CHEN JINHUI v. WONG KAM SAN by his guardian ad litem, HUANG YUEXIA AND OTHERS

HCA 1524/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1524 OF 2012

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D E C I S I O N

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The applications

1. This is the 4^th, the 5^th and the 6^th defendants’ (“Ds’”) applications for security for costs.  Ds ask this Court to make an order in terms as follows:

(a)  Unless the Plaintiff do within 28 days from the date of the order to be made herein provided security for the 6^th defendant’s costs of the whole action and further security for the 4^th and 5^th defendants in such amount as this Honourable Court deems sufficient, the plaintiff’s action against the 4^th, 5^th & 6^th defendants be dismissed with costs of this to be taxed if not agreed;

(b)  Costs of and occasioned by this application be to the 4^th, 5^th and 6^th defendants and be paid by the plaintiff forthwith, to be taxed if not agreed.

2. P opposes Ds’ applications and the parties are legally represented.[1]

3. P has another summons for leave to adduce Yeung Wing On’s 7^th affirmation.  Ds have no objection over this application.  The evidence will be taken into account.

4. There is a dispute by P over Ds’ 2^nd affidavit of Winnie Mak and their bill of costs.  However, P agrees that this Court can read the evidence de bene esse.

5. In my view, there should not be technical argument over the evidence for this hearing.  As this is very much an exercise of the Court’s discretion under O.23 RHC, the Court has to take into consideration all the circumstances.  I shall allow all evidence on board to be admitted as evidence.  Costs of P’s application and Ds’ application for Ds’ affidavit evidence to be admissible be cancelled out and there should be no costs for the application.

Factual background

6. I had dealt with Ds’ application for expert evidence before.  See my Decision delivered on 29 April 2016, in which I had set out the facts of both parties as I found them from their respective written submissions.  For this application, it is really not necessary to rehearse the same facts here in detail because this is for security for costs and the parties are not in dispute over the strength of their cases.

7. Suffice it to say, P is claiming over 80% of the shareholding in D5, which holds 80% of the shares in a sino-foreign joint venture company in Liaoning known as Shunfeng with authorized capital of US$48,190,000.  The basis of P’s claim is that by oral agreement in 2003, P agreed with D1, who is 80% shareholder in D5, that in consideration of all the 18 loans that P had lent to D1 together with interest thereon and for further installment payments by P to D1, D1 would transfer his 80% shareholding in D5 to P.  P says that money had been transferred to D1.  D1 refused to transfer the shares in D5 to him.  Instead, he had transferred those shares to his own companies D2 and D3.  In September 2013, D2 and D3 transferred the shares to D4 without consideration.  On 5 April 2011, D4 transferred the shares to D6.  Hence, P claims against all the defendants allegedly acting together in conspiracy.

8. D1 denies the 2003 oral agreement and the loans.  Also, he denied the other evidence relied upon by P against him in support of the oral agreement.  He further said that all those documents were fabricated and the signatures on them were not his signatures at all.

9. The live issues of dispute between the parties are:

(a)  whether D1 had borrowed the Loans from P;

(b)  whether there was an oral agreement between P and D1 on 10 January 2003 which was evidenced in the Confirmation Letter;

(c)  whether the transfer of the Shares from D2 and D3 (for D1) to D4 and to D6 were a transaction between independent parties at arm’s length and without notice of P’s interest.

10. Ds’ applications and P’s objections to them should be considered against the following factual background:

(a)  Before the joining of D6, D1 to D5 were all represented by one firm of solicitors;

(b)  On 25 September 2012, Messrs C L Chow & Macksion Chan, representing D1-5 at the time, enclosed a skeleton bill of costs for the total amount of costs and disbursements amounting to HK$1.79 million (“2012 D1-5 Bill”) as security for costs for the whole action.  The 2012 D1-5 Bill included costs incurred and anticipated costs to be incurred, including costs for:

(i) Attendances/correspondence;

(ii) Preparation of documents;

(iii) Court Attendance;

(iv) Research, care and conduct; and

(v) Disbursements, including an estimation of HK$1.4 million for Leading Counsel and Junior Counsel's fees.

(c)  P agreed to pay HK$500,000 as security for costs for D1-5, and paid accordingly pursuant to a Consent Order of Master Ng dated 8 October 2012;

(d)  At about this period of time, D1 to D5 had separate legal representation.

