VELATEL GLOBAL COMMUNICATIONS INC AND ANOTHER v. CHINACOMM LTD AND OTHERS

HCA 1978/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1978 OF 2011

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BETWEEN

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D E C I S I O N

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1.  This is an application to vary a costs order nisi and for leave to appeal against my decision given on 26 October 2012 (“the Decision”). The plaintiffs support the order for costs in their favour. The defendants seek an order for costs of the discharge summons be in their favour whereas costs for the summons to continue the injunction be the defendants’ costs in the cause or be in the cause.

VARIATION OF COSTS ORDER NISI

2.  Under Order 62, rule 3(2A) of the Rules of the High Court, “if the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.” Accordingly, for interlocutory matters, costs to follow the event is only one option.

3.  Mr Scott SC has referred me to a number of authorities such as Re Elgindata (No.2) [1992] 1 WLR 1207, AEI Redifussion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507, Hung Fung Enterprises Holdings Ltd v. Agricultural Bank of China [2012] 3 HKLRD 679, Ho Chun Yan Albert v Leung Chun Ying, HCAL85/2012, 15.1.2013, Lam JA, Re Wing Fai Construction Co Ltd (in Compulsory Liquidation), HCCW735/2002, 8.12.2009, Kwan JA.  With respect, those authorities concern final as oppose to interlocutory matters like the present.

4.  For interlocutory injunctions, normally an order of either costs in the cause or the successful party’s costs in the cause would be appropriate.  However, if there are special circumstances or where the unsuccessful party has acted improperly or is in some way to be penalized a different order may be made: King Fung Vacuum Ltd & others v Toto Toys Ltd & others [2006] 2 HKLRD 785 at 794; followed in Ng Chi Sum & anor v Full Art International Ltd & ors, HCA138/2009, 5.3.2009, Sakhrani J.

5.  Where an ex parte injunction is discharged on the ground of non-disclosure, the usual order will be for costs to the defendant.  Costs of the re-grant will be costs in the cause or one party’s costs in the cause.  See cases where this principle has been consistently applied: Ng Chi Sum, Muginoho Co Ltd v Vimiu HK Co Ltd, HCMP107/2012, 24.2.2012, M Chan DHCJ (as she then was), Sino Resources Group Limited v Hung Chen Richael & ors, HCA2477/2009, 30.3.2010, Chung J.

6.  There is, however, no general practice that where there has been non-disclosure, and costs are to be awarded against the claimant, they ought to be on an indemnity basis.  The fact that there has been material non-disclosure is plainly a relevant factor to be taken into account on the question of costs and is capable of justifying an award on this basis, and such an order will usually be made if the non-disclosure was deliberate or seriously culpable.  Gee on Commercial Injunctions, 5^th ed (2004),para 23.044.

7.  In making the costs order nisi, I described the plaintiffs as the overall winner in the sense of their having eventually obtained a continuation of the injunction.  The basis of my costs order nisi was not that although being ultimately successful in discharging the injunction orders as regards P1, the defendants should nevertheless pay the plaintiffs’ costs in relation to the issues in which I ruled against the defendants.

8.  Although the defendants’ discharge summons was dismissed and the injunctions re-granted, it is important not to lose sight of how the court reached that conclusion.  I have expressly found that there was a material non-disclosure of the Assignment to show the locus standi of P1 to sue. The defendants have successfully shown that the ex parte injunction should not have been granted to P1 in the first place.  P1 should thus bear the costs of the defendants in the discharge summons.

9.  As to P2’s costs, it appears at first sight that it should be borne by the defendants.  Having heard submissions, I am of the view that P2 should be deprived of its costs.  This is because in civil cases, plaintiffs jointly appoint one firm of solicitors and incur one set of costs.  Here, at the ex parte stage, the plaintiffs made no distinction of their individual rights and interests and the ex parte injunctions were sought for both of them.  They thus had a duty to ensure that each of them made full and frank disclosure to the court, especially since Colin Tay was the central figure common to both plaintiffs.  P2 failed in this duty.

10.  A proper order would be for P1 to bear the defendants’ costs and there be no order as regards the costs between P2 and the defendants on the discharge summons. 

11.  Should the defendant be deprived of part of its costs?  The answer is no, because if a plaintiff has no right to sue, it matters not that the defendant has dissipated somebody else’ assets.

12.  The same result is reached even if Re Elgindata (No.2) is to apply.  The rule of “costs follow the event” does not cease to apply simply because the successful party (the defendants in the present case) raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or costs of the proceedings he may be deprived of the whole or a part of his costs.  Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs.

