FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER

HCA 4414/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 4414 OF 2001

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D E C I S I O N

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INTRODUCTION

1. This is the hearing of (1) the Plaintiff’s application for directions for the trial of an issue remitted by the Court of Final Appeal for trial by the Court of First Instance; (2) the Defendants’ summons dated 22 December 2014 seeking payment out of money paid into court directed by the Court of Final Appeal to be dealt with by the Court of First Instance as an issue consequential upon the order for trial of the remitted issue (the “Payment Out Summons”); and (3) the Defendants’ summons dated 16 June 2015 seeking various relief pending trial of the remitted issue (the “Security Summons”).

The background

2. The background of this litigation can be found in the Court of Final Appeal’s judgment in First Laser v Fujian Enterprises[1].  Insofar as is relevant for the purpose of this hearing, it is as follows.

3. The Plaintiff is a Macanese company controlled by Mr Ngan In Leng (“Ngan”). 

4. The 1^st and 2^nd Defendants are “window companies” owned by and representing the Fujian Provincial People’s Government in Hong Kong. At the material time, the 1^st Defendant was the holding company of Fujian Casix Laser Inc (“FCL”) and Fuzhou Casix Optronics Inc (“FCO”). 

5. Between 1996 and 1997, the 1^st Defendant negotiated with Ngan and entered into a number of agreements including one for the sale of 51% of its interest in FCL and FCO to the Plaintiff (the “First Laser Agreement”).  The Plaintiff paid the consideration in full, being HK$20 million in cash and HK$4.64 million in the form of its investment contribution.   

6. Pursuant to the First Laser Agreement, all the issued shares in FCO were transferred to Ngan’s nominee and Ngan has control of FCO.  In 2000, before transferring the shares representing 51% interest in FCL to the Plaintiff, the 1^st Defendant sold FCL to a third party, JDS Uniphase, for US$60 million.  The purchase price was paid in three tranches.  By the time the Plaintiff discovered the sale to JDS Uniphase, two tranches totalling US$51 million had been paid and received by the 1^st Defendant who transferred most of it to the Fujian Provincial People’s Government, leaving only about US$5 million in Hong Kong. 

7. The Plaintiff commenced proceedings against the Defendants on 9 October 2001 and sought an injunction restraining them from removing their assets out of Hong Kong.  However, as soon as the injunction summons was served, the balance was also diverted to Fujian Provincial People’s Government.  Only the third tranche of the purchase price in the sum of US$9 million was left within the jurisdiction.  The Plaintiff’s application for injunction was disposed of by way of voluntary undertakings by the Defendants to pay the US$9 million into a specified interest-bearing account with a bank in Hong Kong and not to dispose of or deal with the said sum.

8. The trial of the action took place in October 2007. On 5 February 2008, I entered judgment in favour of the Plaintiff on the basis that the First Laser Agreement was valid and that Hong Kong law was applicable to the agreement.  The Defendants appealed in CACV 126/2008 and applied for a stay of execution.  As a result, the Court of Appeal ordered the Defendants to transfer the said sum into court, which they did.

9. On 4 January 2011, the Court of Appeal allowed the Defendants’ appeal, holding that the First Laser Agreement was governed by the law of the People’s Republic of China (“Mainland law”) and was invalid thereunder.  Though holding that the Plaintiff is not entitled to its contractual/proprietary or compensation claim against the Defendants, the Court of Appeal ordered the issue of restitution to be remitted to the Court of First Instance for determination under Mainland law.

10. The Plaintiff appeal to the Court of Final Appeal in FACV 6/2011 and applied for a stay of the Court of Appeal’s judgment.  It was against this background that the Court of Appeal ordered the payment into court to continue to remain in court until the determination of the Plaintiff’s appeal to the Court of Final Appeal.

11. On 6 July 2012, the Court of Final Appeal dismissed the Plaintiff’s appeal and ordered the issue of restitution to be remitted to the Court of First Instance for determination under Mainland law.

12. On 22 December 2014, the Defendants issued the Payment Out Summons in the Court of Final Appeal seeking payment out of the money in court.  On 20 March 2015, Ribeiro PJ ordered that the Payment Out Summons be remitted to the Court of First Instance for determination.

The applications before the court

13. The following applications are before the court:

(1) the Plaintiff’s application for directions, including leave for filing expert report and to exchange witness statements;

(2) the Defendants’ application for an order that unless the Plaintiff pays all outstanding costs and interests within a specified time its statement of claims shall be struck out and dismissed (the “unless order application”);

(3) the Defendants’ application for an order that the Plaintiff gives an undertaking as to damages and fortification (the “fortification application”);

(4) the Defendants’ application for an order that the Plaintiff gives security for the Defendants’ costs in the trial of the remitted issue (the “security for costs application”); and

(5) the Defendants’ payment out application.