(e)  By another letter dated 25 April 2013 to P, D4-5 wrote “our clients now do not wish to apply for security for costs by stages but in one lot”, and attached a skeleton bill of costs (the “D4-5 2013 Bill”), which claimed for HK$1,672,100 as estimated costs of the whole Action.  In particular:

(i)  The 2013 D4-5 Bill included costs incurred and anticipated costs to be incurred for the whole Action.

(ii)  In respect of anticipated costs, D4-5 included costs in respect of perusal and preparation of affirmations, further pleadings and/or amendments, for the taking out of further interlocutory applications, preparation and perusal of lists of documents, affirmations and witness statements etc.

(iii)   In respect of anticipated disbursements, D4-5 included disbursements in respect of Counsel’s fees for conference, settling of further pleadings and/ or further amendments of pleadings, affirmations and witness statements, Skeleton Arguments and Submissions, PTR hearings and an estimate for a trial for 8 days.

(f)   P’s solicitor counter-offered to pay HK$1.1 million for D4-5’s costs of the whole action.  The proposal was accepted by D4-5. This agreement was recorded in a Consent Order dated 7 June 2013.

(g)  P has set out the legal proceedings after this Order[2]:

4 February 2013	P 1st amendment of SOC
27 July 2014	Parties’ exchange of 1st round of witness statements
23 September 2014	P 2nd amendment of SOC
8 May 2015	Parties’ exchange of 2nd round of witness statements
1 June 2015	D4-6 Summons under Ord 38 r21 RHC (to cross examine the makers of 73 documents)
27 July 2015	D1-3 Summons under Ord 38 r21 RHC (to cross examine the makers of 69 documents)
7 September 2015	D1-3 Summons under Ord 38 r36 RHC to adduce expert evidence
7 October 2015	P 3rd amendment of SOC
3 March 2016	D1-6 collective withdrawal of Summonses under Ord 38 r 21 RHC
26 April 2016	D1-3 amendment of Summons under Ord 38 r36 to adduce expert evidence

D’s grounds for the application

11. Ds’ grounds in support of the application are these:

(a)  Counsel for Ds admits that on the face of the skeleton bills, the amount may seem extravagant as compared to the previous bills.[3]  However, Ds’ counsel further submits that the amounts are justified by the complexity of the case, the voluminous documents and the way P had proceeded with this case.[4]

(b)  In particular, Ds submit that P had amended the pleadings several times, gone through 6 rounds of further and better particulars. There are two experts on each side.  The witness statements will be over 300 pages, the exhibits over 500 pages and the number of documents as per the list of documents is over 1000 pages.

(c)  Because of the amendments to the pleadings, the factual matrix for D4 to D6 will be affected, adding complexity to the disputes between the parties.

P’s argument

12. P’s countervailing arguments are these:

(a)  The consent orders are a bar to asking for further security for costs, relying upon Solomo Waknine & Another v Ming Cheung Manufacturing Co Ltd and Others [1985] HKLR 84.  This case turned on the estimated length of the trial.  Because of the change of the length of the trial, the trial judge allowed the application for further security for costs.  This case has also shown to P that even at the stage of the trial, the defendant could still make the application.  The argument of delay as raised by P will be defeated, more so where the application is for further security, not the first application for security.  However, P agrees that the Court has the power to order further security, relying on Cheong Shing Ltd v Yu Kwan & Others (unreported, HCA 12021/1998, 19 December 2005 at paras. 11 & 12).  This case was part-heard and was also an application for further security.  The question is whether the existing Order for security is plainly insufficient under the existing circumstances.

(b)  Ds should be bound by their own estimates in the previous consent orders, in particular, the consent order of 7 June 2013.  See paragraph 10 e above;

(c)  As to the interlocutory hearings, P points out specifically that Ds’ application under Order 36, r.21 RHC was taken out by Ds and was ultimately withdrawn by them near the hearing.

(d)  The bill of costs does not demonstrate how much additional costs will be incurred by reason of the additional works.  Chiu Hsiung & Another v Wang Chao Huang & Others (unreported, HCA 1974/2009, 21 October 2013 at para. 18)

(e)  The main factual disputes will be between P and D1 to D3 and the further amendments to the pleadings will not affect D4-D6s’ cases;

(f)  All in all, P challenges the quantum.

