SHUM YEUNG v. SKYNET GROUP LTD

CACV 140/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 140 OF 2016

(ON APPEAL FROM HCA NO 200 of 2015)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  On 8 June 2016, Deputy High Court Judge Seagroatt struck out the Statement of Claim of the Plaintiff and dismissed the action in HCA 200 of 2015. In an earlier action HCA 1775 of 2012, the Defendant (in its former name EDS Wellness, acting as plaintiff in that earlier action) obtained summary judgment in the sum of $39,127,500 plus interest and costs against the Plaintiff (as defendant in that action). In the present action, viz HCA 200 of 2015, the Plaintiff sought to set aside the judgment in HCA 1775 of 2012 and claimed damages.

2.  It should be noted that the Plaintiff had attempted to set aside the judgment in the context of HCA 1775 of 2012.  That application failed before Deputy High Court Judge Leung on 12 January 2015. There was no appeal against that decision.

3.  The Plaintiff issued a Notice of Appeal on 16 June 2016 in respect of the judgment in HCA 200 of 2015.

4.  By a summons of 8 August 2016, the Defendant sought security for costs in the sum of $796,070.

5.  The court gave directions for disposal of the summons on 10 and 29 August 2016, including directions for filing evidence for the summons.  Apart from evidence filed in accordance with such directions, no further evidence was to be filed without leave of the court.  Written submissions were filed subsequent to the close of evidence in accordance with those directions. There was no request for oral hearing in the submissions.  Having read the papers, we are of the view that the summons can fairly be processed on paper. We now give our decision on the summons. 

6.  The principles governing an application for security for costs on appeal were discussed in Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650.  In the present case, the Defendant relied on the impecuniosity of the Plaintiff as the special circumstances to seek an order for security pursuant to Order 59 Rule 10(5).  Though impecuniosity of an appellant is not conclusive, the court will consider whether there are any counterveiling factors to militate against the grant of security.  The merit of an appeal is relevant though at this stage the court should not engage in a full-fledged examination of the merit as if it were hearing the appeal itself.

7.  The Defendant also relied on the likelihood of it encountering undue delay or being put to undue expense to enforce any costs order in its favour as a ground for seeking security for costs, citing Hong Kong Civil Procedure 2016 §59/10/27.

8.  In the submissions before us, the main issue is whether the Plaintiff is impecunious.  Ms Wong, counsel for the Plaintiff, focused on disputing this issue and she did not refer to any counterveiling factors.

9.  In this appeal, the grounds of appeal as set out in the Notice of Appeal placed much emphasis on the Plaintiff’s allegations of fraud against Ivy Chan, a director of Blu Spa (Hong Kong) Limited, a wholly owned subsidiary of the Defendant and as assignee of which the Defendant obtained the summary judgment in HCA 1775 of 2012.

10.  The fraud alleged was pleaded at paragraphs 10 and 11 of the Statement of Claim in HCA 200 of 2015.  It was alleged that Ivy Chan forged the Plaintiff’s signature on some documents relevant to the claim in HCA 1775 of 2012 (including a Deed of Termination of 5 April 2012 and procured a firm of solicitors to act for the Plaintiff in that action without authority and gave instructions not to resist summary judgment.  It was pleaded in paragraph 14 of that Statement of Claim that Ivy Chan had confessed in writing on her acts of forgery and her instructions to the solicitors without authority of the Plaintiff.

11.  In the Defence in HCA 200 of 2015, the Defendant averred that Ivy Chan ceased to have any part in the management of the Defendant since 2012 and she resigned as a director of the Defendant on 7 December 2012.  It was further pleaded that the summary judgment in HCA 1775 of 2012 was obtained in respect of monies payable under the Deed of Termination which in turn arose from the dealings between the Plaintiff and Blu Spa under a Sale and Purchase Agreement of 30 April 2010.

12.  Under the Sale and Purchase Agreement, Blu Spa had paid the Plaintiff a sum of $45 million for some properties in the PRC. These were actually averred by the Plaintiff in paragraph 4 of the Statement of Claim.  The Defendant said the $45 million was paid as refundable deposit, see paragraph 6(2) of the Defence.

13.  The Defendant said after repeated extensions, the Plaintiff failed to fulfil the condition precedents under the Sale and Purchase Agreement and it led to the Deed of Termination, under which the Plaintiff was obliged to refund the $45 million.  The Defendant received the first instalment of $4.5 million upon execution of the Deed of Termination but no further payment was made by the Plaintiff.