The outcome of these applications depends very much on whether additional expert reports are necessary.  The necessity for such reports will be considered first.

APPLICATION FOR DIRECTIONS

The basis of the Plaintiff’s application for leave to file expert report

14. The basis of the Plaintiff’s application for leave to file expert report is that subsequent to delivery of the judgment of this court on 5 February 2008, the Supreme People’s Court of the Republic of China (the “PRC”) issued a judicial interpretation, 《最高人民法院關於審理外商投資企業糾紛案件若干問題的規定（一）》 (《Provisions of the Supreme People’s Court on Several Issues concerning the Trial of Disputes Involving Foreign-Funded Enterprises (I) 》) (the “Judicial Interpretation”), which is directly relevant to the remitted issue and has a significant impact on the determination which this court has to make.  That Judicial Interpretation was issued on 17 May 2010 and took effect on 16 August 2010.  The Plaintiff’s application is supported by a joint expert opinion of Professor Wang Li Ming (王利明) and Professor Yin Fei (尹飛).  There is no dispute that under Mainland law judicial interpretations issued by the Supreme People’s Court have the force of law.

15. The basis of the Plaintiff’s claim for restitution is article 92 of the 《民法通則》(《General Principles of the Civil Law of the People's Republic of China》) (the “《Civil Law》”) which provides as follows:

「 沒有合法根據，取得不當利益，造成他人損失的，應當將取得的不當得利返還受損失的人。」

(Translation:

“If profits are acquired improperly and without a lawful basis, resulting in another person's loss, the illegal profits shall be returned to the person who suffered the loss.”)

The Supreme People’s Court had given a judicial interpretation in respect of this article, 《最高人民法院關於貫徹執行〈中華人民共和國民法通則〉若干問題的意見(試行)》(《Opinions of the Supreme People's Court on Several Issues concerning the Implementation of the 〈General Principles of the Civil Law of the People's Republic of China〉 (For Trial Implementation) 》) (the “Judicial Opinion”)  explaining the effect of this article as follows:

「 返還的不當利益, 應當包括原物和原物所生的孳息。利用不當得利所取得的其他利益，扣除勞務管理費用後，應當予以收缴」

(Translation:

“The returned illegal profits shall include the original thing and the fruits arising therefrom. Other interests obtained by using the illegal profits shall be taken over after deducting the labour service overheads.”

The Judicial Opinion, which has the same effect as a judicial interpretation, made no distinction between disputes between PRC parties and disputes between a PRC party and a foreign investment enterprise.  These were the statutory provisions and judicial interpretation applicable to restitution at the time of the trial in 2007.

16. According to Professor Wang Li Ming and Professor Yin, under article 92 of the《Civil Law》and the Judicial Opinion, the illegal profits to be returned to the victim includes not only “the original thing (原物)” (by which term I understand to mean “the subject matter of the restitution claim”) acquired from the victim and profits generated from that subject matter; but also other benefits obtained by the use of the subject matter which shall, after deduction of勞務管理費用 (labour service overheads) (which I assume are government levies), be “taken over” (by which term I understand to mean “forfeited to the government”).  Thus, according to the law as it stood at the time of the trial, the Plaintiff would only be entitled to recover the price paid and interest which would have been generated from that price; but the profits of its investment, had the First Laser Agreement been valid, would be forfeited to government.  That was the position before implementation of the Judicial Interpretation. 

17. According to Professor Wang Li Ming and Professor Yin, the Judicial Interpretation applies specifically to disputes between a PRC party and a foreign investment enterprise; and articles 18 and 19 of the Judicial Interpretation, in very brief terms, permit a foreign investment enterprise to recover the profits generated from the investment with a PRC party under an agreement which was rendered no effect and which but for the interpretation of article 92 of the 《Civil Law》 given by the Judicial Opinion would be forfeited to government.  As FCO and FCL are joint venture companies between a PRC party and a foreign investment enterprise, the Judicial Interpretation is applicable to the First Laser Agreement.  The opinion of Professor Wang Li Ming and Professor Yin is, in gist, that by reason of this Judicial Interpretation, the Plaintiff would be put in more or less the same position as it would have been in had the First Laser Agreement been valid under Mainland law.  The Plaintiff would therefore be entitled not just to interest but also substantial compensation representing the profits it would have made from the investment in FCO and FCL, in particular the proceeds of sale of FCL to JDS Uniphase.

18. Judicial interpretations are not statutes, they are the Supreme People’s Court’s interpretation of statutory provisions and opinion as to how statutes are to be applied.  They have effect along with the statutory provisions they interpret.  Thus, there is no issue of retroactivity as such; and article 84 of《立法法》 (《Legislation Law》) against retroactivity does not apply.  Furthermore, article 23 of the Judicial Interpretation expressly provides that since the date it takes effect, the Judicial Interpretation applies to all cases at first instance or appeal.  It is only inapplicable to cases in respect of which a final determination has been made before the date it took effect.  Although the Judicial Interpretation was issued after the delivery of my judgment on 5 February 2008, as no determination on restitution has yet been made, it is still applicable for the purpose of construing article 92 of the《Civil Law》. 

