XCHRX FOSHAN CITY COMMERCIAL BANK v. CHEN YONG YI AND OTHERS

HCA 15922/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15922 OF 1998

____________

_______________________

REASONS FOR DECISION

_______________________

Introduction

1. There were totally 6 interlocutory applications before me:-

(a) the Defendants' application to set aside the default judgment entered on 30 December 1998;

(b) the Defendants' application to strike out the Statement of Claim;

(c) the Defendants' application for the Plaintiff to cease to be a party;

(d) the Plaintiff's application to continue the Mareva injunction order, and the Defendants' application to discharge it;

(e) the Defendants' application for leave to amend their Defence;

(f) the Defendants' application for security for costs.

2. At the end of a hearing lasting about 6 days and which spanned over June and July 1999 and January 2000, the following orders were made:-

(a) in relation to the application to set aside the default judgment

the default judgment be set aside unconditionally;

(b) in relation to the application for striking out the Statement of Claim

the Statement of Claim be struck out as against D3 and D4 unless within 6 weeks the Plaintiff files and serves an Amended Statement of Claim regarding them. There be leave to the Defendants to file and serve an Amended Defence within 42 days thereafter;

(c) in relation to the application to continue the Mareva order

the ex parte injunction order be discharged and a fresh order be made in similar terms as the ex parte order (with amendments) until the conclusion of the trial herein or further order. Further, there be liberty for the parties to apply to vary or discharge the variation order dated 31 March 1999 (and the order made herein) and liberty to the Plaintiff to apply for a disclosure order in aid of the Mareva order made herein;

(d) in relation to the application for the Plaintiff to cease to be a party

the application be dismissed;

(e) in relation to the application for security for costs

the application be adjourned to a date to be fixed (estimated length of hearing of 2 hours);

(f) in relation to the application for leave to amend the Defence

leave be given for it to be withdrawn.

Further, several costs orders were also made. Costs orders relating to the applications at sub-paragraphs (b) and (d) above are disputed and will be discussed under the heading "Costs Order" below.

Nature of the Plaintiff's Action

3. The Plaintiff's claim, according to the Statement of Claim, can be summarized as follows. The Plaintiff is and was a banking institution incorporated in the mainland and carrying on banking business in Foshan, Guangdong Province. D1 and D2 are brothers and in control of 2 corporations in the mainland, a Guangdong Foshan City Molik Corporation and a Foshan Molik Computer Industry Company (respectively "Molik Corp" and "Molik Computer" and collectively "the Molik companies"). D3 and D4 are Hong Kong companies engaged in the property development and investment business in Hong Kong. They are "affiliated with" the Molik companies. At some time between about the end of December 1994 and July 1995, the 4 Defendants, the Molik companies and some of the Plaintiff's staff unlawfully conspired to injure the Plaintiff by inducing it to advance loans or grant banking facilities to the Molik companies. The fraud alleged against the conspirators was in substance that the purpose of the loans were falsely pretended to have been for purchasing materials or parts for the businesses of the Molik companies. When the loan money was received by the Molik companies, it was applied by D3 and D4 for the investment, development or improvement of a piece of land and/or 2 commercial premises, in Hong Kong.

4. The amounts of the loans were said to be RMB37.26 million and RMB24 million respectively. The Plaintiff claims that D3 and D4 became constructive trustees of these sums and it became an equitable mortgagee of, and is entitled to a lien on, the said real properties of D3 and D4.

5. In the prayer for relief, the Plaintiff seeks a number of declaratory orders including a declaration that it is an equitable mortgagee of, or entitled to a lien on, the real properties of D3 and D4. I understand the Writ has been registered as a lis pendens.

The Application to Set Aside Default Judgment

6. The Writ of Summons was issued on 18 September 1998. Because no defence was filed within the prescribed time, the Plaintiff applied for default judgment and default judgment was entered on 30 December 1998.

7. The formal Order and Interlocutory Judgment respectively dated 29 and 30 December 1998 stated:-

"Upon hearing Counsel for the Plaintiff, IT IS ORDERED THAT:-

the Defendant's Defence herein be struck out;

interlocutory judgment be entered for the Plaintiff against the Defendants ..."

"Pursuant to the Order of Master Kwan dated the 29th day of December 1998, whereby it was ordered that interlocutory judgment as hereinafter be entered against [all 4 Defendants ] ... and the Plaintiff having abandoned their claims for declarations against [D3] and [D4] ...

