HOOGLAND HENDRICUS ANTONIUS v. GION LIN AND ANOTHER

HCA 657/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 657 OF 2007

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REASON FOR DECISION

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1. This is an application for security for costs by the 2^nd Defendant against the Plaintiff.

2. The Plaintiff and the 1^st Defendant were business associates.  The 2^nd Defendant is their banker.

3. The events giving rise to the present cause of action centered on the transfer of 2 sums (US$70,000 and US$660,000 respectively) of cash from the Plaintiff’s personal account into the account of a company operated jointly by the Plaintiff and the 1^st Defendant.

4. The instructions to effect the 2 transfers were given by way of 2 facsimile instructions (one dated 15 July 2005 and the other dated 26 July 2005).  Funds had been transferred by the 2^nd Defendant in accordance with these 2 instructions received by the 2^nd Defendant.  The Plaintiff said he never gave those 2 instructions to the 2^nd Defendant.

5. About 1½ years after the incident, Plaintiff took out the present action to sue the 1^st Defendant for misappropriation of funds and against the 2^nd Defendant for gross negligence for failing to check the genuineness of the transfer instructions before executing the transfers.

6. According to the Plaintiff’s averments in his own pleading, the two facsimile messages received by the 2^nd Defendant were fraudulent instructions sent out by the 1^st Defendant on 26 July 2005.  In his affidavit the Plaintiff said the signatures in the 2 transfer instructions were reproduced by way of cut and paste operation.

7. It was the Plaintiff’s case that the 2^nd Defendant was acting in breach of its contractual duty as well as its common law duty owed to the plaintiff.

8. The Plaintiff said the 2^nd Defendant has failed to:-

(i)	check the name on the transfer instructions. The name appearing on the transfer instructions was written as “Hongland” rather than “Hoogland”;
(ii)	confirm with the Plaintiff or the Plaintiff’s personal assistant about the authenticity and genuineness of the 2 facsimile instructions;
(iii)	wait for the arrival of the original transfer instructions.

9. It was common ground between the parties that at the time when the Plaintiff set up its accounts with the 2^nd Defendant, the Plaintiff informed the 2^nd Defendant that the Plaintiff would be out of Hong Kong for most of the time.  The Plaintiff requested to execute his transfer by way of facsimile instructions.  In accepting the Plaintiff’s specific mode of instruction, the Plaintiff has signed a letter of indemnity exempting the 2^nd Defendant from liability in respect of inaccuracies in the facsimile instructions, save and except when the 2^nd Defendant’s acts constituted gross negligence or wilful neglect.

10. The Plaintiff said, despite the expressed terms in the letter of indemnity, the parties have by conduct varied the terms of the letter of indemnity.  The Plaintiff suggested, through course of dealing between the parties, the following steps have been adopted:-

(i)	the 2nd Defendant was obliged to check the details on the facsimile instruction to make sure the details on the transfer instruction accord with the information in the bank records of the Plaintiff’s accounts;
(ii)	after confirming the details in the facsimile instruction the 2nd Defendant should either contact the plaintiff personally or the personal assistant of the Plaintiff by phone to confirm the genuineness of the instruction before execution of the transaction;
(iii)	after execution of the transaction, the original instruction would be sent to the Plaintiff; and
(iv)	the 2nd Defendant should not execute another facsimile instruction until the 2nd Defendant received the original instruction of the last transaction.

11. By way of affidavit evidence, the 2^nd Defendant disagreed there was any variation to the terms of the indemnity.  It was further submitted by counsel on behalf of the defendant that the Plaintiff’s proposition deprived the letter of indemnity its intended commercial meaning.

12. Whilst on the issue of merits, there is really not much substance in the plaintiff’s complaint about the 2^nd Defendant’s failure to check the signatures on the two instructions since the Plaintiff has accepted in his own affidavit that the 2 instructions were made by way of cut and paste which means the signature of the Plaintiff was ‘borrowed” from a previous genuine signature of the Plaintiff.  One cannot possibly ascribe gross negligence to the 2^nd Defendant with reference to the 2^nd Defendant’s duty to check the signature when a genuine signature of the Plaintiff has been used on the facsimile instruction.

13. Regarding the inaccuracy in the spelling of the Plaintiff’s case, the Plaintiff himself has used “Hongland” as his name in lieu of “Hoogland” in four of his previous instructions out of eleven instructions sent to the 2^nd Defendant.

14. Again there is not much substance in the Plaintiff’s complaint about the the 2^nd Defendant’s failure to await the original instruction before the carrying out of the 2^nd transaction since the Plaintiff in his own pleading averred to the fact that the 2 instructions were sent out together on the same day (on 26 July 2005) to the 2^nd Defendant for processing.

15. There remains the factual dispute between the parties on whether the 2^nd Defendant has actually contacted the personal assistant of the Plaintiff for confirmation of the 2 transfer instructions.

16. In a security for costs application the court should not engage in a detailed and elaborate analysis on the merits of the Plaintiff’s claim or that of the defendant’s defence.  Suffice to say at this stage that one cannot come to the view that the Plaintiff has a strong case against the 2^nd Defendant on the claim of gross negligence, whereby an order for security for costs is inappropriate.