19. Mr Shieh, leading counsel for the Defendants, says that the Defendants only received the joint report of Professor Wang Li Ming and Professor Yin last week and did not have enough time to obtain opinion from their expert.  The Defendants may have dispute about the opinion expressed in the report.  In the absence of a contrary expert opinion from the Defendants, I do not intend to make any finding of the meaning and effect of this Judicial Interpretation.  But, suffice it is to say, on a fair reading, the Judicial Interpretation is prima facie applicable to this case and is likely to have a significant impact on the determination which this court has to make in due course on the issue of restitution.  It is directly relevant to the remitted issue.  Needless to say, this Judicial Interpretation is a new foreign law not available to the parties at the time of the original trial and not pleaded.  The court needs assistance from experts on this aspect of Mainland law.  The report is sufficient for the purpose of the present application.

“Expert shopping”

20. Mr Shieh strongly objects to the application as a clear and blatant case of “expert shopping” on the part of the Plaintiff.  He refers me to Chinachem Charitable Foundation Ltd v Chan Chun Chuen & Anor[2] and submits that this is an obvious and bad case of the Plaintiff attempting at the pre-trial stage to choose an expert who can express a more favourable view; and that such practice should not be allowed.  He argues that there is no explanation, let alone a satisfactory one, why the Plaintiff could adduce a new expert report from two new PRC legal experts instead of a report from the original expert witness,  Professor Wang Shizhou (王世洲), whose evidence was rejected by this court as containing “serious misrepresentation and misinterpretation of the judgment of the Supreme People’s Court”, being “a careless one, if not an irresponsible one”, and casting “doubts if his opinion was aimed at achieving the desired result for his client rather than to assist the court”. He argues that there is no evidence or suggestion that Professor Wang Shizhou is no longer available and there is no explanation why the Plaintiff should not forward a report by the original expert.  Mr Shieh submits that “expert shopping” in the sense of abandoning an expert after his evidence has already been thoroughly discredited by the court is worse.  He complains that there is no reason why the Plaintiff should call two experts whereas the Defendants should only call one.

21. With respect, I do not consider this is a case of “expert shopping” in the sense, as mentioned in Chinachem, that after one expert reached a view unfavourable to the party, the party seeks to call another expert to adduce a more favourable view.  Such kind of “expert shopping” is undesirable and should not be encouraged.  Here, the Plaintiff raises a new judicial interpretation which was not in existence at the time the earlier expert gave his opinion.  This is a new aspect of foreign law which the earlier expert had not touched upon.  Professor Wang Shizhou had not even given an opinion, let alone one which is unfavourable to the Plaintiff.  

22. With respect to Mr Shieh, I think he has advanced all the reasons why a change of expert is necessary.  Although technically categorised as “fact” to be proved by “evidence”, foreign laws are “factual issues of a peculiar kind ”: MCC Proceeds Inc v Bishopsgate Investment Trust Plc & Ors (No.4)[3].  Unlike a factual witness who testifies as to facts they saw, experts on foreign law testifies as to their knowledge and opinion of foreign law.  The functions of expert evidence on foreign law are to inform the court of the relevant contents of foreign law, identify statutes or other legislation and explain where necessary the foreign court’s approach to their construction; identify judgments or other authorities, explain what status they have as sources of the foreign law; and where there is no authority directly in point, assist the judge in making a finding as to what the foreign court’s ruling would be if the issue was to arise for decision there: MCC Proceeds Inc[4].  Experts owe duty to the court and are to assist the court.  If an expert has been found to be careless, unreliable, or a hire-gun who is likely to misrepresent the foreign law and to mislead the court, the court should reject his evidence.  In an appropriate case, the court should even ban that witness from acting as an expert in other cases.  Given the very adverse criticism this court had made of Professor Wang Shizhou’s opinion, it simply does not stand to reason to call for his assistance again in a new aspect of foreign law which arises for determination.  The court needs an informed and correct view of the foreign law.  If an expert has proven himself to be so unreliable and have been so adversely criticised by the court, there is a real risk that he will not likely be of assistance to the court in respect of the new aspect of foreign law, not to mention that the court will most likely view his opinion with suspect.  To require a party to adhere to calling an expert who had been seriously discredited and criticised by the court would not only be unfair to that party but would also put the court at risk of being misinformed and misled.  Besides, it would in effect deprive the court of having an unbiased and comprehensive view of the foreign law.  It would also be contrary to the underlying objective as stated in Order 1A rule 2(2) of the Rules of the High Court that the primary aim in exercising the powers of the court was to secure the just resolution of disputes in accordance with the substantive rights of the parties. Interest of justice calls for a change of expert.  This is particularly so in the present case in which a new issue of foreign law has arisen.

