HCA1479/2009
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 1479 OF 2009
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BETWEEN
HUI CHI MING
Plaintiff
(previously known as X)
and
KOON WING YEE
1st Defendant
NG CHI KEUNG
2nd Defendant
CHAN WAI NAM
3rd Defendant
WONG CHIN YICK
4th Defendant
LUI YUK CHU
5th Defendant
KWONG JIMMY CHEUNG TIM
6th Defendant
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Before : Deputy High Court Judge Burrell in Chambers
Dates of Hearing : 3 March 2011
Date of Judgment : 10 March 2011
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J U D G M E N T
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1. This is an application by the 2nd and 3rd defendants for fortification of the plaintiff’s undertaking as to damages on a Mareva injunction which had been granted by order of Tong J on 25 June 2009.
2. On 25 November 2010 the 1st defendant made an identical application which was granted by Deputy High Court Judge Coleman SC. He ordered the plaintiff to provide $5 million as security by way of a bank guarantee.
3. For the purposes of this application the plaintiff has conceded that an order can be made. The only issues have therefore been the amount of the order and the form of the order. The circumstances which enable the court to make an order are, briefly stated, that the plaintiff has since June 2009, encashed his entire shareholding in “the Company” (said to be worth $3 billion) and, in July 2010, resigned as Chairman and Executive Director. Thus as he is no longer Chairman and as nothing is known of the proceeds of the sale of his shares he should provide security to fortify his undertaking as to damages.
QUANTUM
(a) The 2nd defendant
4. The 2nd defendant, represented by Mr Jin Pao of counsel, seeks an order of $5-$6 million. Mr Raymond Ho, counsel for the plaintiff submits that $2.5 million would be more appropriate.
5. The simple basis of the claim, as far as quantum is concerned, is that as a result of the Mareva injunction the 2nd defendant was forced to sell certain securities in order to meet a margin account call. There is no dispute about this. Had those shares not been sold and were they still owned by the 2nd defendant they would now be worth about $5 million more than they were worth at the time of sale. The stock market in Hong Kong having made significant gains since 2009.
6. It seems reasonable to me to accept this straightforward approach. Simply stated, it is likely that at the time of this application the 2nd defendant would have been about $5-$6 million better off but for the consequences of the Mareva Order.
7. I make an order of $6 million on the 2nd defendant’s application.
(b) The 3rd defendant
8. The 3rd defendant, represented by Mr Gerard McCoy SC and Mr Paul Wong, is in a different situation.
9. According to his own affirmation evidence the 3rd defendant had assets of approximately $11 million at the time of the Mareva injunction. Since then, and by consent, he has spent about $6 million on legal fees and living expenses.
10. His assets at the time of the Mareva included about $9 million worth of securities. The value of those securities would now be $12 million more than in 2009. However, in July 2010 (by consent and in order to pay legal fees) he sold shares in a company called Easyknit, which in 2009 had been worth about $7 million, for about $12 million. He therefore made a $5 million profit and still holds the balance of his shareholding after the Easyknit sale. After paying his legal fees his net worth is now $7 million plus the value of his remaining shareholding. Mr McCoy estimates this to be around $11 million. This figure would seem to be about right.
11. The question is — what has he lost? In money terms it could well be argued that he has lost nothing. In fact, thanks to the Hong Kong stock market he has done very well.
12. Mr McCoy’s real submission is that the 3rd defendant, who is an experienced, successful investor in securities, has lost “many investment opportunities” as a consequence of the Mareva injunction. He estimates that had he been able to take those opportunities he would have been $15 million better off net of the profit already realized on the Easyknit shares.
13. Mr McCoy correctly submits that the court should take a “broad view” of the matter and try to “assess the risk” of what profitable opportunities have been denied him as a consequence of the injunction?
14. In the 3rd defendant’s case it is a wholly speculative exercise. He has done well already. Mr McCoy submits he would have done even better and there is a real risk that he will lose the fruits of even better lucrative investments.
15. In my judgment $6 million adequately meets that highly speculative, unquantifiable risk. Apart from anything else the 3rd defendant’s estimate depends on a continuing favourable market and virtually all decisions to buy or sell resulting in gains. There is no basis for the $15 million estimate other than rose-tinted optimism.
16. In the 3rd defendant’s case I make an order in the sum of $6 million.
FORM OF ORDER
17. Coleman DHCJ ordered the fortification to be by way of bank guarantee. The alternative form of a payment into court was not argued. In this application however the defendants seek a payment in whereas the plaintiff favours a bank guarantee.
18. The defendants submit that they are entitled to know that the money exists in a real form in the hands of the court. A guarantee is subject to bank regulations, and administration and annual renewal.
19. The granting of a bank guarantee in the 1st defendant’s application has proved to be unproblematic and uncontentious. In my judgment both options are equally secure and for the sake of consistency I prefer the bank guarantee. I so order.
COSTS
20. I invited submissions on costs at the conclusion of the hearing. Points were made both ways. Looking at the whole matter I think the appropriate order in this particular case is that costs be in the cause.
ORDER
(1) The plaintiff do within 28 days fortify the cross-undertaking in damages given by him as a condition for the grant of the Mareva injunction against the 2nd defendant pursuant to the Order of the Honourable Mr Justice Tong dated 25 June 2009 and continued by Recorder Fok SC (as he then was) on 3 July 2009, and by the Honourable Mr Justice Poon on 25 September 2009 by way of bank guarantee in the amount of HK$6 million, failing which the Mareva injunction shall lapse.
(2) The plaintiff do within 28 days fortify the cross-undertaking in damages given by him as a condition for the grant of the Mareva injunction against the 3rd defendant pursuant to the Order of the Honourable Mr Justice Tong dated 25 June 2009 and continued by Recorder Fok SC (as he then was) on 3 July 2009, and by the Honourable Mr Justice Poon on 25 September 2009 by way of bank guarantee in the amount of HK$6 million, failing which the Mareva injunction shall lapse.
(3) The costs of this application shall be in the cause.
(M.P. Burrell)
Mr Raymond Ho, instructed by Messrs Peter Cheung & Co., for the Plaintiff
Mr Jin Pao, instructed by Messrs Tung, Ng, Tse & Heung, for the 2nd Defendant
Mr Gerard McCoy SC and Mr Paul Wong, instructed by Messrs Hau, Lau, Li & Yeung, for the 3rd Defendant