IT IS THIS DAY ADJUDGED that ... do pay the Plaintiff damages to be assessed ... ".

8. Mr Wong for the defence argues that the Default Judgment was entered irregularly because:-

(a) it does not follow the usual form of default interlocutory judgment with damages to be assessed;

(b) more importantly, the said Judgment was expressly stated to have been made pursuant to an order of the learned Master which was made after an ex parte hearing before her.

9. In order to decide whether the Default Judgment was irregularly entered, it is necessary to examine the history pertaining to the learned Master's order and the subsequent Default Judgment.

10. The acknowledgement of service was given by the Defence on 3 October 1998. On 11 December 1998, the Plaintiff's solicitors made an application to enter default interlocutory judgment by way of filing an affirmation asking for the same. A draft default judgment (which was in the usual form) was filed on the same day. The Master must have been concerned with the prayer for relief for declaratory orders because an endorsement dated 15 December 1998 was made on the draft as follows:-

"please clarify whether you wish to abandon items (f) and (g) of the prayer of the Statement of Claim [relating to the declaratory relief]".

11. On 24 December 1998, a Defence was filed by the Defendants (albeit out of time and without leave of the Court). The usual practice to be followed in such a case was set out in The Supreme Court Practice 1999, para. 19/2/1 (at p. 361) and 19/7/4. In relation to a claim for a liquidated demand, the usual practice is:-

"If before judgment is entered, the defendant serves a defence, even though it be out of time, judgment in default cannot be entered (Gill v. Woodfin (1884) 25 Ch D 707, CA; Gibbings v. Strong (1884) 26 Ch D 66, CA)" (para. 19/2/1).

The position in relation to claims falling within RHC Ord. 19 r. 7 (other claims) is:-

"A defence served after expiration of the prescribed time but before judgment has been given cannot be disregarded, and will generally prevent the plaintiff from entering judgment, even though it is not served until after the plaintiff has served his summons ... but the defendant may be ordered to pay the costs occasioned by his delay ... In such a case, the Court will have regard to the contents of the defence served out of time, and deal with the case in such a manner that justice can be done ... " (para. 19/7/4) (emphasis supplied).

12. In the Defence filed (out of time) on 24 December 1998, the Defendants in short denied the Plaintiff's allegations in the Statement of Claim. Further, the Defendants averred that the properties referred to in the Statement of Claim were acquired prior to the date of the loans from the Plaintiff.

13. In these circumstances, whether the Master's Order and/or the Default Judgment ought to be set aside depends on:-

(a) whether it was within the jurisdiction of the Master to make the order and/or enter the Default Judgment. In other words, whether they were made regularly or not;

(b) if they were made within the Master's jurisdiction, whether it was proper for the Master to do so.

14. I consider that point (a) should be answered in the negative. RHC Ord. 19 r. 7(1) provides:-

"Where the plaintiff makes against a defendant ... a claim of a description not mentioned in rules 2 to 5, then, if the defendant ... fails ... to serve a defence on the plaintiff, the plaintiff may ... apply to the Court for judgment, and on the hearing of the application the Court shall give such judgment as the plaintiff appears to entitled to on his statement of claim" (emphasis supplied).

Ord. 19 r. 7(3) provides that an application under r. 7(1) must be by summons or motion. On the other hand, as stated in Anson v. Trump [1998] 1 WLR 1404, there is no place for such an application to be made when default judgment is entered pursuant to Ord. 19 r. 2.

15. Ord. 19 r. 7(1) expressly covers claims not mentioned in Ord. 19 rr. 2 to 5 but it does not expressly deal with the manner in which a plaintiff should proceed with his application for default judgment where his statement of claim consists both of a claim under rules 2 to 5 and of other claim(s). I consider that the intention of the rules must be that he still needs to proceed by way of summons or motion in accordance with Ord. 19 r. 7(3). First, the part(s) of the Statement of Claim setting out the "other claims" (which fall outside rules 2 to 5) is clearly covered by Ord. 19 r. 7(1). Secondly, this intention can be inferred from Ord. 19 r. 6, which prescribes the procedure to be adopted (which is different from that prescribed in Ord. 19 r. 7(1)) where a plaintiff makes 2 or more claims mentioned in rules 2 to 5 but no other claim. Since the provisions of Ord. 65 r. 9 are inapplicable to a summons or motion taken out pursuant to Ord. 19 r. 7(3), any such summons or motion would have to be served on the defendant.

