ERIC EDWARD HOTUNG AND ANOTHER v. HO YUEN KI AND OTHERS

HCA 857/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 857 OF 2011

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D E C I S I O N

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THE APPLICATION

1. This is D3’s application by summons dated 9^th August 2013 [1-3][1] for security for costs (“D3’s application”) against P1 and P2 (collectively “Ps”) up to the stage of setting down.  The application is opposed by Ps.

2. Mr. C Y Li, SC leading Mr. J. Ah-weng, counsel acts for D3.  Mr. R. Whitehead SC leading Mr. R. D’Souza, counsel acts for the plaintiffs.

THE FACTUAL BACKGROUND

3. The facts of this case can be briefly stated that P1 claims that back in 1961, some 52 years ago, P1 transferred $2 million to D1 for her to invest, on his behalf, in a casino business in Macau and it is alleged that a trust (said to be express or resulting trust) came to be created with P1 being the settlor and the beneficiary and D1 as trustee (“the alleged trust”). The trust property is (i) 6,251 STDM shares (ii) 40,050 STS shares (collectively “thealleged trust property”).  P1’s claim against D1, D2 and D3 (collectively “Ds”) is based on the alleged trust for which he seeks a declaration that he is the beneficial owner of the alleged trust property, return of the alleged trust property and account and inquiry.

4. D1 admits that the funds invested in the casino business originated from P1, but says that the HK$2 million was a loan from P1 to her.  She says, through the years, she has partly paid back the loan and P1 has waived the remainder.  However, she is unable to recall how and when she made the repayment. [19/§5]

5. D3 is the son of P1 and D1.[2]

D3’S GROUND IN SUPPORT

6. D3’s grounds in support of his application are:

a.  P1 is ordinary resident out of the jurisdiction;

b.  P2 is not ordinary resident within jurisdiction;

c.   P1 and P2 have not correctly stated their address in the Writ; and

d.  P2 is a nominal plaintiff;

THE LAW

Order 23 rule 1

7. The power to order security for costs is in Order 23(1) RHC:-

“1.—(1) Where, on the application of a defendant to an action or other proceeding in the Court of First Instance, it appears to the Court—

(a) that the plaintiff is ordinarily resident out of the jurisdiction, or

(b) that the plaintiff (not being a plaintiff who is suing in a representative capacity) is a nominal plaintiff who is suing for the benefit of some other person and that there is reason to believe that he will be unable to pay the costs of the defendant if ordered to do so, or

(c) subject to paragraph (2) that the plaintiff’s address is not stated in the writ or other originating process or is incorrectly stated therein, or

(d) …,

then if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action or other proceeding as it thinks just.

  (2)  The Court shall not require a plaintiff to give security by reasons only of paragraph (1)(c) if he satisfies the Court that the failure to state his address or the mis-statement thereof was made innocently and without intention to deceive ”

Legal principles on the meaning of ordinary resident out of the jurisdiction

8. This issue has attracted much argument.  The parties do not have much difference in the relevant legal principles as set out below:

a. “The onus is on the defendant to prove that P1 is ordinarily resident out of jurisdiction and the question is one of fact and degree not depending on the duration of the residence, but upon the way in which a man’s life is usually ordered in contrast with temporary residence [HKCP 2013, §23/3/4];”

b. “the phrase “ordinarily resident” should be construed according to its ordinary and natural meaning, and that a person is ordinarily resident in a place if he habitually and normally resides lawfully in such place from choice and for a settled purpose, apart from temporary or occasional absences, even if his permanent residence or “real home” is elsewhere” (Emphasis added): HKCP 2013, §23/3/4;

c. “When determining whether a plaintiff is “ordinarily resident” outside the jurisdiction it does not necessarily matter that the plaintiff has spent significant amounts of time abroad.  One has to consider the reasons for the absence from the jurisdiction and whether the plaintiff has “up-rooted” and relocated him or herself abroad” (Emphasis added): HKCP 2013, §23/3/4;

