MAYER CORPORATION DEVELOPMENT INTERNATIONAL LTD v. ALLIANCE FINANCIAL INTELLIGENCE LTD AND OTHERS

HCCL 2/2016

[2024] HKCFI 1936

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 2 OF 2016

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HCCL 17/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 17 OF 2016

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(Heard Together)

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DECISION

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1.  There are before the court two security for costs applications by (i) the 1^st and 2^nd Defendants (“AFIL” and “Chan”) against the Plaintiff (“Mayer BVI”) in HCCL 2/2016 and (ii) the 3^rd and 4^th Defendants (Chan and “Ku”) by Counterclaim against the Plaintiff by Counterclaim (“Lai”) in HCCL 17/2016 (formerly HCA 686/2012). The application in HCCL 2/2016 is for additional security.

2.  These actions are related. It had been ordered by the court that they be heard and tried together. Mayer BVI and Lai on one hand and AFIL, Chan and Ku on the other belong to two opposing camps which have been in litigation for many years.

3.  In HCCL 2/2016, AFIL and Chan are seeking additional security in the sum of HK$1,251,220 to cover their costs from discovery up to and including trial. In HCCL 17/2016, Chan and Ku are seeking security for costs in the sum of HK$1,297,340 up to and including trial.

4.  Both applications are based on O 23, r l of the RHC. In addition, in HCCL 2/2016, AFIL and Chan are also relying on s 905 of the Companies Ordinance, Cap 622. However, I do not believe that the statutory provision adds much to their case.

5.  Normally, security for costs applications are consented to when the plaintiff is based overseas with no assets in Hong Kong. There is no dispute in this case that this situation applies to both Mayer BVI and Lai. The former is in fact in liquidation since 10 October 2016 and its action is being funded by Lai. Where disagreement arises on an application of this nature, it normally relates to the quantum of security. Such disagreement can be quickly resolved by the court because, in line with the Underlying Objectives, the court will adopt a broad-brush approach to award sufficient security that is just in all the circumstances of the case. All these are based on trite principles on security for costs.

6.  However, in these applications Mayer BVI and Lai seek to resist them on the ground that they have genuine and strong claims which have a high degree of probability of success at trial based on the evidence filed by the parties for the Summonses. This is the issue in these applications.

7.  The approach taken by Mayer BVI and Lai is unusual because it is trite that it is not the function of the court to make a preliminary run at deciding the ultimate success or failure of the claim. The court should not delve into the respective merits of parties’ case unless it can clearly be demonstrated one way or the other that there is a high probability of success or failure. The threshold of demonstrating the probability of success is very high (see Sunchase International Group (China) Ltd & others v Vincor Group of Companies (Investment) Ltd [2004] 1 HKLRD 731, [5] and Hannelore de Lasala-Debring v Ernest Ferdinand Perez de La Sala, unrep, HCMP 1029/2013, 8 July 2015, [8]).

8.  At the risk of stating the obvious, it is all the more difficult for the court to decide on the basis of the affidavits before it whether the very high threshold is met when the case is complex and highly controversial. In my humble view, the court should not embark on such an exercise unless it can be shown reasonably readily that its resources are not going to waste to the prejudice of other court users. Preserving the court’s resources for equitable distribution amongst the court users is the duty of the court.

9.  There is a very complex background to the disputes between the two camps to which the parties to these applications belong. They were summarised in a previous unreported Decision of this court in HCA 686/2012 (now HCCL 17/2016) dated 31 July 2015, [4]-[18].

10.  As a very simple summary, the two camps were in litigation over the ownership of 200m shares in Mayer HK of which Mayer BVI was the registered shareholder. The action was tried before Reyes J who upheld the case of AFIL’s camp. The learned Judge’s judgment was subsequently upheld by the Court of Appeal (“CA”) as well as the Court of Final Appeal.

11.  One of the issues resolved by the Judge in favour of AFIL’s camp was whether Mr Wang Ing Jye (“Wang”) (another member of Mayer BVI’s camp) had entered into a Share Custodian Agreement on 19 June 2009 (“Agreement”) with AFIL. That issue impacted upon whether the case of AFIL’s camp was credible. The Agreement was, on its face, signed by Wang and Ku. Ku maintained that his signature was a forgery. The Judge accepted Ku’s evidence.

12.  On appeal before the CA, Mayer BVI sought to adduce fresh evidence in the form of two handwriting expert reports to demonstrate the authenticity of Ku’s signature on the Agreement. The application was dismissed on Ladd v Marshall grounds. It is worth noting that the CA held that (i) the evidence could with reasonable diligence have been obtained for use at the trial; (ii) the potential need for the evidence was self-evident before the trial; and (iii) it was axiomatic that experts might disagree, and the fresh evidence was “necessarily inconclusive” (see Aspial Investment Ltd v Mayer Corp Development International Ltd, unrep, CACV 162/2012, 14 May 2013, [6]-[7]).

13.  In HCCL 2/2016, Mayer BVI seeks to set aside the Judgments against it on the basis that they were obtained by the fraud of the Defendants. Mayer BVI relies on 5 matters to support its claim. For the present purpose, it relies on two, namely, (i) handwriting evidence demonstrating that Ku’s signature on the Agreement was genuine; and (ii) CCTV evidence of meetings between Chan and Lai on 16 December 2011 (another person by the name of Tommy Chan was also present at this meeting) and 9 January 2012, in which Chan was recorded to have said various things which allegedly contradicted the case of his camp.

14.  By the action in HCCL 17, Capital Wealth Finance Co Ltd (“CWF”), another entity in the AFIL camp, claimed against Lai, Wang and various other individuals for loans which were allegedly advanced to them. Lai’s defence was that the sums were not loans, but were proceeds of sale of certain Mayer HK shares, which Wang deposited with CWF under the Agreement.