13.  Applying Re Elgindata (No. 2), though I have rejected most of the non-disclosed matters as immaterial, I do not think it could be said that raising those matters was improper or unreasonable or had caused a significant increase in the length of the discharge summonses.  The plaintiffs have not shown me otherwise.  Accordingly, the defendants should not be deprived of all or part of their costs of the discharge.

14.  Mr Scott SC does not pursue indemnity basis for costs.  Nor do I think it is appropriate in this case where the material non-disclosure was limited to a distinct point of lack of locus standi of P1. 

15.  As for costs of continuation of the injunction, I have decided to continue the injunctions in circumstances where I found, inter alia, Qiu Ping’s camp to have engaged in shameless efforts to remove the bulk of the US$4.7m out of the reach of the plaintiffs and to conceal the true picture.  Dissipation was not only a risk but a fact.  As pointed out by Mr Chan, counsel for the plaintiffs, the circumstances of the plaintiffs putting the Chinacomm Account 1 into funds and the acts of dissipation were undisputed and did not depend on credibility of Colin Tay’s evidence.  Till this day the defendants have not explained the removal of the funds.  I am of the view that a proper order should be for the plaintiffs’ costs to be in the cause.

16.  In terms of apportionment, it is difficult to identify which aspect of the evidence is relevant to which summons.  I take a broad brush approach to apportion costs at 50:50 between the 2 summonses.

17.  Having regard to the costs order made, there is no advantage in going forth with summary assessment.  I order that there shall be taxation of costs at the end of this action. 

18.  Neither party is entirely successful in its argument on costs.  Costs of this variation application should follow the orders I have made above, subject to what I shall say in paragraph 35 below.

LEAVE TO APPEAL

19.  To obtain leave to appeal, an applicant has to show more than just an arguable case, with a reasonable and not fanciful prospect of success, although he does not have to demonstrate that the appeal will probably succeed: section 14AA of the High Court Ordinance; SMSE v KL [2009] 4 HKLRD 125, Le Pichon JA, para 17.

20.  Four grounds of appeal have been put forth:

A. That the court has applied the wrong threshold test for Mareva injunctions;

B. Material non-disclosure;

C. Fresh injunction orders should not be granted; and

D. Costs

A. That the court has applied the wrong threshold test for Mareva injunctions

21.  Mr Scott SC submits that this court should have applied the “good arguable” case test to the more stringent remedy of a Mareva injunction instead of the “serious issue to be tried” test applicable to ordinary interlocutory injunctions; and that this court has applied a markedly lower threshold in assessing the apparent strength of the plaintiffs’ causes of action.

22.  In Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft GmbH, [1983] 2 Lloyd’s Rep 600, it is said that the “good arguable case” is “one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 percent chance of success.”

23.  The difference between “good arguable” case and “serious issue to be tried” is a very fine one.  In Fiona Trust Holding v Privalov [2007] EWHC 1217 (Comm), para 18,David Steel J said,

“… it must be accepted that the margin between a serious issue to be tried and a good arguable case is a narrow piece of territory and it may not always be easy to identify which side of the central reservation a particular claim which is legitimately pleaded falls.”

24.  Ultimately, it is a question of whether it is “just and convenient” to grant the injunction.

“In Mareva cases, the all-important question is whether, in the circumstances of the case, it is “just and convenient” to grant the injunction. A requirement that the court must form the provisional view that the claimant will probably succeed at trial would be plainly inconsistent with an approach which enables the court to achieve ‘its great object viz abstaining from expressing any opinion upon the merits of the case until the hearing’. Nevertheless, the court will take into account the apparent strength or weakness of the respective cases in order to decide whether the claimant’s case, on the merits, is sufficiently strong to reach the threshold, and this will include assessing the apparent plausibility of statements in affidavits.” Gee on Commercial Injunctions, 5^th ed (2004), para 12.024.

25.  This court certainly did not stop at considering whether there were serious issues to be tried.  Semantics aside, the merits and probabilities of the plaintiffs’ case have been assessed.  The need to consider the justice and convenience in re-continuing the injunctions have not been overlooked.

26.  Mr Chan has helpfully referred to Lord Neuberger MR’s decision in Finurba Corporate Finance v Imaved Investmentos [2011] EWCA Civ 465, para 31:

“In the light of the increasing sophistication of fraudsters, and their extensive use of companies and other entities to mask their activities and assets, the courts should adopt a robust and realistic approach to technical points of substantive law or evidence raised against the grant of a freezing order, in cases where there is good reason to believe that fraud has occurred. Having said that, a freezing order can have very serious adverse effect often over a long period, sometimes even financial ruin, for the individual or company against whom it is made. The court should be satisfied not only that there is a properly arguable case against the defendant and a risk of dissipation or hiding of assets, but also as to the proportionality of the order, and it should be especially concerned about making the order when there seems to be little real value in the cross-undertaking.”

