MGA ENTERTAINMENT INC FORMERLY KNOWN AS ABC INTERNATIONAL TRADERS, INC DOING BUSINESS AS MGA ENTERTAINMENT v. TOY AND TRENDS (HONG KONG) LTD AND OTHERS

HCA 2152/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2152 OF 2002

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REASON FOR DECISION

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BACKGROUND

1.  On 5 July 2002, the plaintiff obtained an interlocutory injunction against the defendants.

2.  However, as the plaintiff subsequently discontinued its action against the defendants, the said injunction was discharged and leave was given to the defendants to embark on an enquiry as to damages upon the plaintiff’s cross-undertaking (“the Enquiry Proceedings”).

3.  On 19 May 2011, Deputy High Court Judge Seagroatt awarded the defendants US$7.25 million as damages.

4.  On 18 October 2011, Deputy High Court Judge G Lam (as his Lordship then was) granted a stay of the said first instance judgment on the condition that the plaintiff do within 28 days pay into court or provide guarantee for a sum of US$7.25 million after deduction of the payment of the sum of HK$1,802,276 paid out to the defendants’ solicitors on 27 May 2011 together with the interest accrued.

5.  On 15 November 2011, the Court of Appeal (Cheung JA and Kwan JA) granted a stay of the execution of the first instance judgment on the condition that the plaintiff do either pay into court or provide a bank guarantee for the sum of US$5 million.

6.  The plaintiff did make a payment into court of US$5 million accordingly and such payment remained in court since then.

7.  By majority, the Court of Appeal dismissed the plaintiff’s appeal (CACV 104/2011).

8.  On 5 February 2014, the Court of Final Appeal allowed the plaintiff’s appeal in FACV 6/2013 and awarded the defendants US$450,000 as fair compensation payable by the plaintiff for the defendants’ loss together with interest.

9.  It is undisputed that such interest had been agreed at US$271,567.50.

10.  Taking into account the payment made in May 2011, it is common ground that the plaintiff is liable to pay a total sum of US$489,954.70 to the defendants as the amount of loss and interest.

Applications before this court

11.  By summons filed by the defendants on 8 April 2014, the defendants applied to have the sum of US$489,954.70 paid out to their solicitors for satisfaction of the judgment made by the CFA.  Consequentially, the defendants asked that the balance of the sum of US$5 million paid into court be paid out to the plaintiff’s solicitors.

12.  The plaintiff opposed the defendants’ application.  On 30 June 2014, the plaintiff filed a summons and primarily asked for an order that the entire sum of US$5 million be paid out to the plaintiff’s solicitors.  Alternatively, the plaintiff asked for the release of US$4,510,045.30 only, with the sum of US$489,954.70 being held in court pending the taxation of various bills of the parties.

13.  It can be seen from the skeleton submission of Mr Shipp who acts for the plaintiff that the plaintiff has now abandoned the application for the entire sum of US$5 million be paid out to the plaintiff.  It is also clear that the parties have no dispute that the amount of US$4,510,045.30 may be paid out to the plaintiff’s solicitors.  The only issue before this court is therefore whether the sum of US$489,954.70 should (1) be released to the defendants’ solicitors; or (2) remain in court.

14.  The main basis of the plaintiff’s application is that while the defendants were awarded by the CFA 75% of their costs of the Enquiry Proceedings in the Court of First Instance, the plaintiff, as the succeeding party on appeal, had been awarded costs of the appeal in CACV 104/2011, FAMV 42/2012 (the leave application) and FACV 6/2013.  It was submitted on behalf of the plaintiff that, upon taxation of the bills of the parties, the defendants would be the parties which have to pay because their costs and the amount of loss assessed by CFA would not be enough to offset the plaintiff’s costs.  It was worried by the plaintiff that the defendants would not pay the plaintiff in the end.

The law

15.  This application is governed by Order 22A of the Rules of the High Court.  Rule 1 thereof provides that any money paid into court may not be paid out except in pursuance of an order of the court.

