YIFUNG PROPERTIES LTD AND OTHERS v. MANCHESTER SECURITIES CORP AND OTHERS

CACV 258/2015 AND CACV 259/2015

CACV 258/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 258 OF 2015

(ON APPEAL FROM HCA NO. 1359 OF 2014)

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AND

CACV 259/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 259 OF 2015

(ON APPEAL FROM HCA NO. 1341 OF 2014)

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REASONS FOR JUDGMENT AND
DECISION ON COSTS

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Hon Kwan JA (giving the reasons for judgment and decision on costs of the court):

Introduction

1. These two appeals are against the judgment of Au-Yeung J handed down on 19 October 2015 (“the Strike Out Decision”) in which she ordered to be struck out the claim in one action and various parts of the defences filed in another action.

2. In HCA 1359/2014 (“the 1359 Action”), there were before the judge two summonses issued by the 1^st and 4^th defendants, Manchester Securities Corp (“MSC”) and Elliott Advisors (HK) Limited, on one part and the 2^nd and 3^rd defendants (“the Receivers”) on the other part, seeking to strike out the amended writ and statement of claim on the grounds that the claim does not disclose any reasonable cause of action, or is frivolous and/or vexatious, or is an abuse of the process of the court.  The judge ordered the statement of claim to be struck out and the action be dismissed, with costs to the defendants on an indemnity basis.  The appeal of the plaintiffs, who are the mortgagors, Yifung Properties Limited, Wonder Earn Group Limited and Capital Metro Group Limited, against this order is CACV 258/2015.

3. In HCA 1341/2014 (“the 1341 Action”), the plaintiff, Yifung Developments Limited (“YDL”), acting by its new directors, issued a summons to strike out parts of the defences of its former directors, the 1^st, 2^nd and 3^rd defendants (“the ex-directors”), on the same grounds as those raised by the four defendants in the 1359 Action.  The judge ordered to be struck out (1) those paragraphs of the defence of the 1^st defendant, Liu Chi Keung Ricky (“Ricky Liu”), identified in Part 1 of the Schedule annexed to the order; and (2) those paragraphs of the defence of the 2^nd and 3^rd defendants identified in Part 2 of the Schedule annexed to the order.  Costs of this summons were reserved and to be dealt with after the hearing of Ricky Liu’s summons in which he challenged the authority of the Receivers.  The defendants’ appeal against this order is CACV 259/2015.

4. Most of the issues germane to these applications for striking out were considered by the judge in the injunction proceedings in a three-day hearing in September 2014.  She handed down her decision on 17 November 2014 (“the Injunction Decision”).  By that decision, she refused the application of the plaintiff mortgagors in the 1359 Action for an interlocutory injunction against the Receivers from exercising their powers as such and the plaintiffs’ application to amend the writ to raise two new issues, called the “MLO Point” and the “Agency Point”.  Also by the same decision, the judge granted an interlocutory injunction sought by YDL in the 1341 Action against the ex-directors to restrain them from holding themselves out as directors of YDL and interfering with YDL’s relationship with its banks and auditors.  Further, the ex-directors were ordered to hand over to the new directors the records and assets of YDL and give access of the business premises to the new directors.

5. The plaintiffs in the 1359 Action and the defendants in the 1341 Action sought leave to appeal against the Injunction Decision.  We will adopt the judge’s term and call them “Ricky Liu’s camp”.  The judge refused leave by her decision of 12 February 2015 (“the Leave Decision”).

6. The applications for leave to appeal were renewed in the Court of Appeal (HCMP 461 to 463/2015).  Leave was refused by the court (Lam VP and Kwan JA) on 28 May 2015, with reasons for judgment handed down on 3 June 2015 (“the CA Decision”).

7. The summonses for striking out in both actions were all issued on 8 December 2014.  They were heard after the CA Decision on 25 August 2015, with the judgment under appeal being the Strike Out Decision handed down on 19 October 2015.  At the conclusion of the hearing, we dismissed the appeals in CACV 258/2015 and CACV 259/2015 and refused an application by the ex-directors to adduce new evidence in CACV 259/2015.  These are the reasons for our judgment.