23. The above only deals with part of Mr Shieh’s complaint of the Plaintiff’s calling two experts.  Mr Shieh also complains that the report which the Plaintiff seeks to introduce was prepared by two professors but Professor Wang Li Ming is not going to attend court for cross-examination. Mr Chan, leading counsel for the Plaintiff, explains that Professor Wang Li Ming is regarded as a “national treasure” and has difficulties seeking permission to travel out of the PRC.  In the circumstances, the Plaintiff should not have attempted to pledge Professor Wang Li Ming’s authority by asking him to append his signature to the report.  Be that as it may, I shall treat the report as having been prepared by Professor Yin alone and give no regard to Professor Wang Li Ming and his status.  That assurance from a professional judge should put the Defendants’ concern at rest.

Whether the Court of Appeal has rejected admission of fresh evidence

24. Mr Shieh refers to paragraph 17 of the judgment of the Court of Appeal in this case in which Yuen JA indicated that given the parties had already adduced expert evidence and had extensive cross-examination, it is neither necessary nor desirable to allow the parties to adduce fresh evidence.  Yuen JA said:

“Further the experts for both parties have already expressed their views on the issue in their respective opinions and a transcript of their oral evidence is available. It would not be necessary (or desirable) to have further evidence on the issue.”

In my view, that was said in the context of the Plaintiff’s application to amend its Respondent’s Notice by adding three grounds.  It was not in response to any application to adduce new evidence in relation to the Judicial Interpretation which was never before the Court of First Instance at trial or the Court of Appeal.  The observation of Yuen JA has no bearing to the Plaintiff’s application to adduce new evidence at the trial of the remitted issue.

Whether new expert evidence is admissible at the trial of the remitted issue

25. Next, Mr Shieh argues that the Court of Appeal and the Court of Final Appeal only ordered that the issue of restitution be remitted and never ordered a “re-trial”.  In particular, he referred to the hearing before the Court of Appeal in which Mr Chan made it abundantly clear that any remittance was to be dealt with “on paper”.  At that time, the Judicial Interpretation had been issued.  The Court of Appeal also specifically indicated that it was not contemplating a hearing de novo. Hence, Mr Shieh submits that the Plaintiff did not contemplate that this new aspect of foreign law will be raised and should not be allowed a second bite of the cherry by adducing “new evidence” and new cross-examination.

26. In reply, Mr Chan argues that at the hearing before the Court of Appeal he was not making an election to have the remitted issue dealt with on paper in preference to any other options suggested by the Court of Appeal.  I agree.  Mr Chan could not be treated as making an election and should not be bound by his expressed intention at that time.  After all, both the Court of Appeal and the Court of Final Appeal remitted the issue to the Court of First Instance for determination without any specific direction whether it be disposed of on paper or without hearing further evidence.  Whether to admit new evidence is usually a discretion for the trial judge.

27. Mr Shieh also referred to the case of Ko Hon Yue and Chiu Pik Yuk and Others[5] in which Chu JA, sitting as an additional judge of the Court of First Instance, refused the plaintiff’s application for leave to adduce a supplemental witness statement with annexes at the trial of a remitted issue.  I think Ko Hon Yue is clearly distinguishable from the present case.  In that case, the Court of Final Appeal remitted the case to the Court of First Instance for making further findings on two issues in accordance with the law as stated in its judgment.  A distinguishing feature in that case is that the law based on which the remitted issues were to be determined were clearly set out by the Court of Final Appeal.  As was held by Chu JA, “it is tolerably clear from reading §79 of its judgment that the Court of Final Appeal has not intended a rehearing or admission of evidence afresh and has intended the determination to proceed on the basis of the evidence already adduced at trial”.  In contrast, in the present case, there is no such clear statement of the applicable foreign law made by the Court of Final Appeal and, of course, no mention could have been made of the Judicial Interpretation.  Another distinguishing feature is that in Ko Hon Yue and Chiu Pik Yuk and Others, the new evidence sought to be introduced was one of pure fact which albeit arose after trial.  In the present case, the expert opinion of foreign law is evidence of fact of a special kind and was not available to the parties at the time of trial.  For reasons as already explained, it is relevant and should be admitted.  In my opinion, by no reading of the judgment of the Court of Final Appeal or the Court of Appeal could it be inferred that either of these courts intended that no new evidence on foreign law may be adduced at the hearing of the remitted issue.