16.  No further guidance is provided under the said Order 22A.  I agree with counsel that this court has an unfettered discretion which should be exercised so as to achieve justice between the parties.

17.  In this regard, while case authorities may be helpful in providing some examples as to how the discretion had been exercised, it should be borne in mind that they did not lay down any binding principles as such.  The discretion should be exercised on a case by case basis, depending on all the circumstances of the case before the court.

DISCUSSION

The starting point

18.  In my judgment, one should not lose sight of the purpose of the court order under which the amount of US$5 million was paid into court.  To recap, the amount of money was paid as a condition for the stay of execution of the first instance judgment.  Hence, this amount should in the normal course of event be utilized for the satisfaction of the judgment sum which the defendants have been awarded.

19.  Now that the Court of Final Appeal has given its judgment on the amount of damages, in my view, prima facie the defendants should be entitled to a court order for the release of an appropriate amount of money so that the original purpose of such payment may be achieved.  In my judgment, this is an important matter which the court should give considerable weight in its balancing exercise.

Security for costs?

20.  On a proper analysis, the plaintiff is in effect seeking security for its costs.  Indeed, Mr Shipp frankly admitted that that is so.

21.  In his submissions, Mr Shipp asserted that the plaintiff is entitled to ask for security for costs under the Companies Ordinance.  With respect, I have doubt whether that is so.  First of all, I note that in both section 357 of the pre-amended Companies Ordinance and section 905 of the new Companies Ordinance, only “a plaintiff in any action or other legal proceedings” may be ordered to provide security for costs.  There is no provision therein that is equivalent to Order 23 rule 1(3) of the Rules of the High Court which extends the references to “plaintiff” to cover a party “in the position of plaintiff…in the proceeding in question, including a proceeding on a counterclaim”.

22.  Even if we may extend the meaning of “plaintiff” in section 357 or 905, it does not mean that the defendants here would be covered by such an extended meaning.  While it is correct to say that it was the defendants who were claiming for damages in the Enquiry Proceedings, it should be borne in mind that the defendants had no choice but to enforce the plaintiff’s undertaking for the interlocutory injunction here in Hong Kong.  It was not the defendants which took the initiative to bring a matter to the Hong Kong court.  The situation is totally different from an overseas company which starts an action against another party for damages in Hong Kong.  There is now an established rule that where a counterclaim can properly be regarded as a defence, the counterclaiming defendant ought not be required to give security for costs unless there are exceptional circumstances which make it just for him to do so (see Hong Kong Civil Procedure 2014, vol 1, paragraph 23/3/8).  Although we are not dealing with a counterclaim here, in my view the same principle should be applicable, because the defendants here are in the same passive position.

23.  Even assuming the plaintiff is entitled to apply for security for costs in the present case, the fact is that the plaintiff has not taken out any proper application for that purpose, even up to now.  I do not accept that the plaintiff may make an application for security for costs through the back door in this way.

24.  The plaintiff faces further difficulty as far as the 3^rd defendant is concerned, as the Companies Ordinance does not apply to a natural person. On the other hand, the plaintiff cannot engage Order 23 of the Rules of the High Court successfully because, despite the plaintiff’s allegation that there is a propensity for the 3^rd defendant to dissipate assets, even if that is true, that would not bring the application within any of the criteria provided by Order 23 rule 1(1).  As there is no evidence that any of those criteria is satisfied, the plaintiff’s application for security for costs against the 3^rd defendant, even if made, is doomed to fail.

What is the net position on costs and damages?

25.  A very important foundation of the plaintiff’s submissions that its costs should be protected is that “there are substantial costs orders made against the Defendants which easily surpasses the sum of US$489,954.70” (paragraph 9(d) of the plaintiff’s skeleton submissions). 

26.  In this regard, the plaintiff relies on its costs of approximately HK$12 million as reflected in its bills of costs.  I also note the plaintiff’s complaint that the defendants have not provided any answer as to the request for provision of draft bill of costs in relation to the Enquiry Proceedings.

