 2011 recorded substantial losses.  Mr Sze made the point in his second affirmation the fact that he does not hold “much cash or any liquid assets in the form of stocks, bonds or otherwise” is not a reflection of his “total net worth”.  There is simply no evidence of his net worth.  He chose to depose to assets standing in his name being the ABC shares without mentioning a word about his liabilities and is reticent about his means, income and resources.  I note also in the report of the MMT these pertinent findings regarding Mr Sze’s stake in the ABC shares:

“One extraordinary feature of Mr Vincent Sze’s account of the funding of the takeover of ABC is the undisputed evidence that he has made no payments from his own funds. Indeed, it is accepted that he was not in a position to do so. On his account, he borrowed everything and did so at the very last minute with the barest minimum of supporting documentation” (para 272)

15. The MMT rejected Mr Sze’s evidence that he had obtained loans from Wang Chao and Jiang Qing Xin to fund the acquisition of ABC shares.  Instead the MMT found at para 278:

“We are satisfied that Mr Wang Chao was an investor for himself in the takeover of ABC. Mr Vincent Sze acted on his behalf and according to his instructions. It may be that there were other investors in the project.”

16. I agree with the government’s submission that Mr Sze’s shareholding in ABC cannot be regarded as a satisfactory source to meet his potential costs liability in the appeal.  I also accept that the government is likely to have difficulty in enforcing any costs order against Mr Sze if it should succeed on appeal.  Special circumstances are made out for security for costs to be awarded.

If there are counterveiling factors

17. Mr Wou relied on the merits of the appeal, the lateness of this application and that there is the risk of stifling a meritorious appeal.  He made much of the fact that in respect of the appeal in CACV 51 of 2012, the government did not oppose Mr Sze’s application for leave to appeal and leave for appeal was accordingly granted in March 2012 without a hearing.

18. There is nothing in this point.  It is quite clear from the letter of the Department of Justice to Mr Sze’s solicitors dated 21 February 2012 that they decided not to resist his leave application solely on the basis of saving costs, as the option of having the leave application disposed of without a hearing was not open to them in view of the directions made by the court on 22 November 2011 that a hearing should be held for the leave application.  And as Mr Sze had by that stage brought another appeal in CACV 262 of 2011 against the same determination of the MMT for which leave is not required, it was thought that it would save costs simply to have the two appeals heard together.

19. It is unnecessary for present purpose to carry out a detailed examination of the merits of the grounds of appeal in the two appeals.  Having read the grounds and the submissions on both sides, I am inclined to think there do not appear to be strong grounds in the attack on the findings of fact by the MMT.  Mr Kwan has taken this court to various parts of the report pointing to evidence in support of various findings.  Nor am I able to discern any apparent error of law.

20. I reject the contention of the lateness of this application.  The request for security was made promptly after the Department of Justice had the opportunity of considering such information Mr Sze had chosen to provide about his financial situation.

21. I also reject the contention that the application was made to stifle Mr Sze’s appeal.  There is justification for the government’s concern that the ABC shares held by Mr Sze would not provide a secure source of funds to meet the costs liability on appeal.

Quantum

22. The government sought security of $1.59 million on the basis of 160 hours of solicitors work and counsel fees of $950,000 for senior and junior counsel in a 3-day appeal.

23. I would allow 80 hours of solicitors work at $320,000, and counsel fees for senior and junior counsel of $800,000.  So the amount I would order as security is $1.12 million.

Orders

24. I make the following orders:

(1)   the appellant do within 28 days hereof give security for the Financial Secretary’s costs of the appeals in CACV 262 of 2011 and CACV 51 of 2012 in the sum of $1.12 million by payment into court of the said sum;

(2)   in default of the appellant making such payment into court within the time specified, or within such further time as the court may for special reasons allow, the said appeals do (upon the Department of Justice certifying such default to the Registrar) stand dismissed out of this court without further order;

(3)   in the event that the appeals are dismissed in the circumstances provided for above, the appellant do pay to the Financial Secretary his costs occasioned by the said appeals, such costs to be taxed if not agreed; and

(4)   the costs of this application be costs in the appeals.