27.  Whilst I am convinced that, taking the robust approach of Lord Neuberger MR, the justice of the case in the light of the defendants’ shameless efforts to dissipate assets and to conceal the true picture would have justified the continuation of the injunction, ground A as framed is more than arguable or fanciful.  Leave to appeal should be granted.

B. Material non-disclosure

C. Fresh injunction orders should not be granted

28.  These 2 grounds can be considered together because if ground B can be established on appeal, the exercise of discretion under ground C ought to be reviewed.

29.  The criticism of Mr Scott SC is that this court erroneously granted the injunctions solely on the basis of the double signature arrangement in isolation of the complex background, thereby deeming many non-disclosed facts (including potential defences and counterclaims) as immaterial.  It is also said that by virtue of the deliberate, serious and egregious nature and extent of the non-disclosure, a fresh injunction should not have been granted.

30.  In this application, but not at the substantive hearing, Mr Scott SC has referred me to authorities on the need for a plaintiff to disclose facts relevant to potential defences and counterclaims at the ex parte stage.  It suffices to refer to 2 passages in Gee on Commercial Injunctions, 5^th ed (2004):

“The applicant must identify any defences, which, although not yet taken, would have been available to be taken by the defendant had he been present at the application, provided that:

(1) The defence is one which can reasonably be expected to be raised in due course by the defendant;

(2) The defendant is not one which can be dismissed as without substance or importance (e.g. an argument based on a misconceived interpretation of a statutory provision).

(at para 9.004)

…

It is often a difficult exercise to settle a suitable affidavit which achieves the right balance between full and fair disclosure and a far too detailed description of the facts, with perhaps too much generosity towards the defendant. The duty of disclosure does not require the applicant to describe his case or the factual background in minute detail, nor does it require him to search for possible but unlikely defences. (at para 9.005)

The claimant must disclose all defences open to the claim which the defendant has already raised, or which are open to him, though he need not indulge in speculation.” (at para 12.025)

31.  Having regard to these authorities the defendants have shown an arguable and not fanciful point on appeal as regards the way this court assessed the extent of the plaintiff’s duty in disclosing potential defence and counterclaim.  Leave to appeal should be granted on grounds B and C.

D. Costs

32.  The application for leave to appeal under this ground was premature as it is argued at the same time as the variation of costs order.  I decline to grant leave. 

33.  Leave to appeal on grounds A to C is granted.  Costs should be in the cause of the appeal with certificates for 2 counsel.

COSTS FOR BUNDLES

34.  Mr Chan complains that solicitors for the defendants have prepared 4 new bundles with different pagination for the leave application, despite objection of the plaintiffs’ solicitors and despite this court being familiar with the old bundles.  The new bundles, printed on single sides of paper, were not referred to at all during submissions, except for the Decision and the summons for appeal.  There was no answer at all from the defendants.  I find these complaints of Mr Chan to be most justified.

35.  Accordingly, save for the photocopying costs for the Decision and the summons for appeal, costs in relation to preparation of these new bundles should not be granted to the defendants.  I would also ask the solicitors for the defendants to show cause as to why they should not personally bear such wasted costs incurred by their clients and the plaintiffs arising out of such unnecessary preparation.

36.  The new bundles shall be returned to the defendants for proper re-arrangement in the light of my observations in paragraph 129 of the Decision and re-use in the Court of Appeal.

CONCLUSION

37.  I order as follows:

Summons for variation of the costs order nisi

(1) P1 shall pay the defendants’ costs of the summons for discharge of the injunction orders, with certificates for 2 counsel.  There shall be no order as to costs as between P2 and the defendants.

(2) Costs of the summons for continuation of the injunction orders shall be the plaintiffs’ costs in the cause.

(3) Overall costs incurred for the 2 summonses for discharge and continuation (including the hearings on 26 October 2012 and 26 February 2013) are to be apportioned 50:50.

(4) Costs of the summons for variation will follow the terms of paragraphs (1) to (3).  Half of the hearing time on 26 February 2013 be apportioned to this summons.

(5) All costs are to be taxed at the conclusion of this action.

Summons for leave to appeal

(6) There be leave to the defendants to appeal to the Court of Appeal on grounds A to C.

(7) Costs of this application be in the cause of the appeal, with certificates for 2 counsel.

(8) Save for the photocopying costs for the Decision and the summons for appeal, costs in relation to preparation of the new bundles shall not be granted to the defendants.  Solicitors for the defendants do appear before me on 18 March 2013 at 3 pm to show cause as to why they should not personally bear such wasted costs incurred by their clients and the plaintiffs arising out of the unnecessary preparation.

38.  I thank counsel for their assistance.