Background

8. We take the background matters from the Strike Out Decision at §§4 to 7:

“4. Briefly, YDL did not repay the 2^nd and 3^rd instalments of a loan to MSC, which remained outstanding since 17 March 2014. MSC declared an event of default and exercised its rights under the security arrangements to appoint the Receivers over the YDL shares and obtained possession of a property subject to a legal charge. MSC also exercised its rights under the equitable mortgages to change the directors of YDL and the WFOE owned by YDL. The new directors are the same persons who had been appointed the Receivers.

5. In 1341 Action, YDL (acting under the new directors) seeks (a) a declaration that as from 4 June 2014 the ex-directors had no authority to hold themselves out as directors of YDL; and (b) a mandatory injunction for the handing over of corporate records, assets and business premises to YDL, and to restrain the ex-directors from giving instructions to YDL’s auditors and banks.

6. In 1359 Action, the Mortgagors claim that there was no event of default and that MSC was estopped from declaring an event of default by virtue of an oral assurance given by James Smith on behalf of MSC to Ricky Liu for YDL (“the Assurance”).

7. The core issues in the injunction proceedings were whether an event of default had occurred to justify the appointment of receivers and whether ex-directors have been rightly removed by the Receivers. The parties argued extensively over what were known as the Estoppel Point, the MLO Point and the Agency Point (“the 3 Points”).”

9. Further background is given in the CA Decision at §§6 to 13:

“6.   The broad grounds of appeal relate to the judge’s rulings on three issues asserted by the plaintiff mortgagors to found their claims in the 1359 Action.  They are referred to in the Decision as “the Estoppel Point”, “the MLO Point” and “the Agency Point”.  The judge held there is no serious issue to be tried on any of these issues, and that is sufficient to dispose of the plaintiffs’ application for an interlocutory injunction.

7.  The background for present purpose may be briefly stated as follows.

8.  By a facility agreement (“FA”) dated 10 September 2010, MSC lent US$39 million (“the Loan”) to YDL, repayable in three instalments.  The Loan was subject to these security arrangements:

(1)  two equitable mortgages by the shareholders of YDL [the 1^st and 2^nd plaintiffs in the 1359 Action] of the entirety of the shares in YDL in favour of MSC;

(2)  a legal charge by Capital Metro Group Ltd (“Capital Metro”) [the 3^rd plaintiff in the 1359 Action], the registered owner of a property in Queen’s Road East, Hong Kong (“the Property”) in favour of MSC;

(3)  a rental assignment by which Capital Metro assigned to MSC the rights in leases relating to the Property; and

(4)  an investor rights deed (“the IRD”) by which MSC is entitled to receive a profit-linked bonus (“the Bonus”) out of YDL’s available profits.

9.  YDL owns a wholly foreign owned enterprise (“WFOE”) in the Mainland and WFOE in turn owns a property development project in Yangjiang City, Guangdong.

10.   YDL repaid the first instalment of the Loan but the second and third instalments (each for US$14.5 million with interest) remained outstanding since 17 March 2014.  MSC declared an event of default and exercised its rights under the security arrangements to appoint receivers over the YDL shares and the Property.  In April 2014, MSC brought proceedings under Order 88 to seek recovery of possession of the Property.  In June 2014, MSC exercised its rights under the equitable mortgages to change the directors of YDL and WFOE.  The new directors are the same persons who had been appointed receivers over the YDL shares and the Property (“the Receivers”).

11.   The plaintiffs brought the 1359 Action claiming that there was no event of default and MSC is estopped from declaring an event of default by virtue of an oral assurance given by James Smith on behalf of MSC to Ricky Liu for YDL.  Hence, the appointment of the Receivers over the YDL shares and the Property is invalid and the exercise by the Receivers of their rights under the equitable mortgages and legal charge is invalid.  This is the Estoppel Point.