28. It is also worth noting that after making the above observation, Chu JA went on to consider the trial judge’s discretion to admit new evidence.  She held in paragraphs 13 to 15:

“13. That said, however, I accept the trial judge has a discretion to admit further or new evidence at the hearing on the determination. In Charlesworth v Relay Roads Ltd, in allowing in part the defendant’s application, made after judgment was handed down but before the order was drawn up, to amend its pleadings that involved new arguments and further evidence, Neuberger J (as he then was) held that (at 234G-H) as a matter of principle, if “the judge retains control of the case, to the extent of being able to reconsider the matter of his own motion or to hear further argument on a point which he has decided, there must be power to permit pleadings to be amended, even if that involves a new argument being put forward, or further evidence being adduced, or even both.”

14. In my view, this principle also applies here. The issue that falls to be considered is whether the plaintiff ought to be permitted to re-open his case on damages and to adduce the Further Statement and the annexes. I shall first begin with the relevant principles.

15. In Ladd v Marshall, Denning LJ said (at 1491) the three factors “always applied when fresh evidence is sought to be introduced”. In Charlesworth v Relay Roads Ltd, Neuberger J said that (at 237F-H) Ladd v Marshall should be at the forefront of the mind of the court when considering an application to admit new evidence, but that a trial judge is entitled to be somewhat more flexible than the Court of Appeal. It is considered that the trial judge, having heard all the witnesses, would be in a better position to receive fresh evidence than the Court of Appeal, who would have to reassess all the facts or decide what effect the new evidence would have had on the trial judge, or has to take the unsatisfactory course of ordering a retrial. This view was approved in Townsend v Archilleas. Mummery LJ, giving the judgment of the English Court of Appeal, held that there is a good case for the cautious application of a slightly more flexible test for the reasons given by Neuberger J. In Hong Kong, this approach was applied by Deputy High Court Judge Lam (as he then was) in Chow Siu Po v Wong Ming Fung §12 and also by Harris J in Re China Medical Technologies Inc, unreported, HCCW 435/2012 (28 August 2014) §20.”

29. In my view, in hearing a remitted issue, a trial judge has discretion to admit further or new evidence, to permit amendment of pleadings and even to re-open a party’s case.  In a case where the appellate court has not expressly directed that no new evidence may be adduced at the hearing of a remitted issue, it is entirely a matter of case management for the judge hearing the remitted issue to decide, particularly in view of the long lapse of time of almost eight years and the new Judicial Interpretation, how best to proceed.  The most important consideration is to secure the just resolution of dispute in accordance with the substantive rights of the parties.  These two considerations point strongly in favour of admitting the new evidence relating to the Judicial Interpretation.  I also echo the observation of Chu JA that a judge of first instance has greater flexibility in admitting new evidence than has the Court of Appeal under the rule in Ladd v Marshall.

Delay

30. Mr Shieh argues that the Judicial Interpretation was issued in 2011 and could have been raised at the hearings before the Court of Appeal or the Court of Final Appeal, but that was never done.  He therefore submits that the application should be dismissed on the ground of inexcusable delay alone.  He quotes the Court of Appeal decision in PW v PPTW[6]. 

31. PW v PPTW was a case of ancillary relief proceedings.  On 11 October 2013, the trial judge assessed the husband’s interest in a partnership business as a going concern at US$5.9 million on the basis of the evidence then before the court and ordered a distribution.  The husband issued a notice to appeal against the distribution on 25 October 2013.  On 4 November 2013, he agreed to his partner’s proposal to liquidate the business.  Application to fix a date of hearing was lodged on 20 January 2014 and the actual hearing date was fixed with the agreement of the parties on 30 January 2014.  Between December 2013 and September 2014, the husband received payments from the liquidation.  On 7 November 2014, he sought leave to file a witness statement from his partner concerning the valuation of that business which would have an impact on the award to the wife in the amount of HK$3.2 million.  In refusing the husband’s application for leave to file the witness statement on the ground of delay, Lam VP held in paragraph 9:

“9. The unexplained delay was particularly serious given that, as submitted by Mr Pilbrow SC (appearing together with Mr Chan for the wife), there were grounds for disputing whether Mr Sherman’s statement had given us a complete picture of the affairs of Welton USA. The late presentation of such evidence had a disruptive effect on the preparation of the appeal.”

After referring to the authorities and the underlying objective in Order 1A, Lam VP continued in paragraph 12:

“12, In so saying, we are not adopting a dogmatic rule that all late applications will be dismissed without regard to their merits. As observed in Chan Cheung Ming Jacky v Siu Sin Man [2014] 5 HKLRD 89, this is not the correct approach. However, litigants and lawyers will be ill-advised if they shall continue to conduct appeals without regard to proper case management. Gone are the days when an appellant (or a respondent) could put in a last minute summons for admission of fresh evidence simply because the criteria of Ladd v Marshall can be satisfied. It should not come as a surprise that this court takes account of the underlying objectives in Order 1A in deciding how its case management discretion (including the discretion to admit new evidence) is to be exercised. Late applications without any proper explanation (supported by proper evidence) will not be well received.”