d. “A holder of a Hong Kong identity card is not necessarily ordinarily resident within Hong Kong.”HKCP 2013, §23/3/4

e. “There is no inflexible rule or practice that a plaintiff resident abroad will be ordered to give security for costs – the power to make such order is entirely discretionary [HKCP 2013, §23/3/4];”

f. In the recent CFA case ofVallejos Evangeline Banao, aka Vallejos Evangeline B. v Commissioner of Registration and Another[2013] 2 HKLRD 533, the CFA ruled that the interpretation of “ordinary resident” is highly dependent on context of the statutory framework in which the phrase is found.  (per Ma CJ, at §27, §28, §30, §47-49, §79)

g. The statutory context of O.23 RHC has been so stated by CA in Hui Yin Sang & others v. Tsoi Ping Kwan & Others [2012] 2 HKLRD 1085, at §46:-

‘It is important to bear in mind, in the context of O.23, that:

“The purpose of ordering security for costs against a plaintiff ordinarily resident outside the jurisdiction is to ensure that a successful defendant will have a fund available within the jurisdiction of this court against which it can enforce the judgment for costs. It is not, in the ordinary case, in any sense designed to provide a defendant with security for costs against a plaintiff who lacks funds. The risk of defending a case brought by a penurious plaintiff is as applicable to plaintiffs coming from outside the jurisdiction as it is to plaintiffs resident within the jurisdiction.”

(Per Sir Nicholas Browne-Wilkinson VC (as he then was) in Porzelack KC v Porzelack (UK) Ltd [1987] 1 WLR 420 at p. 422H – cited in Akai Holdings Ltd v Ernst & Young (2009) 12 HKCFAR 376 at §14).’

h. “One of the main factors which the Court will take into account when exercising its discretion is the financial position of a foreign plaintiff [HKCP 2013, §23/3/4]”; and

i. “Subject to the general discretion of the Court, the ordinary rule of practice is that no order for security for costs will be made if there is a co-plaintiff resident within the jurisdiction [HKCP 2013, §23/3/4]”.

P1 IS ORDINARY RESIDENT OUT OF THE JURISDICTION

D3’evidence

9. D3 is the biological son of P1.  He is in a good position to give evidence on P1’s preference for his ordinary residence.  He gave evidence in his affidavit [81] that P1 is not ordinary resident in Hong Kong.  He said that for as long as he remembered, P1 spent most of his time away from Hong Kong, and he only visited Hong Kong from time to time.  He further said, “I remember he used to only spend at most several weeks a year in Hong Kong in the recent decades.  He had always told me that he preferred the space and lifestyle abroad.  Indeed, his residence is in Virginia USA where he used to spend most of his time.  I verily believe that he is ordinarily resident there.”

P1’s evidence

10. In response to D3’s evidence above, P1 in his affidavit [91] at §11 said, “Although, it is true that I prefer the lifestyle and space abroad as stated at paragraph 14 of D3’s affirmation, however Hong Kong is where some of my close family is, and these are the people that take care of me. The opportunity to be close to the part of my family that still cares for me greatly outweighs any preference I may have for the lifestyle and space abroad.”

11. Mr. Whitehead SC submits in paragraph 24(3) of his written submissions:

“It is evident from Eric’s (P1’s) travel records from the immigration department that he has spent most of his time in Hong Kong in 2012 and 2013 [164-165], and in particular:

(a) In 2012, Eric resided in Hong Kong for 324 days (only 41 days away from Hong Kong) [167];

(b) In 2013, from 1 January until the end of August, Eric has resided in Hong Kong for 219 days (only 22 days away from Hong Kong covering 2 trips to Macau and one trip to Shanghai) [168]; and

(c) None of Eric’s time away from Hong Kong was in the United States except in January 2012 when one of his sons passed away;”

Evidence not admissible

12. Mr. Li SC has, in his written submissions[3], referred to the legal proceedings in the US to discredit the credibility of P1. This is not permissible as held in Sun Legend Investment Ltd. v Ho Yuk Wah David and Others(2011) 14 HKCFAR 541 at §58 by Litton PJ:

57. … …A civil case is a trial of the issues as put before the court.  It is not a trial of the character of the parties.  This is a matter beyond the scope of analysis in a court of law.