12.   The plaintiffs further alleged that the transactions under the FA and IRD are unenforceable for contravening section 24 and/or section 25 of the Money Lenders Ordinance, Cap 163 (“MLO”).  It was contended that the Bonus formed part of the interest under the definition in MLO and there was a “transaction” that should be re-opened under section 25.  This is the MLO Point.

13.   It was also contended that the Receivers, being the agents of the plaintiff mortgagors, had acted in breach of their duties to the mortgagors in that they did not act in the interests of the mortgagors in these three matters: (1) the application for an ex parte injunction in the 1341 Action, which was discharged; (2) the replacement of the board of directors of WFOE; and (3) the commencement of proceedings in the PRC for delivery up of the books and records and WFOE.  This is the Agency Point.”

10. It is readily apparent that having gone through two levels of court in the injunction proceedings, the Estoppel Point, the MLO Point and the Agency Point have been argued extensively by the parties.  The judge was most critical of Ricky Liu’s camp and has this to say in the Strike Out Decision:

“26. Assuming that Ricky Liu’s camp had genuinely thought that it had a viable claim when the writ was first filed, having gone through 2 levels of court in the injunction proceedings, it should have known that there was no substance in the 3 Points. Ricky Liu’s camp might have been keen to avoid the consequences of default in repayment rather than harassing the other side. However, had it seriously considered the 3 Decisions [i.e. the Injunction Decision, the Leave Decision, the CA Decision], it would have known that its causes of action were so manifestly misconceived that they could have no prospect of success: ET Marler Ltd v Robertson [1974] ICR 72. This is particularly so since I have held that the proposed causes on the MLO Point and Agency Point would have been struck out for being frivolous and vexatious (§123 of the [Injunction] Decision) when I refused leave to amend the writ. The resistance to the striking out is thus another “try on” with the same arguments. It is frivolous and an abuse of process.”

And in §41:

“In principle, there should be indemnity costs to the defendants, given that Ricky Liu’s camp has made a desperate re-run of the arguments advanced for the injunction proceedings and revived abandoned points.”

The appellants’ arguments in CACV 258/2015

11. The main points argued by Miss Linda Chan, SC on appeal are as follows.  First, she took issue with §21 of the Strike Out Decision in which the judge said:

“The findings in the [Injunction] Decision that the 3 Points did not give rise to serious issues to be tried and refusal of leave to amend the writ to include the MLO Point and Agency Point satisfied the high threshold for striking out a statement of claim: Ren Yun Liang v China Merchants Bank Co Ltd, HCA 1456 of 2005, 29 January 2007, Recorder B Yu, SC, §32; followed in GDH Ltd v Creditor Co Ltd [2008] 5 HKLRD 895, DHCJ To (as he then was), §19; Dong Shing F & T Co Ltd v Hanmec Co Ltd [2010] 5 HKLRD 261, §42, Fok J (as he then was).”

12. Miss Chan submitted that the judge fell into error in §21 in holding that the findings in the Injunction Decision and her refusal to give leave to amend the writ satisfied the high threshold for striking out the claim in the 1359 Action.  The three cases cited by the judge concerned applications to discharge an order granting leave to serve a writ out of jurisdiction.  They do not support the proposition that where the court has formed the view on an application for interlocutory injunction that the claims do not give rise to a serious question to be tried, that view could be taken as a finding binding on the parties, or that the high threshold for striking out the claim is met.

13. Miss Chan contended that the judge failed to have sufficient regard to the difference between the legal principles applicable to interlocutory injunctions and striking out.  In the case of the former, a fundamental principle is that the court should take whichever course that appears to carry the lower risk of injustice if it turns out to have been wrong at the stage of the interlocutory application, and the requirement of a serious issue to be tried forms part of the court’s consideration in assessing the course which carries the lower risk of injustice.  The court’s assessment of the merits does not affect the plaintiff’s right to pursue his claim to trial.  In contrast, in applying to strike out a claim, the defendant is seeking a drastic remedy to drive the plaintiff from the judgment seat and deprive him of the right to proceed to trial.  She cited the words of Litton VP (as he then was) in Yue Xiu Finance Co Ltd & Anr v Dermot Agnew & Ors [1996] 1 HKLR 137 at 141 in which he cautioned against the court granting this remedy “unless it is satisfied that the legal basis of the claim is unarguable or almost incontestably bad: and … where the legal viability of the cause of action is sensitive to the facts, an order to strike out should not be made.”