Thus, while inexcusable delay has an important bearing on the court’s exercise of discretion in admitting the additional evidence, there is no invariable rule that such application must be refused in all cases of delay.  What the court takes into consideration is not delay as such, but rather the prejudice which such delay causes to the other party.  Merit never ceases to be an important factor to be considered because the underlying objective is just resolution of disputes in accordance with the substantive rights of the parties.  Delay, lack of explanation and prejudice have all to be weighed against the underlying objective of just resolution of disputes in accordance with the substantive rights of the parties.

32. In the present case, while there is inordinate and unexplained delay in making the application, the Defendants are unable to point to any prejudice caused by the delay.  Nor can I think of any.  Besides, unlike PW v PPTW, the evidence which the Plaintiff seeks to adduce is not one of pure fact but a peculiar kind of fact in the form of foreign law. Also, unlike PW v PPTW, a trial date has not been fixed.  There is ample time for the Defendants to obtain a contrary expert opinion.  When considered in the round, just resolution of the dispute must outweigh the delay.

A new plea

33. Mr Shieh argues that not only is the application “dressed up” as an application to adduce fresh evidence under Ladd v Marshall, it is in fact a new plea.  There is no issue of any “dressing up”. This is not an appeal.  It is not Mr Chan’s argument that the principle in Ladd v Marshall applies.  Rather, he only repeats the observation of Chu JA in Ko Hon Yue and Chiu Pik Yuk and Others that a court of first instance has greater latitude in admitting fresh evidence.

34. That said, I am in agreement with Mr Shieh that because the Plaintiff seeks to adduce foreign law which, which is an issue of fact which must be pleaded, new pleadings are required to raise the issue.  The new aspect of foreign law, the new facts relied on, if any, and the compensation sought have to be pleaded.  The new issues have to be crystallised and goal posts set.  The Plaintiff should not be left unchecked as to what it may argue at the remitted hearing.  The Plaintiff need to amend its pleadings first, before it can even talk about adducing new expert evidence and exchanging witness statements in respect of the additional facts it seeks to rely on.

Exchange of witness statement

35. Mr Shieh objects to the Plaintiff’s application to file new factual evidence when the trial was concluded eight years ago back in November 2007 and the final appeal concluded back in 2012.  While a new aspect of foreign law will be pleaded, to make good its claim under that aspect of foreign law the Plaintiff has to rely on new fact(s) to be pleaded.  It is not entitled to “dress up” this application as an update and have a general round of evidence.  No draft witness statement has been produced.  No indication has been given as to the nature of the new evidence.  As the matter now stands, the application is premature.

Conclusion

36. On a fair reading the Judicial Interpretation, it is prima facie applicable to the remitted issue and is likely to have a significant impact on the determination which this court has to make.  It is directly relevant to the remitted issue.  The Defendants’ objections have all been dismissed.  The foreign law relating to the Judicial Interpretation should be adduced in evidence.  However, foreign law is a material fact which must be pleaded.  As submitted by Mr Shieh, before leave to adduce this evidence may be granted, the pleading has to be amended first.  In the circumstances, it would be appropriate not to make any order pending the amendment of the pleading.  The same applies to the exchange of witness statements.  I trust the parties, having regard to the decision of this court, would in the interest of saving costs agree to amendment of pleadings, directions for filing of expert reports and exchange of witness statements.  Therefore, in respect of this application, I make no order other than that costs of the application be in the Plaintiff’s costs in the cause.

THE UNLESS ORDER APPLICATION

37. As a result of the dismissal of the Plaintiff’s appeals, the Plaintiff owed the Defendants substantial costs.  Allocaturs were issued on 11 September and 27 October 2014 for the Defendants’ taxed costs in HCA 4414/2001, CACV 126/2008 and FACV 6/2011.  As at 31 May 2015, the Plaintiff owed the Defendants HK$8,766,313.14 outstanding costs.  These are made up of the following sums:

Item	Description	Amount (HK$)
1	Outstanding interest accrued on taxed costs in HCA 4414/2001	1,411,584.85
2	Outstanding taxed costs in CACV 126/2008	421,998.89
3	Outstanding interest accrued on taxed costs in CACV 126/2008	1,215,809.69
4	Outstanding taxed costs and accrued interest in FACV 6/2011	5,716,919.71
	Total:	8,766,313.14

38. The Plaintiff is a Macanese company.  There is no dispute that it has no assets in Hong Kong available for execution.  The means of enforcement under Order 45 are illusory.  Mr Shieh argues that in the light of the Plaintiff’s failure to settle the costs despite repeated demands, an unless order requiring payment with the sanction of dismissal of the Plaintiff’s claim is appropriate.