58. … …Generally speaking evidence of facts and circumstances to show the disposition of a party is inadmissible: see Sankey LJ in Hobbs v. Tinling [1929] 2 KB1 at 50.  Far less is it permissible to have the labels “devious character” “coward” etc. created in unrelated proceedings attached to the parties before the court.”

I shall therefore attach no weight to those submissions.

Discussion

13. D3 has given evidence that for the recent decades, P1 was not ordinarily resident in Hong Kong and he preferred to the space and lifestyle abroad, which P1 did not dispute.  However, P1 now says for the past two years, i.e. 2012 to 2013 as demonstrated by the records of the Immigration Department, coupled with the medical references in Hong Kong, that he has determined to remain close to his family in Hong Kong.

14. D3 comments that the reason for P1 to have stayed in Hong Kong for 2012 and 2013 is on medical grounds.  He further says that there is no clear evidence on his family members and ties in Hong Kong or any evidence that his centre of activity is in Hong Kong or he has any asset of permanent nature in Hong Kong.  His claim that there are “close family members” in Hong Kong [P/§11/91]is a bare assertion with no particularity.

15. It cannot be denied that in P1’s affidavit, he did not set out the particulars of his close family members.  Although the burden is on D3 to prove that P1 is not ordinarily resident within the jurisdiction, once D3 has established a prima facie case, P1 has the opportunity of responding to D3’s evidence by giving his version of the fact, with reasonable particulars to support his version.

16. On the one hand, P1 says that he wants to stay in Hong Kong so that he may stay close to his family.  On the other hand, he says that he has to keep the whereabouts of his assets to himself because his family is trying to take his assets away and he has no choice but to keep his assets to himself.[4]  This shows that he has no trust in his family.

17. D3 goes further to say that P1 has not given his residential address in the writ of summons.  He has only given his PO box address on it.  The writ was prepared by his solicitor.  It can be seen that P1 has deliberately concealed his residential address from the court and D3.  P1 has not explained why he should give the PO box address.  D3 refers to Order 6 rule 5 RHC, which provides that P1 should provide his address, relying upon Re Like Grand Holdings Ltd HCCW 603 of 2001 at §§4, 5, 6, 7, 8 and 9, in which the learned judge held that the rationale in Order 6 rule 5 applicable to writs should apply to petitions for winding-up of companies and that the purpose of having P1’s address in the originating document is:

“9. … …to state his address as well as his solicitor’s address, which is the address for service, is to inform the other party whether the plaintiff or petitioner is ordinarily resident within or outside the jurisdiction; if it is the latter, the other party may wish to apply for security for costs. Thus, the address of the petitioner that should be stated in the petition must be his place of residence.”

18. It is correct for Mr. Whitehead SC to say that P1, who is being legally represented, does not have to put in his address of residence in the writ because he has the option of having his solicitor’s address in the writ and that even if the PO box address is not a proper address, it is not evidence that he had the intention to deceive.[5]  However, under Order 6 rule 5(1), P1 is required to indorse his writ with his address, be it residential or business address:

5. Indorsement as to solicitor and address (O. 6, r. 5) (1) Before a writ is issued it must be indorsed-

(a) where the plaintiff sues by a solicitor, with the plaintiff's address and the solicitor's name or firm and a business address of his within the jurisdiction and also (if the solicitor is the agent of another) the name or firm and business address of his principal; (emphasis added)

It may be said that the PO box address is not a proper address as construed in Re Like Grand Holdings Ltd, supra.  There is no explanation from P1 for the PO box address that he has given instead of his residential address.  However, I am not satisfied that the evidence before me is sufficient to support that Ps had the intention to deceive and that on that reason alone, the court should require them to provide security for costs.