16. What has happened here can be described as an application striding between Ord. 19 r. 2 and Ord. 19 r. 7(1). It is clear that the Plaintiff only intended to enter a default judgment pursuant to Ord. 19 r. 2 and yet the procedure adopted is akin to (but not in accordance with) that prescribed in Ord. 19 r. 7. No summons or motion was in fact taken out (and hence served) in the present case and the opposing parties have not been given an opportunity to be heard on 29 December 1998. The Order and Default Judgment were therefore irregularly made/entered.

17. In coming to this conclusion, I have borne in mind Anson v. Trump [1998] 1 WLR 1404, a decision relied upon by the Plaintiff. In my view, the Court's conclusion that the default judgment therein was entered regularly despite a defence having been "served" on the date of the default judgment (but without the plaintiff's knowledge) was based on the following finding:-

"Since those decisions [referring to Gill v. Woodfin and Gibbings v. Strong] , time has moved on. What was judicial process has now been replaced in the case of a claim for a liquidated demand by an administrative act under Ord. 19, r. 2 (cf. Ord. 19 r. 7). Judgment by default is obtained by the plaintiff completing a form ... " (at p. 1408H) (emphasis supplied).

This was not what took place here because the way in which the matter proceeded was in effect a semi-judicial process and a semi-administrative one.

18. Whether or not an irregular default judgment ought to be set aside "as of right" was dealt with in inter alia the following cases:-

(a) Desirable International Fashions Ltd. v. Chiang Shi Chau [1997] 3 HKC 170, 175 and 177;

(b) Guangdong International Trust and Investment Corp. v. Yuet Wah (Hong Kong) [1997] 2 HKC 696;

(c) Po Kwong Marble v. Wah Kee Decoration [1996] 4 HKC 157, 161-62;

(d) Redland Concrete Ltd v. Hing Lee Construction Co. Ltd, HCA No. 8140 of 1998, pp. 15 to 18 of the transcript.

I do not propose to repeat the observations made in those cases save to say this. I consider that irregular default judgments should usually be set aside without regard to the merits of the defence. However, the Court retains a discretion in exceptional cases to consider that aspect as well in a setting aside application.

19. Bearing in mind the principles set out in the above cases, I consider that the extent of the irregularity herein justifies the setting aside of the Order and Default Judgment without the need to consider the merits of the defence. It may be appropriate for an enquiry (in writing) to be made by the Court as to whether the applicant for a default judgment intends to abandon the other claims in his statement of claim so as to bring the ex parte application within Ord. 19 r. 2. For such an applicant to appear before the Court without taking out the proper application and, more importantly, without affording the opposite party an opportunity to be heard on the application, is in my view an irregularity involving a breach of the fundamental rule of natural justice.

20. Even if (contrary to my conclusion reached above), the way in which the matter was proceeded with was within the Master's jurisdiction, I consider that the Default Judgment ought to be set aside by reason:-

(a) that there was no reason why the usual practice set out in The Supreme Court Practice 1999, para. 19/2/1 and 19/7/4 (above) should not be followed;

(b) of the merits of the defence.

The standard of proof which I applied in concluding that the Default Judgment should also be set aside on the merits of the defence has been set out in my earlier decision in Redland Concrete (above, at pp. 19 to 22 of the transcript) and will not be repeated herein.

The Application for the Discharge/Continuation of the Mareva Order

21. There are in short 4 grounds on which the Defendants contend that the Mareva Order ought to be discharged:-

(a) material non-disclosure and/or misleading evidence;

(b) the lack of evidence relating to any risk of dissipation of assets by the Defendants;

(c) no claim has been properly made against D3 or D4;

(d) adequacy of a lis pendens.

These will be dealt with under separate sub-headings.

(1) Material Non-disclosure and/or Misleading Evidence

22. The matters relied upon by the Defendants regarding this point include:-

(a) the Plaintiff's failure to refer the ex parte Judge to the Defence;

(b) its failure to disclose a letter dated 22 December 1993 from the Molik companies informing "Foshan City Yin Tong Finance Company" (an alter ego of the Bank of China) that the borrowed money was invested in real properties in Hong Kong;

(c) misleading information has been relied upon by the Plaintiff at the ex parte hearing:-

(1) the allegation in the Plaintiff's affirmation that "sham" transactions were put up by the Defendants in that indigenous villagers were made to appear as owners of the houses to be built by D3 when in fact D3 remained the owner of these properties. The Plaintiff alleges that the Defendants deceived the Government by this means and puts this forward as another piece of evidence of the Defendants' alleged dishonesty;

(2) the said letter dated 22 December 1993 would have shown that the Plaintiff's allegation that the Defendants had misled the Bank of China was unfounded.