39. Mr Chan’s argument in opposition is that the Defendants still owe the Plaintiff substantial monies under its claim for restitution which is sufficient to pay off the outstanding costs and interest.  This argument is premised not only on the Plaintiff being successful in the remitted issue, but also that the compensation to be recovered would be substantial and sufficient to cover the outstanding costs owed to the Defendants.  From the parties’ affirmations, I can anticipate there will be serious disputes on both of these issues.  The Plaintiff claims it is entitled to the proceeds of sale of the FCL shares.  The Defendants claim that the shares of their other subsidiary, FCO, transferred to the Plaintiff’s nominee in the performance of the First Laser Agreement must be returned, and the benefits received by the Plaintiff from FCO, its current value and its value before the transfer to the Plaintiff must be taken into account.  The Defendants allege that Plaintiff or its nominee had received dividends of over RMB 13 million from FCO which has now substantially lost its value.  The Plaintiff disputes the valuation of FCO and alleges that about half of the dividend received had been reinvested in FCO in purchasing staff quarters. All these disputes remain to be resolved.  It is not possible to form even a provisional view as to which party would succeed and the likely net amount of compensation to be awarded to the Plaintiff.

40. On the other hand, just as the Plaintiff is a Macanese company against which enforcement is illusory, the Defendants had no assets available for execution in Hong Kong but a record of swiftly removing its assets out of the jurisdiction.  If the outstanding costs are paid and in the event that the compensation awarded to the Plaintiff substantially exceeds the value of all the assets of FCO in the Plaintiff’s possession, the Plaintiff would be left with a partially empty judgment.  Having regard to the above, the Plaintiff’s repeated failure to pay taxed costs on demand and the principle that a litigant should not be deprived of his fruits of litigation, I think the best course to take is to order the Plaintiff pay all outstanding costs and interest into court under an unless order.  That will best safe-guard the interest of all parties.

THE FORTIFICATION APPLICATION

41. The Defendants seek an undertaking as to damages and fortification. The basis of the Defendants’ application is that they are concerned that the Plaintiff has no asset available in Hong Kong for execution to meet its undertaking if its claim in restitution is dismissed.  In addition, the Plaintiff has a record of not paying outstanding costs despite repeated demands.  The Defendants allege that they suffered and continue to suffer loss as a result of being deprived of the use of the US$9 million which they paid into court pursuant to the order of the Court of Appeal and it is uncertain when the proceedings would be concluded.  They claim loss in the amount of HK$38 million for being prevented from converting the money into Renminbi at a more favourable exchange rate back in 2007 and depositing the money at the higher rate of interest which could have been earned had the money been deposited in the PRC.

42. The Plaintiff has no objection to giving the usual undertaking as per Practice Direction 11.2 that if the court later finds that the injunction has caused loss to the Defendants and decides that the Defendants should be compensated for that loss, the Plaintiff will comply with any order the court may make.  The Plaintiff objects to providing fortification on the grounds that there is still money in court to pay the damages and that the alleged loss is entirely speculative, hypothetical and unreal in that it is simply not based on facts and the historical events.

43. I reject the Plaintiff’s first ground as being flawed.  It is premised on the Plaintiff being successful in the remitted issue.  Of course, if the Plaintiff is successful, no claim for damages would arise. 

44. However, I agree with the Plaintiff on the second ground.  Initially, the parties had mutually and positively agreed to place the funds on three-month fixed term deposit.  It was later paid into court pursuant to the order of the Court of Appeal.  More importantly, it was never suggested or proposed that the funds should be placed in a higher interest bearing account or for longer fixed deposit terms, or in any specified bank or bank account, or be converted into any particular currency.  The alleged loss is purely speculative and based on hindsight.  Had the Defendants wished to convert the funds into any particular currency and/or be placed in any particular bank, they should have made application to court stating their grounds and their need to do so.  Furthermore, the funds had been deposited in a bank by mutual agreement since October 2001 and later paid into court.  For fourteen years the Defendants had never made an application for fortification on the above reasons.  Their alleged loss is unreal, speculative, hypothetical and based on hindsight.

45. Lastly, during the hearing before the Court of Appeal, the Defendants’ leading counsel made an open offer to the Plaintiff by returning the sum of HK$20 million with interest in satisfaction of the restitution claim.  Therefore, it now seems to be common ground that the Plaintiff is entitled to at least recover the price it paid in the sum of HIK$20 million plus interest.  That is money in the Defendants’ hand which should provide them some comfort. 