Mr. Whitehead SC has pointed out the discrepancies in D3’s statements that he had given for his US legal proceedings and for this action here in relation to P1’s residence.  At page 182 of the bundle, D3 had said that P1 is a resident of China, the United Kingdom and the United States whereas in his affidavit on page 81 of the bundle, he said P1 is not ordinary resident in Hong Kong.  The discrepancy exists.  But I do not consider that it demonstrates that D3’s evidence is not reliable.  There is a difference between the residence of a person and his being ordinarily resident in a certain place.

19. As stated in paragraph 7a., supra, whether P1 is ordinarily resident out of the jurisdiction is one of fact and degree not depending on the duration of the residence, but upon the way in which his life is usually ordered in contrast with temporary residence. In the assessment of the evidence, the Court must weigh all the evidence and circumstances as adduced by the parties, taking into account whether there is any reasonable explanation for any doubts or incomplete picture as enunciated in the evidence.  It then comes to its own decision accordingly.

Conclusion

20. Having considered the evidence above, I come to a view that D3 has established that P1 was and is not ordinarily resident within the jurisdiction.  I have taken into account P1’s assertion that with his age of 87, he would like to be close to his family in Hong Kong and therefore he has the intention of staying in Hong Kong for the future.  However, these factors are diluted by his lack of evidence to show his physical condition or health and particulars of his close family members, coupled with his admission that he preferred the lifestyle of the US and that he had been residing in the US over the past decades, with a few occasional brief stays in Hong Kong.  His evidence that he wants to be close to his family in Hong Kong does not sit well with his distrust of his family either.  All these have caused me to conclude that he is not ordinary resident in Hong Kong. He may, if he likes, leave Hong Kong any time in future.  D3 has reached the threshold under Order 23 rule 1.

ASSETS OF FIXED AND PERMNENT NATURE

21. Mr. Li SC submits in his written submissions that if P1 is found to be not ordinarily resident within the jurisdiction, then in the exercise of this Court’s discretion, the Court may consider whether P1 has assets of fixed and permanent nature in Hong Kong.  However, there is not one iota of evidence that he has any asset of fixed and permanent nature in Hong Kong (there was only the vague assertion that he has wealth held by companies, trusts and bank accounts all over the world including Hong Kong at P1/16/93).

22. Mr. Whitehead SC refers to D3’s evidence in the legal proceedings in Virginia in the US, in which D3 said that P1’s wealth was estimated towards two billion US dollars.[6]  However, it is trite law that the evidence in another legal proceeding is not admissible in this proceeding, let alone the evidence in the legal proceedings in the foreign court.  See Sun Legend Investment Ltd.  I shall not consider such evidence here.

23. D3 has stated clearly that he deliberately keeps the whereabouts of his assets to himself.[7]  This Court is therefore unable to consider the nature of his assets in light of Mr. Li SC’s submissions.

Inconsistent decisions

24. Notwithstanding this issue is not argued here, Mr. Li SC’s proposition that the Court should consider P1’s assets of fixed and permanent nature is not entirely clear in view of the following authorities:

a. HKCP 2013 at 23/3/6 : “Security will not be required from a person …if he has substantial property, whether real or personal, within it …but semble, the property must be of fixed and permanent nature, which can certainly be available for costs (Ebrad v Gassier  (1884) 28 Ch.D. 232)”;

b. Hoogland Hendricus Antonius v Gino L Lin & Anor, HCA 657/2007 (29 May 2008): Chung J. quoted the passage above.  But in his case, there were real properties under mortgage. Nevertheless the learned Judge ordered security for costs;

c. On the basis of the above case, Anthony Neoh SC submitted to DHCJ S. Leung in his appeal in Lin Man Yuan v Kin Ming Holdings International Ltd & Others HCA216/2008 (unreported DHCJ S. Leung) 29 November 2013, that even residential property was not regarded as fixed and permanent asset sufficient to provide security, which the Deputy Judge did not agree.  See paragraph 35 of his judgment.