23. Mr Wong refers to Liu Pui Man v. Wong Mei Yin [1998] 1 HKLRD 84 and argues that the Judgment of the Hong Kong Court of Appeal shows that the alleged "sham" transaction was in fact a usual practice used by Hong Kong developers regarding real property developments in the New Territories. The Liu Pui Man case discussed whether such kind of transfer (using indigenous villagers' names as registered owners) was illegal and/or against public policy. The Court of Appeal in effect recognised this method as a means of dealing with Government's "small house policy" and concluded that Government must have accepted the method. Further, the Defendants have filed evidence showing that such kind of transfer has been common and has a long history.

24. Having considered the materials before me, I agree with this part of Mr Wong's submissions and conclude that the Plaintiff has provided misleading information at the ex parte hearing.

25. As regards the letter dated 22 December 1993, I consider it was not incumbent upon the Plaintiff to comb through piles of documents in order to meet the requirement of making full and frank disclosure: see A.M.D. Pack Rack Ltd v. The Barrons Leasing Ltd [1992] 2 HKLR 50. I also accept the argument of Mr Fung for the Plaintiff that there is no evidence that the Plaintiff must have been aware of the existence of this letter at the time of the ex parte hearing.

26. I find that the attention of the ex parte Judge ought to be drawn to the Defence, especially when it alleges that the real properties in question were acquired before the dates of the loans.

27. For the above reasons, I conclude that misleading evidence had been placed before the Court at the ex parte hearing and there was a failure to refer to material information.

(2) No Risk of Dissipation of Assets

28. Mr Wong submits that there is no evidence of any risk of dissipation of the Defendants' assets, especially those of D3 and D4 and therefore there is no basis for granting a Mareva injunction.

29. With respect to Mr Wong, I disagree with his submission. The Court in Honsaico Trading Co. v. Hong Yiah Seng Co. Ltd [1990] 1 HKLR 234 held that an unacceptably low standard of commercial morality is a good reason for concluding that there is a risk of dissipation of assets. I agree with the Plaintiff's contention that a fortiori in a case involving fraud and dishonesty, such a risk cannot be ignored.

30. Nothing in this Judgment is intended to comment on (or decide) the merits of the parties' case in this action. Purely for the purpose of this application, and as stated under the sub-heading "Should a Fresh Order be Granted?", the Defendants' representation(s) regarding the purpose of the loans can be found in the loan-related documents and the use to which the loans were in fact put does not appear to be disputed. There is at least an arguable case of fraud and dishonesty against the Defendants. Further, as stated under the sub-heading "Adequacy of a lis pendens", the real property development might be at risk. I therefore conclude that there is evidence regarding the risk of dissipation of assets.

(3) No Proper Claim against D3 or D4

31. This has been set out under the heading "The Application to Strike Out the Statement of Claim" and will not be repeated again. For those reasons, I conclude that no proper claim has been pleaded against D3 or D4. However, I agree with Mr Fung's argument that from the materials before me, there is (at least) an arguable case as to whether they played a role in the alleged conspiracy.

(4) Should the Ex Parte Order be Discharged?

32. At the end, this is a matter for the Court's discretion. But in exercising this discretion, the Court should be guided by the following observations:-

"On any ex parte application, the applicant must proceed 'with the highest good faith ... otherwise the order may be set aside without regard to the merits'" (The Supreme Court Practice 1999, Vol. 1, para. 29/1A/24) (emphasis supplied);

"Where the plaintiff's affidavit is contentious and litigious, putting the defendant in the worst possible light and failing to put his defence clearly to the Court, the injunction should not be granted or continued ... " (see above);

"... The rule that an ex parte injunction will be discharged if it was obtained without full disclosure has a two fold purpose. It will deprive the wrongdoer of an advantage improperly obtained and it serves as a deterrent to ensure that applicants realise that they have a duty of disclose [sic] and of the consequences (which may include a liability in costs) if they fail in that duty ... " (see above);

"Where a Mareva injunction has been obtained on the basis of fabricated evidence, the cost of both the application for the injunction and the application for its subsequent discharge should be paid by the plaintiff immediately on an indemnity basis, even where it is not yet established that the plaintiff was personally involved in the fabrication of the evidence ... " (see above).