14. Miss Chan submitted that in the Injunction Decision, the judge did not find that the Estoppel Point (the only basis on which the cause of action in the 1359 Action is founded) was frivolous or vexatious or constitutes an abuse of process.  The judge’s conclusion in the Injunction Decision that there was no serious issue to be tried on the Estoppel Point is not a proper basis to strike out the claim.  To the contrary, the judge has found in §19 of the Strike Out Decision that “on the assumption that the facts in the statement of claim are true, there may be a reasonable cause of action in the Estoppel Point.”  She prayed in aid the following statements of Godfrey J (as he then was) in Hutchvision Asia Ltd v Asia Television Ltd [1993] 2 HKC 510 at 514G to H:

“… any lawyer with any experience of private practice will be able to remember, only too well, those cases which appeared to be certainties but which, to his surprise, nevertheless failed and, by the same token, those cases which seemed bound to fail but which, to his surprise, nevertheless succeeded. It is for just this reason that the court will not embark, at this stage of an action, on a consideration whether the case of one side or the other is true or false. It will consider only whether the nature of the defence is such that it has to be characterized as an abuse of the process of the court, which is something else altogether.”

15. Miss Chan further argued that the judge was wrong to hold that the plaintiffs’ resistance to the strike out applications was another “try-on” with the same arguments and therefore frivolous and vexatious and an abuse of process.  She basically repeated her contention that the findings in the Injunction Decision were made in a different context and the applicable legal test for striking out is different.  She argued that the judge’s holding that the Estoppel Point “could have no prospect of success” (Strike Out Decision, §26) is contradicted by her conclusion that “there may be a reasonable cause of action in the Estoppel Point” (Strike Out Decision, §19).

Discussion of the arguments in CACV 258/2015

16. We do not accept that the judge did not have a proper understanding of the different burdens placed on an applicant for an interlocutory injunction and an applicant for striking out a claim, or that she did not have sufficient regard to the differences.  The judge has correctly stated the legal position in §16 of the Strike Out Decision:

“The test for showing serious issues to be tried in order to grant an injunction under the American Cyanamid principles are different to those for striking out. In respect of the former, the court undertakes “what is in effect a preliminary trial of the action upon evidential material different from that upon which the actual trial will be conducted”: American Cyanamid Co. v Ethicon Ltd [1975] AC 396, at 406H, per Lord Diplock. Showing a “serious issues to be tried” is not a high threshold. An applicant (then Ricky Liu’s camp) needs only to show that the matter is not demurrable on its face, regardless of whether its chances of success in establishing liability at the trial are 90% or 20%: §§21-22 of the Decision. In respect of striking out, the applicants (here being the defendants in the 1359 Action and the plaintiff in the 1341 Action) must show that the pleadings are unarguably bad.”

17. Notwithstanding that the threshold for establishing a serious issue to be tried is not high for an applicant seeking an interlocutory injunction, Ricky Liu’s camp was not even able to meet that threshold.  The judge concluded that “the case on the Assurance was so contradicted by contemporaneous documents (which all pointed one way) and so inherently improbable that it was demurrable on its face” and that “the grounds in opposition to MSC’s enforcement actions were but desperate attempts by a debtor to resist an impossible situation” (Injunction Decision, §§78 and 148).  The phrase “demurrable on its face” was taken from Holyrood Ltd v Bank of China (Hong Kong) Ltd, HCCL 35/2003, 19 September 2003, §29, per Stone J), see the Injunction Decision, §21.