27.  As Mr Shipp accepted in his skeleton submissions, it is not the function of the court to tax the bills now and the court should not embark on the realms of speculation.  In my view, it is extremely dangerous for the court to act upon the bills put forward by the plaintiff because this court is simply not in a position to assess how much costs would be allowed upon taxation.  Any proposed broad-brush assessment cannot be anything but speculation.  I do not consider it appropriate for this decision to be made on the basis of speculation.

28.  Furthermore, even if the plaintiff’s costs may be roughly ascertained, those of the defendants cannot.  There is thus a missing element in the formula, and as a result there is no way by which the court may tell or make any informed guess as to the possible net position as far as costs, damages and interest are concerned.

29.  Without this very important foundation, the plaintiff’s application/opposition is a non-starter.

Stay of execution

30.  During the hearing I asked Mr Shipp whether the defendants may enforce the CFA Judgment by other means in the event the court orders that the sum of money at stake should remain in court.  He answered that theoretically the defendants are at liberty to do so, but practically, he said, the defendants cannot, because of the problem of multiplicity of proceedings.

31.  It can thus be seen that if I were to accede to the application of the plaintiff, that would pave the way for the plaintiff to argue in other enforcement proceedings that the defendants should not be permitted to enforce the CFA judgment by other means.  In my judgment, if Mr Shipp is correct, the order which he is asking me to give today is tantamount to a stay of the execution of the CFA judgment.

32.  Mr Shipp insisted that in substance he is not asking for a stay of execution.  With greatest respect, I do not agree.  In my judgment, the plaintiff is now asking this court for a stay of execution of the CFA judgment pending taxation of all the bills of the parties.  If there were any court which should make such an order, it should be the CFA, not the Court of First Instance.

Other matters

33.  I have not forgotten Deputy High Court Judge G Lam (as he then was)’s judgment dated 18 October 2011 in which his Lordship accepted the plaintiff’s submissions made during the stay of execution application that “there is an appreciable risk shown and a legitimate fear that the plaintiff would not be able to recover the money paid” (at paragraph 15 of the Judgment).  Indeed, it was on this basis that the order for stay of execution was made.

34.  The plaintiff, by way of its solicitor’s affirmation, also drew the court’s attention to a number of matters by which it was sought to show that the defendants had been trying very hard to obtain monies without delay, that the 1^st and 2^nd defendants are dormant companies without assets and that the 3^rd defendant has a propensity of dissipating assets.

35.  I do not consider it necessary for me to deal with all of the above matters one after another, save as to state that I have considered each and every one of them but I do not think these matters, looked at together with the other submissions made by counsel, would be enough to satisfy the court that it is just for the court to accede to the plaintiff’s application.

CONCLUSION

36.  Taking all the above matters into account, I am of the view that I should exercise my discretion in allowing the release of part of the monies paid into court to the defendants for the satisfaction of the CFA judgment.

37.  By reasons of the aforesaid, I would allow the defendants’ application, and dismiss the plaintiff’s summons filed on 30 June 2014.

[Submissions on costs]

38.  The costs of the summonses be to the defendants, with certificate for counsel.  Such costs were summarily assessed at HK$55,000 and should be paid out of the sum of US$5 million in court.

ORDERS

39.  I therefore make the following orders:

(1) The plaintiff’s summons filed on 30 June 2014 be dismissed with costs;

(2) The sum of US$489,954.70 be paid out of court to Messrs Danny K H Yu & Co., the solicitors acting on behalf of the defendants, as payment of the damages and interest awarded to the defendants;

(3) The costs of the summonses filed on 8 April 2014 and 30 June 2014 respectively be to the defendants, with certificate for counsel.  Such costs be summarily assessed at HK$55,000 and be paid out of the sum of US$5 million in court to the defendants’ solicitors;

(4) After the payment in paragraphs (2) and (3) above, the balance of the sum of US$5 million held in court together with interest be paid out of court to Messrs William W L Fan & Co, the solicitors acting on behalf of the plaintiff or to their order.