My views

25. The authorities above have made reference to the nature of the property being fixed and permanent in order to determine it is sufficient to provide security for the costs.  But there has not been a consistent view.  In my view, the meaning of security under Order 23 should be construed within the context of the order itself.  The Court of Appeal in Hui Yin Sang’s case has already defined its meaning as “The purpose of ordering security for costs against a plaintiff ordinarily resident outside the jurisdiction is to ensure that a successful defendant will have a fund available within the jurisdiction of this court against which it can enforce the judgment for costs.”

26. The Court of Appeal in Montgomery Ward & Co Incorporated v Evergo Trading Company Limited and Evergo Holdings Company Limited, unreported, CACV 32/1996, 31 May 1996, where Nazareth VP held (paragraph 8):

‘Given that there are no proper factors weighing in favour of the foreign plaintiff or at least either way, it seems to me that [the judge 's] discretion plainly had to be exercised in conformity with the position set out in the judgment of Lord Denning in Aeronave SPA v Westland Charters [1971] 3 All ER 531 at 533 where he said this:

"I agree with the note in the Supreme Court Practice that the rule does give a discretion to the court.  In 1984 in Crozai v Brogden Lopes J said that there was an inflexible rule that if a foreigner sued he should give security for costs.  But that is putting it too high.  It is the usual practice of the courts to make a foreign plaintiff give security for costs.  But it does so, as a matter of discretion, because it is just to do so.  After all, if the defendant succeeds and gets an order for his costs, it is not right that he should have to go to a foreign country to enforce the order."…’ (emphasis added)

27. On the basis of the above authorities, if the plaintiff is shown to be ordinary resident outside the jurisdiction, it will be for the plaintiff to show to the court why an order for security for costs should not be made.  If the plaintiff says that he has sufficient assets within the jurisdiction to satisfy the costs order in favour of the defendant, the plaintiff has to demonstrate that the assets are sufficient to meet such costs.  The emphasis should be on the security, that is to say, the plaintiff’s proof that there should be no risk of the defendant not getting its costs.  The nature of the property, whether fixed and permanent, is only one of the factors that the court should take into account to determine whether sufficient security has been provided by the plaintiff.  The nature of security can take various forms, such as cash, real property, bank guarantee or other arrangements acceptable to the court. Undertaking by the plaintiff to use the costs as ordered in another legal proceedings for the costs of the defendant such as that mentioned in Desarrollo’s case and asserted by Mr Li SC for this application is another example.  Cash has been taken as not sufficient because of its volatility.  But it can be sufficient if a party agrees to have a charge on the deposit or to give an undertaking to the court not to withdraw it without court’s leave.  Real property may not be sufficient if it is a negative equity.

P1’s and P2’s case

28. P1 has been found to be not ordinarily resident in Hong Kong and he elects not to disclose his assets in Hong Kong.  He has therefore failed to discharge his duty and should be ordered to provide security for costs unless there are other circumstances, which show that it is unnecessary for P1 to do so.

29. P2 does not dispute that it is a foreign company.  On this basis, D3 is entitled to ask for an order for security for costs against P2 under Order 23 rule 1.  P2 only argues that it is not a nominal plaintiff within the context of Order 23 rule 1(b), RHC.  Even if P2 is successful in arguing that it is not a nominal plaintiff within the context of Order 23 rule 1(b), it will still be liable to be ordered to give the security for costs under Order 23 rule 1(a).  I shall therefore refrain from discussing the meaning of nominal plaintiff within the context of Order 23 rule 1 RHC.

30. P2’s argument that it should not be ordered to give security for costs if P1 is found to be ordinary resident within the jurisdiction will not be discussed as I have already found that P1 is not ordinary resident within the jurisdiction.