15.  CWF was wound-up in the course of the action, and Lai obtained leave to bring his counterclaim against, inter alia, CWF, Chan and Ku for loss caused by their unlawful conspiracy in giving false evidence at the trial before Reyes J. Lai relies on the same evidence as in HCCL 2 to seek to demonstrate that the Judgments were obtained by fraud.

16.  Mayer BVI and Lai rely heavily on the case of China Medical Technologies Inc v Wu Xiaodong [2022] HKCFI 3237 at [17]-[22], [26], [28] and [30] to seek to persuade this court to engage in an evaluation of the affidavit evidence and come to the view that there is a high degree of probability of success by them in both actions.

17.  With respect, China Medical was a rather different case and is distinguishable. It was a case brought by the liquidators of China Medical, which was listed on NASDAQ and had become grossly insolvent, against the senior management of the company. In that Judgment, the court dealt with the application by the former CFO and a director of the company (“Tsang”) for security for costs. Tsang was previously found in contempt of court and had absconded from Hong Kong, as well as being a fugitive of the US criminal justice system.

18.  The liquidators claimed that a massive fraud was practised on the company by the senior management in that over US$500m was spent to purportedly acquire medical technologies which were in fact worthless. The vendor of the transactions was a company controlled by Tsang and to which the purchase price was paid. The funds were then dissipated to persons and entities some of whom were associated or controlled by Tsang. The court took the view that the company’s claims were “in fact quite simple” ([38]). It is evident from the Judgment that the evidence against Tsang was substantial as well as solid. In these circumstances, the court held that the company had made out a genuine and strong case ([42]).

19.  In this case, Mayer BVI and Lai start off with a heavy burden of proof in their claims based on fraud. Wang, Lai, Chan and Ku all gave evidence before Reyes J. The Judge gave 7 reasons for disbelieving Wang’s evidence (see Aspial Investment Ltd v Mayer Corp Development International Ltd, unrep, HCA 238/2012, 16 July 2012, [146]-[167]). The Judgment after trial was scrutinized by two appellate courts.

20.  Whilst I accept that handwriting evidence may have an impact on the genuineness Ku’s signature on the Agreement, such forensic evidence (regardless of the number of handwriting experts and the confidence they expressed of their opinions) would not necessarily prevail over the evidence of the witnesses. Further, it would not be surprising if Chan and Ku will later obtain handwriting evidence which contradict that of the other side. Furthermore, the court should maintain a healthy scepticism over the handwriting evidence because of the failure of the Mayer BVI camp to adduce the same at the trial when the need for such was plain.

21.  As for the failure of Chan and Ku to adduce any contrary handwriting evidence in support of this application, I am not inclined to view the situation as reflective of weakness in their case or strength in the case of Mayer BVI and Lai. The fact remains that it is for Mayer BVI and Lai to overturn the existing Judgements. Moreover, the threshold for them to make out a case of high probability of success is indeed high. Under an adversarial system, Chan and Ku might reasonably have decided not to be engaged in a questionable argument of the other side. Equally, they might have taken the view not to invest in forensic evidence until the security for their costs is in place.

22.  In respect of the video recordings, Lai said that they were “recorded by [Mayer BVI’s] CCTV camera”. There is no explanation in Lai’s evidence on why they were not used at the trial if they are important as now portrayed. It may be the case that the material can be useful in the cross-examination of Chan. However, having considered the transcripts of the recordings, I do not believe that they self-evidently or clearly undermine the case of AFIL camp. Indeed, the court was taken by both Mr Man SC (who appeared with Mr Lam for Mayer BVI and Lai) and Mr Wong (who appeared with Mr Cheung for AFIL, Chan and Ku) to extracts of the transcripts. The exercise only served to emphasize that without knowing the intricate facts of the case and context of the discussions, it is quite impossible to understand what was said let alone trying to draw inferences from the same.

23.  For the present purpose, I am not prepared to say that, whether considered on their own or in conjunction with the handwriting evidence, the recordings demonstrate a clear case for the court to engage in a minute examination of the affidavit evidence (including the lengthy Judgments) to evaluate the probabilities of success of the case of Mayer BVI and Lai. Nor am I satisfied that the high threshold of such chances of success is met.

24.  For these reasons, both applications are allowed. As for quantum of security, taking a reasonably board-brush approach, and accepting that the will be a fair amount of duplication between the two actions because the issues are in truth identical, I assess the security at HK$750,000 for each of the application.

25.  Finally, on costs, I take the view that it is justified to award costs against Mayer BVI and Lai on common fund basis to mark the disapproval of the court that these applications are fought on unrealistic basis which has resulted in increased costs and wastage of the court’s resources, and I so order without a certificate for 2 counsel.

26.  The costs are to be summarily assessed. APIL, Chan and Ku are to lodge and serve their Statements of Costs within 5 days from today. Mayer BVI and Lai are to respond to the Statements of Costs within 3 days thereafter, limited to 3 pages printed in A4 paper with font size 13, 1.5 line spacing and margins not less than 1 inch. Any reply submissions, limited to 2 pages with the same format are to be lodged and served within 2 days thereafter. The assessment will then be determined by the court on paper.

Directions

27.  As indicated in the course of the hearing, I make the following directions for the further conduct of these actions to avoid unnecessary costs :

(1)  For all further steps taken in HCCL 2/2016 and HCCL 17/2016, due regard must be given to the duplication of issues in these proceedings such that, eg, unnecessary duplication of evidence and hearing bundles should be avoided;

(2)  Despite para 2 of the Order of DHCJ Seagroatt dated 23 October 2014, no expert evidence is to be adduced at the trial of HCCL 2/2016 or HCCL 17/2016 without further directions to be sought from the court.