The quantum

13. It is therefore a matter of quantum for this Court’s determination, taking into consideration of the guiding principles as set out by the Court of Appeal in Wing Hing Provision, Wine & Spirits Trading Co v Hanjin Shipping Co Ltd [1998] 4 HKC 461, Wingames Inv Ltd & Others v Mascot Land Ltd & Others (unreported, HCA 907/2011, 17 July 2012) and New Heaven Inv Ltd v Yu Guolin (unreported, HCA 115/2013, 3 January 2017).

14. The draft bill has taken into account of the costs of $1.1 million paid into court pursuant to the Consent Order dated 7 June 2013 and the balance is $9,421,944.

15. It is obvious that the skeleton bill of costs was not prepared according to the proper approach as set out in Chiu Hsiung case.  It does not show the additional works after the D4-5 2013 Bill and the additional costs caused by such additional works.

16. However, on the face of the matter, it is undisputed that the length of the trial has been agreed to change from the original 8 days to 14 days, involving Senior Counsel.  The costs will be invariably increased because of this factor alone.

17. Having considered the interlocutory applications after the Consent Order dated 7 June 2013, I consider that those are the normal proceedings other than P’s applications for further amendments of the pleadings.  Application under O.38, r.21 RHC was taken out by Ds and it was withdrawn.  The application for expert evidence should have been anticipated by Ds when they negotiated the agreed costs resulting in the Consent Order dated 7 June 2013 as expert evidence should have been in parties’ contemplation after close of the pleadings.  It is not disputed that the main factual disputes will be between P and D1 to D3.

18. It is quite obvious that because of separate legal representation between D1-D3 and D4-D6, the amount of costs has escalated as well.  D1-D5 were originally represented by one firm of solicitors only.  I have been given no reason for the separation.  The fact that there was a decision for separate legal representation should be the defendants’ own decision, which was not caused by P.

19. Since D6’s case is closely related to D4’s and D5’s case, the security should be considered together.

20. P has made an estimate that if P is liable for the increase of the security, the amount will be $2,399,733, less the $1.1 million.  I consider that this is a fair estimate and I shall round up the amount to $1.2 million.

21. So I order.

Costs and Order

22. Ds ask for costs of this application, including the hearing today.  P opposes, relying upon the conducts of Ds.  They had taken out this application and put in the original bill and supporting affidavits, but subsequently replaced them with another set of skeleton bill and supporting affidavit.  Their delay in making the application is another factor, coupled with their filing of the evidence without leave of the court.  P submits that there should be no order as to costs.

23. As to the costs of this application, if the amount awarded for security for costs is much lower than that requested, the costs for the application should be in the cause.  Elec Vision Inc. v Achiever Industries Limited [2003] 1 HKLRD 60 by DHCJ Carlson at §27

24. Ds submits that the conducts above do not amount to misconduct of the parties.  The reasons for the Ds to put in another set of bill and affidavit is because of the change of the circumstances where further interlocutory applications were made.  The costs should not be totally discounted under the circumstances.  I agree.  The costs of the application, together with all costs reserved and the costs for today’s hearing (with counsel’s certificate) be in the cause.

25. This court shall make an order in terms as follows:

(a)  P shall within 90 days from today make further security for costs for D4-D6 in the amount of $1.2 million by payment into court;

(b)  The proceedings are stayed pending such payment into court;

(c)  Costs are as provided for under paragraph 24.

Case management

26. Subject to the stay of the proceedings, the plaintiff shall have leave to set down within 42 days for a 14-day trial before a bilingual judge alone in the fixture list in consultation with counsel’s diaries.  There be a pre-trial review before the trial judge for 30 minutes on a date 12 weeks before trial.  Parties shall raise the issues of recusal of the trial judge, or related proceedings or actions, if any, and shall confirm the length of the trial by counsel in charge at the pre-trial review.  At the setting down the plaintiff shall produce a letter to the Listing Clerk confirming that there are no outstanding interlocutory applications pending.  Before the pre-trial review, all interlocutory applications shall be listed to be heard by the Registrar or a Master.

27. By consent, costs of this Case Management Conference (30 minutes) be in the cause.