COPYTRON (HONG KONG) LTD v. LEE CHIN LEONG

cacv 82/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 82 of 2006

(on appeal from HCA NO. 1345 of 2003)

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REASONS FOR DECISION

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Hon Le Pichon JA:

1.  This is the plaintiff’s application for security for costs on the grounds that the defendant is impecunious and reside out of the jurisdiction with no assets in Hong Kong.  Either of those grounds if made out would constitute “special circumstances” warranting the making of an order for security for costs.  At the conclusion of the hearing, the application was refused for written reasons to be handed down later which I now do.

2.  The defendant who resides overseas is not in court today but he has filed an affirmation opposing the application.  Whilst he denies that he is impecunious, the tenor of his evidence is that he does not have the means to meet the costs of the appeal in the event of the appeal being unsuccessful which, for the purposes of Order 59, r.10(5), is the meaning of “impecuniosity”.  In any event, it is undeniable that not only is he resident out of the jurisdiction he has no assets in Hong Kong and, subject to what is said below, it has long been the practice of this court to order provisions of security in such circumstances.

3.  Notwithstanding the fact that one or more of the recognised heads of “special circumstances” has been established, the court retains a residual discretion to decide that security should not be awarded.  The question is how the residual discretion is to be exercised, the relevant considerations in the present case being the merits of the appeal and whether an order for security would effectively stifle the appeal.

4.  I should add here that this application was made rather late in the day.  The appeal itself is due to be heard in 8 weeks’ time having been set down at the beginning of March.  The explanation proferred at the hearing for that delay was the change in the handling solicitor within the same firm.  In my view, that is hardly an excuse.  Further, the application was taken out with unseemly haste, only a week after the written request for security was made when the plaintiff must have known that the defendant is not only resident out of the jurisdiction but also travels a lot for his work.  I would observe that at the end of the day, though not of themselves weighty, these are matters that the court is entitled to take into account.

5.  The defendant was the plaintiff’s former employee.  The plaintiff is controlled by a Mr Terry Tan who, like the defendant is a Singaporean  The plaintiff’s claim against the defendant, if made out, necessarily involves fraudulent and/or criminal conduct on the part of the defendant as appears from the nature of the 7 heads of claim described by the judge at paragraph 11 of his judgment to which reference should be made.

6.  The plaintiff obtained a judgment in default for the sum of approximately $1.4 million in respect of 5 of the 7 heads of claim and for damages to be assessed in respect of the remaining 2 claims.  On the defendant’s application to set aside the default judgment, the master set aside part of the final judgment on terms, namely that the defendant should pay into court approximately $1.1 million within 21 days as well as $350,000 as security for the plaintiffs costs.  She made other costs orders including assessed costs of $250,000 being the plaintiff’s costs grossed up for the application before her.

7.  The defendant appealed.  Central to his defence before Deputy High Court Judge Carlson, as noted in paragraph 22 of the judgment, was that the plaintiff and he, on the plaintiff’s behalf, on Mr Tan’s directions had systematically dealt in counterfeit goods for which convictions had been entered both in Hong Kong and in Singapore and it was that that had driven much of what he had done and, indeed, explained much of what he had done.  The judge’s conclusions appear from the following passage:

“25. This is not an easy case.  On the one hand the defendant has allowed the action to go by default, and he did not even bother to reply to the letter before action, which tells against him on the question of the general credibility of his assertions.  Nevertheless, it seems perfectly clear that the plaintiff, run as it was by Mr Tan, had been operating illegally by dealing in counterfeit products, for which convictions have been entered in two jurisdictions.  This fact would not of itself disentitle the plaintiff to judgment, provided the evidence was there to support it.  Having stood back from the factual dispute, and considered its overall effect, I am left with a sense of unease about the whole operation of the plaintiff’s business.  Nevertheless Mr Chan’s analysis of the evidence in support of the judgment I have found to be persuasive.

26. All of this having been said, it seems to me that this is a dispute that should go to trial, but on terms.  Whilst the defendant has demonstrated that he should not be driven from the judgment seat, the case put forward by him has an all-pervading mantle of suspicion which requires me to impose terms, as the master did.  For my part, I consider that the whole judgment should be set aside, really as a matter of logic.  The general defence that has been put forward covers all of the claims, and whilst claims A and B, in particular, may be said to be, on their face especially impressive, the fact remains that the defendant has offered a global explanation, which should go to trial.”

(Pausing here, I would observe that there must have been a typographical error in paragraph 25: the word “not” has no place in the fourth sentence of that paragraph having regard to what is said in paragraph 26.)

8.  Mr Chan who appeared for the plaintiff submitted that there is a respondent’s notice to the effect that the judge was wrong in holding that the general defence put forward covers all of the claims and that this would undermine the merits of the appeal.  Be that as it may, given the impending appeal, it would not be appropriate for me to say more than that as a matter of first impression at the very least, the defendant has a good chance of succeeding on the appeal.  The defence cannot be said to be either shadowy or without substance and it could well be established at trial should the defendant come up to proof.  In those circumstances, it seems wrong in principle to impose a condition that would normally reflect a high degree of doubt as to the viability of the defence.

9.  The defendant has filed evidence as to his means for the purposes of the stay application.  See his sixth affirmation.  In the light of that and his latest affirmation, I am satisfied that he is unable to raise the funds to meet the security sought.  Although for the purposes of the stay application the judge came to the conclusion that the defendant, who is currently earning HK$45,000 a month should have no difficulty in raising $1.2 million, I confess that the basis of that conclusion entirely escapes me.  I am more than satisfied that he cannot raise the security sought from his own financial resources, that it is impossible for him to raise the funds from elsewhere, be it his employer or his family and friends.  To order security in those circumstances would be tantamount to ensuring that the defendant whose defence might well be established at trial would be unable to undertake the appeal from a judgment that is necessarily premised on his having engaged in serious misconduct without the plaintiff having to prove his case.  That cannot be right.