DYNASTY LINE LTD v. SUKAMTO SIA AND ANOTHER

FAMV No. 38 of 2009

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 38 OF 2009 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL
FROM CACV No. 180 of 2008)

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DECISION

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Mr Justice Ribeiro PJ:

1.  The question I am asked to decide is whether money paid into court to fortify an undertaking in damages in support of a Mareva injunction should be retained in court and made available to satisfy outstanding costs orders made in favour of the defendants after the relevant action has been stayed and the injunction discharged.  It arises on a contested summons issued by the plaintiff for payment out of the sum in question.

2.  In August 2007, provisional liquidators were appointed in respect of the plaintiff company after judgment had been entered against it for a sum in excess of HK$240 million.  In September of that year, the provisional liquidators caused the plaintiff to bring proceedings against the two defendants for breach of fiduciary duty involving the misappropriation of its assets.  A worldwide Mareva injunction was obtained.

3.  The defendants challenged jurisdiction and contended that Hong Kong was not the appropriate forum.  They failed before Carlson J but succeeded on the forum non conveniens ground before the Court of Appeal, which stayed the action and rejected the plaintiff’s application for leave to appeal to the Court of Final Appeal.

4.  Pending renewal of their leave application before the Appeal Committee, the plaintiff applied to Bokhary PJ for the Mareva injunction to be kept in place.  His Lordship was persuaded to continue the injunction but much limited in scope, on the footing that fortification was to be provided. 

5.  The order made by Bokhary PJ took the form of a direction that the Court of Appeal’s order lifting the Mareva injunction should be stayed (so as to leave the more limited injunction in place) pending determination of the leave application or further order.  It was made “...on the applicant’s undertaking to comply with any order that the court may make in respect of compensation payable to the 2^nd Defendant for loss suffered as result of this stay” adding:

“The Applicant to fortify its undertaking in the sum of $5 million to be paid into court, the stay to take effect from the time of such payment into court...”

The HK$5 million amount was duly paid into court.

6.  On 14 September 2009, the Appeal Committee refused leave to appeal.  This meant that the stay granted by Bokhary PJ came to an end and that the Mareva injunction ceased to have effect. 

7.  On 2 October, the plaintiff issued the summons which is presently before me.  It names the 2nd defendant as respondent and seeks payment out to the plaintiff’s solicitors of the HK$5 million fortification sum now in court.  The 2nd defendant objects to payment out, contending that such sum should remain in court to be made available to satisfy the costs orders made in his favour at first instance, in the Court of Appeal and before the Appeal Committee.  The 1st defendant was given leave to be heard on this application, his argument likewise being that his costs orders ought to be satisfied out of the funds in court.

8.  It is common ground that throughout these proceedings, the plaintiff did not have any assets and that the litigation was funded by creditors.  The evidence shows that it was a creditor named Johnny Tsao Yue Hwa (“Mr Johnny Tsao”) who provided the HK$5 million in question. 

9.  There is also no dispute that the 2nd defendant did not suffer any loss as a result of the stay which continued the Mareva injunction. The defendants’ claims to the money in court do not involve any attempt to enforce the undertaking. 

10.  Their claims rest on the contention that the HK$5 million sum is the property of the plaintiff and that they are entitled to have their orders for costs against the plaintiff satisfied out of its assets in priority to the unsecured creditors and in priority to the provisional liquidators’ expenses.

11.  The 2nd defendant had originally sought to argue in the alternative that if the money is not the plaintiff’s property, it is the property of a person who funded the litigation in pursuit of his own financial interests and that he and other such persons should be ordered to discharge the plaintiff’s liability as to costs under section 43 of the Court’s statute.  Mr Russell Coleman SC, appearing for the 2nd defendant, rightly accepts that this is not a tenable line of argument since the persons concerned are not before the Court and no application has been made for any such relief.

12.  Returning to the operative ground, the key question is whether the HK$5 million ever became part of the plaintiff’s assets.  That is a question of fact.  What happened in the present case was that when Bokhary PJ granted the stay conditional on fortification being supplied, the provisional liquidators approached the known creditors, showing them the draft order and asking whether anyone was willing to contribute to the fortification.  Mr Johnny Tsao volunteered to do so, his personal assistant’s e-mail to the provisional liquidators stating: “I have instructions from my boss, Mr Johnny Tsao to reply that he is prepared to provide the HK$5 million for the Court of Final Appeal.”  The money was then transferred to the provisional liquidators’ client account and used to acquire a cashier order which was then deposited with the Court.

13.  In my view, no basis exists for contending that Mr Johnny Tsao transferred property in the HK$5 million sum to the plaintiff.  There is no basis for suggesting that he intended to make a gift or a loan to the company.  On the contrary, the evidence makes it clear that the money was provided for the sole purpose of providing fortification to meet the Court’s condition for continuing the Mareva injunction.  That involved setting up a fund in court to be applied for the specific contingent purpose of compensating the 2nd defendant in case he should later be shown to have suffered damage as a result of the continuation of the injunction.  There is no necessity in principle for such a fund to derive from the assets of the plaintiff giving the undertaking.  Insolvent companies are often enabled to take action to preserve or recover assets by creditors who are willing to finance such action by accepting personal liability, such as by providing indemnities or bank guarantees, for the costs and expenses involved and without transferring any property to the company in question.  That is what happened in the present case.

14.  As it is accepted that the 2nd defendant did not suffer any damage as a result of the injunction’s continuation, the purpose of the payment into court is spent and no reason has been shown why it should not now be released to the plaintiff’s solicitors. 

15.  I therefore order that the sum of HK$5 million paid into court on 24 July 2009 pursuant to the Order of Bokhary PJ dated 22 July 2009, and any interest accrued thereon, be paid out to the Applicant’s solicitors.  I also order that the costs of this application be paid by the defendants to the applicant.