33. In view of the conclusion reached under the sub-heading "Material Non-disclosure and/or Misleading Evidence", and bearing in mind the observations set out above, I find that the ex parte order should be discharged.

(5) Should a Fresh Injunction be Granted?

34. This matter is also one for the Court's discretion. The learned editors of The Supreme Court Practice 1999 made the following observations:-

"Where there has been non-disclosure of material facts at the ex parte application for a Mareva injunction, but full disclosure is made at the hearing inter partes, the Court has a discretion to continue the ex parte injunction or to discharge it and immediately regrant substantially the same injunction if, had full disclosure been made at the ex parte application, the injunction could properly have been granted ... The discretion is to be exercised sparingly ..." (para. 29/1A/24 thereof).

35. Mr Fung submits that the materials filed herein show that (at least) there is an arguable case as to whether the Defendants had been involved in instances of fraud. He points out that the Defendants' representation(s) to the Plaintiff can be found in contemporaneous documents such as those relating to the applications (and the agreements) for the loans. Moreover, there is no dispute as to the actual use to which the funds have been put. Having perused the documents filed herein, I agree with these submissions.

36. In these circumstances, I find that this is a case where if there had not been the non-disclosure or misleading information referred to above, the ex parte injunction would still have been granted. Allegations of fraud and dishonesty have been raised in this case. In these circumstances, and bearing in mind the way in which the Defendants responded to these allegations, I consider my discretion should be exercised in granting a fresh order after having discharged the ex parte order.

(6) Adequacy of a lis pendens

37. One of the matters contended for by the Plaintiff herein is that there is evidence that D3 is financially unsound and this may put the scheme relating to the real property development at risk. In these circumstances, I agree with Mr Fung's submissions that the mere registration of a lis pendens may be insufficient without the aid of a Mareva injunction.

The Application to Strike Out the Statement of Claim

38. The basis of the Defendants' application can be summarised as follows. As stated earlier (under the heading "The Nature of the Plaintiff's Action"), the Plaintiff alleges that there was a conspiracy involving all the Defendants. The plea setting out the conspiracy is paragraph 5 of the Statement of Claim:-

"On divers dates between the end of December 1994 and July 1995 ... [D1] and/or [D2] acting as agents or servants of [D3], [D4], [Molik Corp] and/or [Molik Computer] or in their personal capacities, together with [D3], [D4], Molik Corp and/or Molik Computer and managerial staff including staff of the Loans Department of the Plaintiff unlawfully conspired together to injure the Plaintiff by inducing the Plaintiff by fraud ... to advance loans or grant banking facilities or Molik Corp ... and [Molik Computer] ... ".

The overt acts of each of the alleged co-conspirators in pursuance of the said conspiracy were set forth in paragraph 6 thereof:-

"(a) On diver dates between January and July 1995, [D1] acting as agent or servant of [Molik Corp] made applications to the Plaintiff for [loans] under the pretence that these were earmarked for the sale purpose of purchasing materials ...

(b) On divers dates between the end of December 1994 and June 1995, [D2] acting as agent or servant of [Molik Computer] made applications to the Plaintiff for [loans] under the pretence that these were earmarked for the sole purpose of purchasing computer parts ...

(c) Induced the Plaintiff to approve the Loans by causing the Staff to falsely report to the manager of the Plaintiff that ... they were satisfied with the credit worthiness ... and the genuineness of their respective loan applications ...

(d) Upon receipt of the Loans, [Molik Corp] and [Molik Computer] or each of them have or have caused the same to be remitted to [D3] and/or [D4]".

39. Mr Wong complains that the plea is defective and ought to be struck out. He refers to the following passages of A.D.S. v. Wheelock Marden [1994] 2 HKC 264 for support:-

"To the generality of the foregoing [referring to The Supreme Court Practice 1993, para. 18/12/2 regarding properly particularised pleadings] must be added the special rule that allegations of fraud must be pleaded distinctly and with the utmost particularity" (at p. 270B);

"As to the full meaning of the term 'overt act', three statements are of particular value.