18. The judge in the Injunction Decision was keenly aware that “it is no part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations” (American Cyanamid Co. v Ethicon Ltd, at 407H), see the Injunction Decision at §§22 and 23.  Although there should be no trial on affidavits, “that does not mean the court should shut its eyes to the obvious in deciding if the applicant’s case is demurrable on its face” and “clearly the court can apply common sense and test a party’s assertions against objective, contemporaneous documents” (Injunction Decision, §23).  This approach was approved of in the CA Decision at §17.  What the judge meant by the phrase “demurrable on its face” is quite simply that the allegations were plainly unbelievable or incredible on the materials placed before the court, see §78 of the Injunction Decision.  We think it is better that this phrase should not be used in future, given the connotation of a demurrer which is an outdated mode of objection to a pleading.

19. As for Miss Chan’s submission that the judge did not find in the Injunction Decision that the Estoppel Point was frivolous or vexatious or an abuse of process of the court, the judge did not couch her findings in those terms because she was analysing the issues in dispute from the angle of an applicant for an interlocutory injunction, namely, whether the applicant had shown a serious question to be tried on the claim.  And she had answered that question against Ricky Liu’s camp.  As stated by Lord Diplock in American Cyanamid Co. v Ethicon Ltd [1975] AC 396 at 407G:

“The court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.”

20. Conversely, if the opposing party seeks to show there is no serious issue to be tried, the threshold for him to succeed is high, as it would be necessary for him to demonstrate that the claim should be struck out, see the cases cited by the judge at §21 of the Strike Out Decision (Ren Yun Liang v China Merchants Bank Co Ltd, §32; GDH Ltd v Creditor Co Ltd, §19; and Dong Shing F & T Co Ltd v Hanmec Co Ltd, §42).  That these cases were concerned with applications to set aside service of a writ out of jurisdiction on the basis there were no serious issues to be tried as to the merits is quite beside the point.  As submitted by Mr Jeremy Bartlett, SC for the Receivers, it has never been the law that there is a limit on the courts’ ability to recognize and find that a claim is hopeless, whether in the context of an injunction application (where the opposing party can show no serious issue to be tried) – and we would add an alternative context, being an application to set aside a writ for service out of jurisdiction – or in the context of a strike out application (where an obviously spurious case is advanced and is thus frivolous and vexatious).  This is particularly so in light of the underlying objectives of expedition, proportion, procedural economy and fair allocation of court resources introduced by the Civil Justice Reform.

21. In the Injunction Decision, the judge had found that the applicant’s case on the Estoppel Point is “demurrable on its face” and “cannot raise a serious issue to be tried” (Injunction Decision, §87).  The judge also refused leave to amend the claim to raise the MLO Point and the Agency Point, on the approach agreed by counsel that “even if the injunction application is dismissed, the court still has the power to allow the amendments unless it takes the view that the amendments could have been struck out” (Injunction Decision, §122).  On that approach, she found that it is “plain and obvious” the MLO Point and the Agency Point “would have been struck out for being frivolous and vexatious” (Injunction Decision, §123).  In other words, the opposing parties had satisfied the high threshold of showing that the claim is liable to be struck out. Leave to appeal against the Injunction Decision was refused and the judge’s findings on all the three points were endorsed in the CA Decision.  So when the judge dealt with the strike out applications, she was able to do so economically in light of the findings in the earlier decisions.  The judge did not make any error of law or principle in §21 of the Strike Out Decision as submitted by Miss Chan.

22. The statements in Yue Xiu Finance Co Ltd & Anr v Dermot Agnew & Ors and Hutchvision Asia Ltd v Asia Television Ltd do not assist Miss Chan’s contentions.  These statements must be read with regard to the context of the decisions.

23. In the first mentioned case, the particular situation the court was concerned with was whether it was fair and reasonable to impose a duty of care on the auditors vis-à-vis the parties of an agreement to purchase the subject companies having regard to all the circumstances of the case.  It is understandable that the legal viability of the cause of action was sensitive to the facts, which must be considered in the round for a determination to be made whether sufficient proximity had been established, and it would not be appropriate for the claim to be struck out.