17. The Plaintiff is a national of Holland. He affirmed to the fact that Holland is only his place of domicile.  He has been making his living in Guangdong of China for the past 20 years.  He is now living in the dormitory of his own factory in Dongguang of China.  He considers himself to be an ordinary resident of the mainland for he has been granted a resident permit by the P.R.C.  On the facts, the Plaintiff is likely a resident of the mainland.  He, however, is not a person ordinarily resident in Hong Kong.

18. The issue to consider is whether the Plaintiff has substantial asset of a fixed and permanent nature within the jurisdiction of Hong Kong, whereby a security for costs ought not be ordered.

19. The Plaintiff did not suggest he was impecunious whereby an order for security would have stifled his claim against the parties in this proceeding.

20. The Plaintiff deposed to the fact that he has the following assets in Hong Kong:-

(a)	a bank account with Heng Seng Bank in which the Plaintiff maintained a credit balance of about HK$238,153.  He had life insurance policy with Heng Seng for which he is paying an annual premium of roughly HK$200,000.
(b)	2 land property in Kowloon, acquired at the purchase price of HK$700,000 and HK$900,000 each, held in the name of a company Grace Happy International Limited.  To finance the purchase the plaintiff said he has provided a HK$800,000 loan to Grace Happy International Limited, while the balance of the purchase price was secured by way of a HK$800,000 loan from a deposit taking company.
	The only share of Grace Happy International Limited is owned by another company Roswinnie Limited. Roswinnie Limited has written a letter to confirm Roswinnie Limited holds the only share in Grace Happy International Limited on behalf of the Plaintiff.
(c)	7 companies which the Plaintiff beneficially owned through various other companies.

21. There was dispute between the parties as to what constituted “property of fixed and permanent nature”.  In Mr. Chong’s submission “fixed and permanent” means no more than the opposite of floating assets.

22. Mr. Li on behalf of the 2^nd Defendant moved this court to accept property of a fixed and permanent nature refers to property within the jurisdiction which has a permanent nature with which the winning litigant would be in a position to levy meaningful execution.

23. I accept Mr. Li’s submission.  The purpose of conferring a right on the parties to apply for security for costs is to enable the winning party to have a meaningful execution in the event of a successful costs order.

24. The money of the plaintiff kept with the Heng Sang Bank is deposited with a savings account as opposed to a fixed deposit account.  With the efficiency of the present electronic communication system, money in bank in a savings account is not of much consolation to a judgment creditor.

25. A life insurance policy is certainly not a readily available asset for the purpose of execution of judgment debt.

26. Companies obviously have a legal entity separate from that of the Plaintiff.  For some of the companies referred to by the Plaintiff they are no more than service companies which have no real business activities in Hong Kong.  Apparently most of the assets or machineries owned by the plaintiff’s companies were located in Guangdong.  The accountant’s review reports on the asset worth of some of the plaintiffs companies are far from being satisfactory for the reports carry so much reservations and riders that one cannot possibly know what have been left undisclosed to the accountant.

27. The 2 landed properties were worth about HK$1.6 millions.  They were subjected to HK$800,000 credit facility of a deposit taking company.  The remaining equity of HK$800,000 was held in the name of a company “Grace Happy International Limited”.  A letter from Roswinnie Limited dated 30 March 2007 was first supplied to indicate Roswinnie Limited held the share in Grace Happy International Limited as a nominee on behalf for the Plaintiff.  Subsequently another letter was produced to show the shareholder of Grace Happy was in fact a Mr. John HUI.  Mr. HUI has on 21 September 2007 signed a letter to say he holds the share of Grace Happy International Limited as a nominee on behalf of the Plaintiff.

28. Furthermore, the 2 landed property were held in the name of a company.  A company has a separate legal entity from the Plaintiff.  When execution is resisted, one needs a legal suit to lift the corporate veil of the company before one can possibly lay his hand on the land property.

29. In view of all the circumstances, I accept this is not a case where the companies, the landed property or the bank balance of the Plaintiff can be considered to be assets of fixed and permanent nature to be of good security to the litigant when the Plaintiff is resident out of Hong Kong.

30. I accept in the present case, when balancing all considerations, it is fair and equitable for this court to accede to the 2^nd Defendant’s application for security for costs to be ordered.  I accede to the application of the 2^nd Defendant and grant an order for security for costs as prayed in its summons.

31. Parties have been invited to address this court about the quantum and the details in the reliefs sought in this interlocutory application.  Counsel on behalf of the Plaintiff has asked for the time to be extended to 21 days in lieu of 14 days as the plaintiff is a resident of the mainland.  I further accept the quantum ought to be adjusted, including the fact that the item of discovery against the 1^st Defendant has not been incurred.

32. I grant the reliefs sought by the Plaintiff in the present application save and except the quantum is adjusted down to a sum of HK$ 400,000 and the time is extended to 21 days in the 1^st relief.  Costs order nisi is granted in favour of the 2^nd Defendant for the present application.