The earliest is Salmon J's statement in Marriman v. Vibart ... that 'the gist of the tort of conspiracy is not the conspiratorial agreement alone, but that agreement plus the overt act causing damage'.

Next, there is Lord Wilberforce's statement in R v. Doot ... 'Often in conspiracy cases, the implementing action is itself the only evidence of conspiracy―this is the doctrine of overt acts' ... " (at p. 271);

"Finally, there is the well-known statement in Belmont Finance v. Williams Furniture ... of Buckley LJ ... that 'an overt act establishing the existence of a conspiracy is an overt act which shows that the agreement which is alleged to be conspiratorial has already been made'" (at p. 271);

"When it comes to a claim in the tort of conspiracy, what the pleader has to do in regard to pleading an overt act ... is this. He has to plead at least one overt act which is the act of all the conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act ... pleaded must be such as to show: (i) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them; (ii) the agreement, and not merely the intention of one person alone, was implemented; and (iii) that such implementation caused the damage complained of" (at p. 272) (emphasis supplied).

40. Having heard the parties, I agree with Mr Wong's arguments insofar as they relate to D3 and D4. I have perused the whole Statement of Claim and the averments relating to their alleged role in the conspiracy can only be found at paragraphs 6(d) (set out above), 10 and 14 (which respectively aver):-

"Upon receipt of the [loans] ...

(a) [D3] had applied the same toward the acquisition, investment, development or improvement of ... land ...

(b) [D4] had applied the same toward the acquisition, investment or improvement of 2 commercial premises ... ";

"Having knowingly participated in the said fraudulent or dishonest design against the Plaintiff, [D3] and [D4] became constructive trustees of all moneys received by them ... ".

41. It is to be noted none of the above paragraphs in the Statement of Claim alleges that D3 or D4 "knowingly" received the money in question. Paragraph 6(d) merely refers to the "receipt of the Loans", paragraph 10 to "Upon receipt" of the loans and paragraph 14 to "Having knowingly participated in the said fraudulent or dishonest design".

42. Insofar as it is said that the Plaintiff's case is that D3 and D4 "knowingly" received the loans and thus became constructive trustees, such a plea has not in fact been made. Even if somehow it can be said such a case had been made, there is a lack of the requisite particulars relating to knowledge. The only other plea which may be relevant is the allegation that D3 and D4 are "affiliated with" the Molik companies, but this is at best a very vague plea.

43. Insofar as the Plaintiff relies on "Having knowingly participated in the said ... design", this in substance is a repetition of the plea at paragraph 5 of the Statement of Claim. There is not even an attempt to set out the overt acts as to how D3 or D4 "knowingly participated in the said ... design".

44. For these reasons, I agree with Mr Wong that the Statement of Claim against D3 and D4 ought to be struck out. On the other hand, having so decided, I agree with Mr Fung's submissions that in view of the materials placed before me relating to the possible role of D3 and D4 in the alleged conspiracy, an opportunity ought to be given to the Plaintiff to amend its claim against them. For the above reasons, I consider it appropriate to make the order set out earlier under the heading "Introduction".

45. The Defence also seeks to strike out the whole of the Plaintiff's claim on the grounds that:-

(a) it does not plea a combination: para. 15.1 of Mr Wong's skeleton submissions;

(b) it is unclear whether a conspiracy by unlawful means or one to injure is advanced: para. 15.2 thereof;

(c) a separate claim against D1 and D2 for fraudulent misrepresentation is not made out: para. 16.7 thereof.

46. I disagree with Mr Wong's point (a) above because paragraphs 5 and 6 of the Statement of Claim clearly and sufficiently (save as to D3 and D4) plead a conspiracy involving the Defendants. I also do not agree with his point (b) above because paragraphs 5 and 6 thereof read together amount to an allegation of a conspiracy to practice fraud against the Plaintiff: paragraph 5 contains an express plea of "unlawfully conspired ... by inducing the Plaintiff by fraud ... to advance loans ... ". As regards his point (c) above, paragraphs 6(a) and (b) of the Statement of Claim in effect allege that D1 and D2 as agents or servants of the Molik companies misrepresented the purpose of the loans. It is trite law that an agent can also be liable for a tort he committed on his principal's behalf. I therefore disagree with his point (c).