24. In the latter case, the application to strike out the defence was made on the ground it was bound to fail, but only after the pleadings were closed and discovery and inspection were completed.  It was an unusual situation and the court held that the exceptional jurisdiction to strike out a defence in this instance should be very sparingly exercised.  As apparent from the extract quoted by Miss Chan, where the nature of the defence is such that “it has to be characterized as an abuse of the process of the court”, it would be in order to bring an application for striking out, and the judge was satisfied in §28 of the Strike Out Decision that the claim was “not just weak but ought to be struck out for being frivolous and an abuse of process of the court”.

25. As for the contention the judge has found in §19 of the Strike Out Decision that assuming the facts as pleaded are true, “there may be a reasonable cause of action in the Estoppel Point”, we do not think that could be read as an acknowledgment of merit in the plaintiffs’ claim.  Miss Chan chose to focus on the limb of “no reasonable cause of action”, but the application for striking out was made not just on that limb, but also on the separate limbs that the claim was frivolous or vexatious and an abuse of the process of the court, and the court is at liberty to consider evidence under the other limbs.  There is no contradiction in holding that there may be a reasonable cause of action in the Estoppel Point, assuming the facts pleaded are true, and the conclusion that having considered the evidence, there is no prospect of success in the Estoppel Point.  The judge ordered the claim to be struck out on the basis that it was frivolous and an abuse of the process of the court.

26. We can detect no error in the holding that the Estoppel Point should be struck out on this basis.  The plaintiffs have had more than ample opportunity to persuade the court that their arguments had merit but had failed on three prior occasions.

27. It is entirely appropriate for the judge to strike out the claim in the 1359 Action as a matter of law and discretion and a matter of case management.

The appellants’ arguments in CACV 259/2015

28. Those parts of the defences of the 1^st defendant and the 2^nd and 3^rd defendants ordered to be struck out by the judge relate to the Estoppel Point, the MLO Point and three other points:

(1)   there was no event of default which would have entitled MSC to enforce any of the securities given by the Mortgagors (“the No Event of Default Point”);

(2)   the FA, the Equitable Share Mortgage Agreements, the Escrow Agreement, the Property Mortgage and the IRD (collectively “the Agreements”) were subject to implied terms (“the Implied Terms Point”); and

(3)   the appointment of the Receivers was invalid in that section 66(7) of the BVI Business Companies Act 2004 as modified by clause 7.9(c) of the Equitable Share Mortgage Agreements required a period of one hour to elapse from the occurrence of the event of default and that the Event of Default had not been rectified within one hour of service of a notice specifying the default and requiring rectification thereof (“the Invalid Appointment of Receivers Point”).

29. Save for the Invalid Appointment of Receivers Point, Miss Chan challenged the judge’s holding that each of the above points is plainly unarguable.

30. On the Estoppel Point, she repeated her submissions in CACV 258/2015.

31. On the MLO Point, she submitted that it was a hotly disputed issue whether there was a requirement to pay the Bonus of US$47 million, and it could not be resolved without considering oral evidence.  In considering whether to strike out the MLO Point, the court should proceed on the factual basis as pleaded by the ex-directors in their defences.

32. For the Implied Terms Point, it was submitted that a term should be implied in the Agreements that MSC should give written consent to YDL to raise the requisite funds to repay the Loan or the Bonus of US$47 million and MSC had acted in breach of this implied term in not providing written consent.

33. Miss Chan submitted that by reason of the above contentions, there was no event of default under the FA.

Discussion of the arguments in CACV 259/2015

34. We have dealt with the arguments on the Estoppel Point.

35. The arguments on the MLO Point had been considered in the injunction proceedings and were rejected by the judge.  The judge held there was nothing close to a requirement being made by MSC for YDL to prepay any fixed sum for the Bonus (Injunction Decision, §§40 to 51, 57 to 58).  The Court of Appeal saw no basis to interfere with that finding and upheld the judge’s decision that the MLO Point is “clearly unarguable” (CA Decision, §§25 and 26, 49 and 50).  There is no valid argument regarding the MLO Point.