46. On balance, I consider the usual undertaking adequate and shall order accordingly.

THE SECURITY FOR COSTS APPLICATION

47. The Plaintiff is a foreign party.  The usual rule is that it has to pay security for costs.  Indeed, such orders had been made on three previous occasions against the Plaintiff.  On 26 November 2003, a sum of HK$3,063,000 was ordered to be paid to cover the costs from the issue of writ to the completion of discovery; and on 9 December 2005, another sum of HK$3,800,000 was ordered to cover the costs from discovery until and including trial.  In respect of its appeal to the Court of Final Appeal, the Plaintiff had also been ordered to provide security for costs of the appeal in the sum of HK$800,000.  There is no change in circumstances or in the respective position of the parties.  It is only appropriate that the Plaintiff should be ordered to pay security to cover the trial of the remitted issue.  The Defendants suggested a sum of HK$4.3 million.  Having regard to the costs taxed this far, I consider the suggested sum excessive.  As the records have shown, the Defendants’ costs assessments have always been taxed down by about 50%.  I consider a sum of HK$2.5 million appropriate and order accordingly.

THE PAYMENT OUT APPLICATION

48. In dismissing the Plaintiff’s appeal on 6 July 2012, the Court of Final Appeal ordered:

“the issue of restitution under Mainland law be remitted to the Court of First Instance for determination;”

49. Then, upon the Defendants’ application for payment out of the money paid into court by the Defendants, Ribeiro PJ ordered:

“[the Payment Out Summons] be dealt with by a Judge of the Court of First Instance as an issue consequential upon this Court’s Order dated 6 July 2012 dismissing the plaintiff’s appeal and directing that the issue of restitution under Mainland law be remitted to the Court of First Instance for determination.”

(My emphasis highlighted)

50. The matter then went to the listing judge of the Court of First Instance for direction.  Poon J, as he then was, directed that the Payment Out Summons be dealt with by me.  On 27 April 2015, Poon J gave further directions by letter as follows:

“1. Pursuant to the order of the Court of Final Appeal dated 6 July 2012, the issue of restitution under Mainland law (“the Issue”) is to be remitted to the Honourable Mr Justice To for determination (“the Order”).

2. Pursuant further to the direction of the Honourable Mr Justice Ribeiro, PJ on 20 March 2015, the defendant’s summons dated 22 December 2014 for payment out (“the Summons”) is to be dealt with by a Judge of Court of First Instance as an issue consequential upon the Order (“the Direction”).

3. When the Order and the Direction are read together, it is plain that the Court of Final Appeal has directed that:

a. The Issue is to be determined by the Honourable Mr Justice To (which remains the case until and unless the Court of Final Appeal directs otherwise); and

b. After the determination of the Issue, the Summons is to be determined by a Court of First Instance Judge.

4. On 14 April 2015, I directed that the Summons be dealt with by the Honourable Mr Justice To. It remains my view that the Honourable Mr Justice To is the most suitable judge to deal with the Summons.

5.  For the above reasons, both that Issue and the Summons are to be placed before the Honourable Mr Justice To for his Lordship’s directions and disposal.”

On the basis of the above directions, Mr Chan submits that the application for payment out should be determined after the determination of the remitted issue.  Mr Shieh seems to accept that to be the position.  In his skeleton argument, he only seeks relief under the Security Summons and does not seek any relief under the Payment Out Summons, which was only mentioned as part of the background.

51. Notwithstanding the above and not with any disrespect to Poon J, I think it is equally open, if not any more so, to construe the words “consequential upon the Order” in the direction of Ribeiro PJ to mean consequential upon the Court of Final Appeal’s order dismissing the Plaintiff’s appeal and remitting the restitution issue for trial or/than to mean consequential upon the determination of the remitted issue by this court.  However, for reasons as are obvious from my consideration of the other three applications, deference of the hearing of the Payment Out Summons to the conclusion of the hearing of the remitted issue must be the obvious, logical and sensible course.  I shall so direct accordingly.

CONCLUSION

52. In respect of the application for directions, I make no order except that costs of the application be the Plaintiff’s costs in the cause.

53. In respect of the unless order application, I make an order that unless by 4:00 pm on 12 February 2016, the Plaintiff pays into court all outstanding taxed costs as at the date of this decision and interest accrued thereon awarded in favour of the Defendants, the Plaintiff’s claim shall be struck out and dismissed.  The Plaintiff shall pay the Defendants’ costs of this application.

54. In respect of the fortification application, I make an order that the Plaintiff shall within 14 days from the date of this decision give the undertaking in the form as per Practice Direction 11.2. There be no order as to costs of this application.

55. In respect of the security for costs application, I make an order that the Plaintiff shall within 14 days from the date of this decision pay HK$2.5 million into court as security for the Defendants’ costs in the remitted issue.  The costs of this application shall be the Defendants’ costs in the cause of the remitted issue.

56. In respect of the payment out application, I make an order that the Payment Out Summons be adjourned to be heard after the hearing of the remitted issue.  The costs of this application be reserved.