47. It should also be noted that in relation to the issue of "double actionability" regarding point (c) above, the Plaintiff has filed expert evidence in support of this part of its claim. The matter is hence more appropriate for trial than for a striking out application.

48. On the other hand, I do not find there is any substance in the Plaintiff's argument that the Defence is barred from taking out this application by the merger of the cause of action with the Default Judgment. This is because the bar is more apparent than real; if necessary, the Court can always decide on the setting aside application first (as happened in this case) before considering this application.

The Application for the Plaintiff to Cease to be a Party

49. The Defendants took out this application alleging in essence that the loans were granted by an entity other than the Plaintiff.

50. Without disrespect to the industrious work and detailed submissions of the parties' legal advisers, I consider that the matter clearly could not be properly disposed of by way of this application by the time of the hearing in January 2000. This is because the parties have filed conflicting expert evidence regarding the issue of whether:-

(a) as the Defence contends, the Plaintiff is a separate and independent legal entity having no connection with the "preceding" entity which lent the money to the Molik companies;

(b) as the Plaintiff argues, there was merely a change in registration which did not affect the legal personality of the entity in question;

(c) the loans were properly transferred to the Plaintiff;

(d) the Plaintiff has ceased to exist.

51. I have dealt with the Plaintiff's argument regarding the "merger" of the action with the Default Judgment under the heading "The Application to Strike Out the Statement of Claim" and will not repeat them again, even though this point is also raised in this application.

The Application to Amend the Defence

52. At the beginning of the hearing on 11 January 2000, Mr Wong informed me that this application would depend on whether the Defendants would succeed in their application to set aside the default judgment. Although they were successful in that application, the Plaintiff was also given an opportunity to amend its Statement of Claim. In these circumstances, I consider (and the parties did not object) that the application to amend the Defence should be withdrawn with no order as to costs, with leave to the Defendants to file and serve an Amended Defence within 42 days after the service of the Plaintiff's Amended Statement of Claim.

The Application for Security for Costs

53. There was insufficient time to deal with this application and it was therefore adjourned to a date to be fixed for argument (with an estimated hearing of 2 hours). Costs of this application should be reserved.

Costs Orders

54. At the end of the hearing on 13 January 2000, the following costs orders were made:-

(a) costs of the application to set aside be to the Defendants in any event;

(b) costs of the application for the Plaintiff to cease to be a party be to the Plaintiff in any event.

The parties did not raise any argument regarding the above costs orders in view of the outcome of the 2 relevant applications. Arguments, however, were raised in relation to the costs regarding the striking out application and the application to discharge/continue the Mareva order.

(1) Costs of the Application to Discharge/Continue the Mareva Order

55. The Defendants argue that they should be entitled to these costs whereas the Plaintiff contends that they should be in the cause.

56. I find that the costs of the ex parte order and its discharge should be paid by the Plaintiff to the Defendants forthwith, adopting the approach in Bir v. Sharma, The Times, 7 December 1988. However, I do not consider an award of costs on an indemnity basis is justified. This is because the Plaintiff has at most only advanced an exaggerated case regarding the alleged "'sham' transaction" part of its case by "putting the defendant in the worst possible light" (rather than by relying on fabricated evidence).

57. On the other hand, as regards the costs of the inter partes order, since the Plaintiff has been successful in this application, those costs should be costs in the cause.

(2) Costs of the Application to Strike Out the Statement of Claim

58. The Defendants claim that they should be entitled to the costs of this application while the Plaintiff argues that they should be in the cause of the action because the Plaintiff was substantially successful and the Defence only succeeded in striking out the claim against D3 and D4. On the other hand, the Defence contends it is substantially successful in the outcome of this application.

59. I consider that the costs of this application should be awarded to the Defendants in any event because:-

(a) Mr Wong's submissions regarding this application were mainly directed to the claim against D3 and D4. This is reflected in his skeleton submissions: pages 23 to 35 thereof (para. 13.1 to 16.10) are related to this application but only part of 15.1, 15.2 to 15.5 and part of 15.6 are related to the other Defendants;

(b) further, the Defendant's application was not improper or unreasonable: see In re Elgindata (No. 2) [1992] 1 WLR 1207.

60. Certificate for two counsel is given for all costs orders made above (save as regards the costs of the application for security for costs). Further, there is a cost order nisi that the costs incurred and thrown away by the amendment of the Statement of Claim and those of any consequential amendment be to the Defendants in any event.