36. For the Implied Terms Point, it was not pleaded against MSC in the 1359 Action and it can have no consequence in the 1341 Action by way of a defence to a claim against the ex-directors for returning company property.  As pointed out by the judge, the purpose of raising the Implied Terms Point would appear to undermine the occurrence of an event of default, but an event of default would have occurred anyway upon non-payment on the due day of any amount payable (Injunction Decision, §§35 and 31).

37. Further, it was not pleaded that there was any request to MSC for written consent for the purpose of repaying the Loan, nor was there any evidence of MSC having done anything to prevent YDL from repaying the Loan.

38. The argument on the No Event of Default Point is either an assertion there had not been an event of default or a consequential point flowing from the other points.  We need say no more about this.

The application to adduce new evidence on appeal

39. On 25 August 2016, the ex-directors issued a summons in CACV 259/2015 for leave to adduce new evidence on appeal being the affirmation of Ricky Liu dated the same date.

40. In this latest affirmation (as noted in the CA Decision at §19, Ricky Liu had made five affirmations in connection with the injunction proceedings in the 1359 Action and two more in the 1341 Action), Ricky Liu adduced a demand letter dated 29 July 2016 (“the July Demand”) from MSC to YDL, copied to him and the solicitors acting for his camp, demanding payment of US$96,844,405.98, which is made up of: (1) US$50,136,152.07 as the defaulted payment (being the aggregate principal amount of US$29 million and US$21,136,152.07 in respect of interest under clauses 8.1 and 8.2 of the FA); (2) US$40,196,965.54 as the default interest outstanding under clause 8.4 of the FA; and (3) US$6,511,288.37 as costs and expenses to be reimbursed under clause 11.3 of the FA.

41. Ricky Liu contended in his latest submission that the July Demand would provide support for the MLO Point in that the effective rate of interest according to the July Demand, (1) if one takes into account the Bonus of US$47 million, would be 58.55% (without the costs and expenses of US$6,511,288.37) and 61.9% (with such costs and expenses); or (2) if one takes into account the Bonus of US$25 million, would be 47.6% (without the costs and expenses) and 50.89% (with such costs and expenses).  Given such effective rates of interest, the FA and the IRD would be void or constitute an extortionate transaction under the MLO.

42. Ricky Liu further contended in his latest affirmation that it can be seen from the July Demand that MSC has been paying the fees of the Receivers and this demonstrates that they are plainly in a position of conflict and cannot act independently from MSC.

43. We dismissed the application to adduce new evidence, firstly because of the lateness of the application, and secondly because of the failure to comply with the requirements in Ladd v Marshall [1954] 1 WLR 1489, all of which must be satisfied.

44. The July Demand was sent by registered post, fax and email.  It would have come to the notice of Ricky Liu’s camp on the same day it was sent.  There is no good reason why the summons to adduce new evidence was issued almost four weeks later, given that the appeals were to be heard on 1 September 2016, and after submissions have been lodged by the parties.  On the ground of lateness alone, the application may be refused, quite apart from the criteria of Ladd v Marshall (PW v PPTW [2015] 1 HKC 450 at §§10 to 12, per Lam VP, applying the dicta of Yuen JA in Law Kwok Fai Paul v Wellmei (HK) Plastics & Electronics Industrial Ltd, CACV 45/2014, 31 October 2014, §18).

45. In any event, the second requirement in Ladd v Marshall (that the new evidence would or might, if believed, have a very important effect on the mind of the tribunal) is plainly not satisfied.  The effective rates of interest in the latest affirmation are computed on the basis of including the figure of Bonus, whether this be US$47 million or US$25 million.  This is just to ignore the findings in the Injunction Decision, which are upheld in the CA Decision, that the Bonus was unascertained and there was no requirement being made by MSC for YDL to prepay any fixed sum for the Bonus.