14.  The allegation of forgery of the signature of the Plaintiff by Ivy Chan in the Deed of Termination was not admitted and the Defendant averred it was not privy to the dealings between her and the Plaintiff.  The Defendant further said it was not open to the Plaintiff to contend that he was not bound by the Deed of Termination because he knew or ought to have known of the Defendant’s reliance on the same in the application for summary judgment.  This plea was apparently based on the Plaintiff’s own evidence in his affirmation of 2 November 2013 when he made an application to set aside the summary judgment.  In that affirmation, according to what was pleaded at paragraph 10(5) of the Defence, the Plaintiff said on the day after he had been served with the writ (in HCA 1775 of 2012), Ivy Chan confessed to him about forging his signature.  As he was compassionate to her, he agreed to allow her to handle HCA 1775 of 2012 on his behalf.  The solicitor was engaged afterwards.  The Defendant said it was a conscious decision on the part of the Plaintiff to delegate the conduct of the action to Ivy Chan and conferred actual authority to her and she engaged the solicitor with his full knowledge and consent.  

15.  It was only after enforcement actions were taken pursuant to the summary judgment that the Plaintiff disputed the authority of the solicitor to act on his behalf in HCA 1774 of 2012.

16.  In light of the pleaded case, we can understand why Ms Wong did not rely on the merit of the appeal as a counterveiling factor.  Even though there are aspects in the appeal which can be regarded as arguable, the overall merit is not so strong that one could reasonably contend security should not be ordered even if the Plaintiff is impecunious.

17.  Coming now to the question of impecuniosity, Mr Dawes SC (leading Mr Kwong) for the Defendant referred to the following matters as evidence of the Plaintiff in financial difficulties:

(a)   The difficulties and the proceedings which the Defendant had to take in enforcing the judgment in its favour in HCA 1774 of 2012: to cut a long story short, it was only after the court made an unless order (with appointment of receiver as sanction) that the Plaintiff paid $47,767,709.60 into court to cover the primary liability under that judgment, and there is still an outstanding liability in respect of interest in the amount of $3,255,014.34 (calculated up to 24 June 2016) which remains unpaid despite repeated demands;

(b)   The Plaintiff did not have much cash balances in his bank accounts;

(c)   Despite request, the Plaintiff did not provide evidence as to his means.

18.  On behalf of the Plaintiff, Ms Wong referred to the landed properties held by the Plaintiff and his wife and submitted that he is not impecunious.  She said there is a net equity of about $35.4 million in what she called the Baroque Property in addition to the Kau To Path Properties (which she said to have a value of $8.8 million, based on the unverified evidence of the Plaintiff that he had fully repaid all outstanding mortgage loans on the same).  The Plaintiff also undertook to the court (at paragraph 16 of his affirmation of 17 August 2016) that he would not obtain bank facilities from the Wing Lung Bank or any other parties and/or further encumber the Kau To Path Properties.  

19.  In her submission, Ms Wong attached a number of documents which should have been produced by way of exhibits to affirmation or affirmation.  It is not acceptable for counsel to tender evidence as part of their submissions.  This is particularly when directions had been given for the filing of evidence and parties should have follow such directions if they wish to place relevant evidence before the court.  No explanation has been proffered as to why evidence related to these documents was not filed in accordance with the directions.

20.  We have checked the court file and the documents attached to Ms Wong’s submissions had not been filed and except in respect of an affirmation by Mrs Shum (for which leave was sought by a letter of 19 September 2016 from solicitors for the Plaintiff), no leave had been sought for them to be filed.

21.  No explanation as to why the affirmation was not filed in accordance with the directions on filing of evidence.  In any event, on the facts of the present case we do not regard the affirmation and the undertaking of Mrs Shum could take the Plaintiff’s case much further.  If Mrs Shum is willing to stake her interest in these properties to support the Plaintiff in this appeal, the Plaintiff could easily procure finance by charging these properties to pay security.  We refuse to grant leave for such late affirmation to be relied upon.

22.  In such circumstances, those documents are not properly before us and we do not have regard to them as evidence in the application.

23.  On the admissible evidence before us, even taking account of the ownership of the Baroque Property and the Kau To Path Properties, we agree with Mr Dawes that there is sufficient concern in respect of the Plaintiff’s financial position and the likelihood of undue delay or the Defendant being put to undue expense in the enforcement of any costs order that warrant an order for security for costs to be made against the Plaintiff in the present appeal.  As pointed out by Mr Dawes, there is no clear evidence as to the net equities of the landed properties.  The Plaintiff only had himself to blame in this regard as he should have known it is of great importance that he should produce credible supporting evidence to substantiate his claim as to the net equity values of these properties.  He chose not to do so in his affirmation of 17 August 2016 and the court is entitled to be sceptical of bare assertions.

24.  We also do not accept his explanation for not paying the outstanding interest.  The history of the enforcement proceedings provides instructive illustration as to the difficulties that the Defendant would encounter in the event that it has to enforce order for costs made in this appeal against the Plaintiff, particularly having regard to the fact that the properties are held in joint names.       

25.  Having considered the skeleton bill exhibited to the Affirmation of Mr Lee Chan Wah, we shall order the Plaintiff to pay security for costs in the sum of $550,000.  We make an order in terms of the summons with the substitution of the figure of $550,000 with that of $796,070.