THE REMAINING GROUND

HCMP 643 of 2012 order for costs

31. The only remaining ground as raised by Ps against D3’s application for security for costs is that this Court should not exercise its discretion to make the order as requested because in HCMP 643 of 2012, it has been ordered that D3 is to pay costs of P1 and P2 incurred in those proceedings on a party and party basis and the estimated amount of costs up to the end of trial is HK$2.4 million [96/§22].  D3 has not, in his reply affirmation, made any challenges to the estimated amount of costs incurred by P1 and P2 in those proceedings.  Mr. Whitehead SC also submits that in family proceedings like HCMP 643 of 2012 the Court is frequently updated with estimates of costs.[8]

32. Mr. Whitehead SC also says that even on a 50% taxation, the amount due to P1 and P2 by D3 is HK$1.2 million.  This will more than cover the costs sought by D3 in the sum of about HK$1 million odd.

33. Ps rely upon the court order above to say that the court should not make an order for security for costs because of its indebtedness to the plaintiff, which has provided sufficient security for its costs, reference made to SNE Engineering Co. Ltd. v. Chim Kee Machinery Co. Ltd(HCA 2025/2012; Unreported; Mr. Registrar K.W. Lung; 27 September 2013), §§21-22 and Desarrollo Inmobiliario Y Negocious Industriales De Alta Technologia De Hermosillo, S. A. De C.V. v. Kader Holdings Company Limited(HCCL 19/2012; Unreported; A. Chan J; 26 November 2013), §39.

34. Mr. Li SC accepts that this Court can take into consideration the above costs order against D3.  He points out that the order was under appeal and that the amount of the taxation bill is inflated and will be challenged.

Undertaking by Ps to use the costs for security in this action

35. Mr. Li SC further submits that Ps should not be specially treated as judgment creditors and that theyhave never agreed to give an undertaking that the costs as payable to them under the costs order of HCMP 643 of 2012 could be used as security for costs (see §35 of Desarrollo Inmobiliario Y Negocious Industries v Kader Holdings Co. Ltd.).  Absent such undertaking, this Court should still order security for costs.

36. Mr. Whitehead SC refers to the letter dated 30 August 2013 [211] and submits that although D3 had mentioned the costs in HCMP 643 of 2012 be held by D3 or be paid into court, it was not an offer or mechanism that the Ps should consider.  I consider that D3’s solicitor had given sufficient reason for the costs in HCMP 643 of 2012 be kept by him as security or to be paid into court.  Otherwise, D3 will be left without security despite the court now finds that according to the law, Ps should provide security.  This can be distinguished from the Decision that I made in SNE Engineering Co. Ltd as counsel acting for the defendant had not argued on this issue.

37. I shall simply make an order for security for costs in favour of D3.  As to how the parties will agree to provide the security, I shall leave it to their solicitors.

38. As to the quantum of the security for costs, I have noted the criticisms on D3’s draft bill.  I agree that it is an inflated bill, especially senior counsel’s fee.  But I do not consider that only nominal security should be ordered.

39. On a broad-brush approach, I shall make an order for the sum of $600,000, including the costs for this application.

40. On the question of costs for this application, including the costs reserved and for today, they should be awarded to D3 (with certificate for one senior counsel).  I have the schedule of costs from D3, which amounts to $414,281. I agree with Mr. Whitehead SC that the complexity of this application does not warrant senior counsel’s service.  However, since both parties are represented by senior counsel, I simply consider that it is just to allow one senior counsel.  The other comments are on the amount for counsel to charge their fees on the drafting of D3’s affidavit.  On a broad-brush approach basis, I assess the costs under Order 62 rule 9A RHC to be $150,000 to be paid by Ps to D3.

41. I shall now make an order in terms as follows:

a. The plaintiffs shall within 21 days from the date hereof provide security for costs for the sum of $600,000 to be paid into court or in other forms as agreed by the parties, failing which, the plaintiffs’ claim be dismissed;

b. Further proceedings be stayed except for the implementation of this order;

c. The costs of this application, including the costs reserved and today’s hearing assessed at $150,000 are to be paid by the plaintiffs to D3 within 14 days from the date hereof.