46. Further, as pointed out by Mr Bartlett, there is nothing new in the July Demand that has any consequence.  The default interest and the enforcement costs have been previously demanded by MSC, and have been included by Ricky Liu in his previous calculations attempting to show excessive interest.  It cannot be said that the Bonus inclusion argument or the incorporation of default interest are novel and have only materialized after the hearing of the striking out applications.  In other words, the changes in the updated components of prior demands of MSC do not “substantially affect a basic assumption made at the trial” (Hong Kong Civil Procedure 2016, vol 1, §59/10/13 citing Mulholland v Mitchell [1971] AC 666 at 679H to 680A).  This does not come within the exception of “evidence as to matters which have occurred after the date of the trial or hearing” in Order 59 rule 10(2) to justify disturbing the principle that there should be finality in litigation.

47. The allegation that the Receivers cannot act independently cannot be regarded as apparently credible evidence.  The Receivers do not act as receivers when they carry out their duties as the new directors of YDL.  The fact that they were nominated by MSC and their fees have been met by MSC for the time being but are ultimately to be paid by YDL do not provide any proper basis for suggesting that they are not cognisant of their duties as directors or have not complied with their duties as directors.

Conclusion and costs

48. For the above reasons, we have dismissed both appeals.

49. The successful respondents in both appeals sought costs from Ricky Liu’s camp on an indemnity basis.

50. The judge had awarded costs of the strike out applications to the defendants on an indemnity basis, taking the view that Ricky Liu’s camp made a desperate re-run of the arguments advanced unsuccessfully in the injunction proceedings.

51. Although we have rejected all the arguments advanced by Miss Chan on appeal, we noted that she has raised new arguments, most notably that the judge had failed to have regard to the difference between interlocutory injunctions and strike out applications and did not apply the high standard for striking out.  We do not think the appeals are so frivolous as to warrant indemnity costs.  We therefore award costs to the successful respondents on a party and party basis.

52. As the judge has made a gross sum assessment of the costs she awarded, we will do likewise for the costs awarded on appeal.

53. In §§43 to 48 of the Strike Out Decision, the judge took the view that the level of costs claimed is not just grossly excessive but oppressive, noting that this is the 5^th occasion when the same teams of counsel appeared to argue on the merits of the 1359 Action and the 1341 Action, and that almost all the costs for preparing the evidence were incurred in the injunction proceedings.  She did not think there was need to engage junior counsel notwithstanding the importance of the case to the 1^st and 4^th defendants, and she disallowed all costs beyond one fee earner.  She made a very substantial reduction to the costs claimed notwithstanding that the assessment was on an indemnity basis.

54. We have regard to the judge’s pertinent observations.  It seems to us that although the statements of costs submitted by the successful parties on appeal would appear to be more reasonable, some deduction should be made.

55. We consider the reductions suggested by the appellants reasonable in all the circumstances and would allow the reductions in full.  The result of the gross sum assessment is as follows.

56. In CACV 258/2015, the 1^st and 4^th defendants submitted a statement of costs for summary assessment in the total amount of HK$594,760, made up of counsel’s fees (for senior and junior counsel) of HK$450,000 and solicitors’ fees of HK$144,760.

57. The 2^nd and 3^rd defendants in CACV 258/2015 and the plaintiff in CACV 259/2015 are represented by the same legal team and apportioned the costs equally in each appeal.  For each appeal, they submitted a statement of costs of HK$263,057.20, of which HK$210,000 are the fees of senior counsel.  So the total amount of costs claimed by them would be HK$526,114.40 and the total fees of senior counsel amounted to HK$420,000.

58. In CACV 258/2015, the plaintiffs suggested reducing the fees claimed by the 1^st and 4^th defendants by HK$196,260, yielding a figure of HK$398,500, and reducing the fees claimed by the 2^nd and 3^rd defendants by HK$101,387.20, yielding a figure of HK$161,670.

59. In CACV 259/2015, the defendants suggested reducing the fees claimed by the plaintiff by HK$101,387.20, yielding a figure of HK$161,670.

60. We make a gross sum assessment of the costs claimed by the successful parties as reduced by the above figures.