LOY THIN LOY AND ANOTHER t/a GALERIE NEW STAR v. CHRISTIE’S HONG KONG LTD AND ANOTHER

DCCJ5432/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5432 OF 2008

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BETWEEN

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DECISION ON COSTS

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1.  This is a decision on costs only.

2.  This is an unusual case.  Someone handed a Painting, known as “Echo Chaleureux”(“the Painting”), to the 1st Defendant, which is the reputable auction house in Hong Kong, for auction.  The Plaintiffs, in the capacity of the alleged owners, claimed for the return of the Painting to them.  However, some other person also made a claim for the ownership of the Painting.  The 1st Defendant refused to return the Painting to the Plaintiffs, and as a result the Plaintiffs commenced the present action against the 1st Defendant. 

3.  The 2nd Defendant is the other person who is claiming the ownership of the Painting, and she applied to court to be joined as a party to the proceedings.  On 26 July 2010, the 1st Defendant took out an inter-pleader summons for the court to determine the ownership of the Painting.  On 16 August 2010, HH Judge S T Poon allowed the 2nd Defendant’s application to be formally joined as a party to the action, and the learned judge further ordered that there be a trial between the Plaintiff and the 2nd Defendant regarding the ownership of the Painting. 

4.  On 13 February 2010, the 2nd Defendant took out a summons to apply for security for costs against the Plaintiffs on the ground that the Plaintiffs are ordinary residents out of jurisdiction.  On 18 February 2011, Master G Ng allowed the 2nd Defendant’s application and ordered the Plaintiffs to pay a sum of $200,000 into court as security for the 2nd Defendant’s costs in this action up to that particular stage, with liberty to apply for further security when it becomes necessary. The Plaintiffs were not satisfied with the order of the learned Master and lodged the present appeal before me.  Two days prior to the hearing before the Master, the Plaintiffs on 16 February 2011 also took out a summons to ask the 2nd Defendant to provide security for costs on the ground that the 2nd Defendant had frequently changed her address with a view to evade the consequences of litigation, with a later amendment to add an additional ground that the 2nd Defendant is a nominal plaintiff for another person known as Mr Lau Thow-beng, also known as Mr Lau Chee-ming (“Mr Lau”).

5.  I therefore have to determine both the appeal and the Plaintiffs’ application for security for costs in today’s hearing. 

Background

6.  In order to determine who is the real attacker for the purpose of determining the application for security for costs, I need to set out the background of the case.

7.  According to the Affidavit filed by the 1st Defendant’s solicitor, Mr Michael Chik, dated 26 July 2010, a person known as Mr Lau delivered the Painting to the 1st Defendant for auction with another person known as Dr Mau Shing (“Dr Mau”) in August 2007.  According to the schedule of property issued by the 1st Defendant upon receiving the Painting from Mr Lau, Dr Mau was recorded as the consignor of the Painting.  For some unknown reason, Dr Mau subsequently instructed the 1st Defendant that he wished to transfer the ownership of the Painting to the second-named Plaintiff, Mr Try Nhuc Cuong (“Mr Try”) of Galerie New Star.  The 1st Defendant complied with the instruction.

8.  On 2 October 2007, Mr Try personally collected the Painting from the 1st Defendant.

9.  On 30 November 2007, Galerie New Star delivered and consigned the Painting to the 1st Defendant for auction again. 

10.  On 3 January 2008, the 2nd Defendant’s solicitors wrote to the 1st Defendant, claiming that the 2nd Defendant was the owner of the Painting and that the Painting was delivered to the 1st Defendant for auction in August 2007 by Mr Lau on her behalf.  After receiving the 2nd Defendant’s claim of ownership, the 1st Defendant then refused to release the Painting to any party before the conflicting ownership claims were resolved. 

The nature of the Plaintiffs’ claim

11.  According to the affirmation filed on behalf of the Plaintiffs, Mr Lau had been acting as the agent for the Plaintiffs to purchase artworks.  Whenever suitable piece of artwork was found, Mr Lau would ask for the purchase money to be paid either to himself, the 2nd Defendant, or the vendor art gallery.  After acquiring the artwork, Mr Lau would sometimes bring the artwork to Hong Kong for auction, and both Plaintiffs would then share the profit arising from the sale in equal shares.

12.  The Painting was offered by the seller, Galerie Patrice Trigano (“GPT”), to the Plaintiffs at a price of €60,000.  On 5 December 2006, Mr Lau sent a letter to the first-named Plaintiff, Mr Loy Thin Loy (“Mr Loy”).  Mr Lau asked him to remit to GPT a sum of €60,000 for the purchase of the Painting, and the Plaintiffs duly remitted the sum to GPT on 12 December 2006. 

13.  In August 2007, Mr Lau deposited the Painting with the 1st Defendant but purportedly on behalf of one Dr Mau.  Mr Try and Mr Loy discovered the same and then confronted Mr Lau.  According to the Plaintiffs, Mr Lau admitted his guilt and Dr Mau therefore gave instruction to the 1st Defendant for the transfer of the ownership of the Painting to Mr Try of Galerie New Star.

The nature of the 2nd Defendant’s claim

14.  Like that of the Plaintiffs’ claim, the 2nd Defendant claims that Mr Lau was his agent in purchasing the Painting for investment purpose.  In support of the claim, the 2nd Defendant produces an invoice issued by GPT about the sale of the Painting to her in February 2006 in the sum of €30,000.  She also produces a letter written by Mr Loy to GPT dated 5 July 2007, confirming the remittance of the sum of €60,000 for the purpose of buying another piece of artwork by the same artist.  According to the 2nd Defendant, she purchased the Painting with her own money with the assistance of a personal loan granted by a bank, and she also produces a record showing the remittance of the money she used for the purchase of the Painting.

15.  Mr Lau also made an affirmation in support of the 2nd Defendant’s claim.  He confirms that he had purchased the Painting from GPT on behalf of the 2nd Defendant.  He also produces a fax letter issued by the GPT dated 30 March 2010, confirming the sale of the Painting to the 2nd Defendant and that the remittance of €60,000 that the Plaintiffs made in December 2006 was for the purchase of another piece of artwork by the same artist.  As to why he had told the 1st Defendant that Dr Mau was the consignor of the Painting, Mr Lau explains that he had a dispute with Dr Mau and he was doing it under the threat from Dr Mau.

Who is the real attacker?

16.  In this application for security for costs, the court should not go into the details of the merits of the case.  Based on the evidence at this stage, I must say that it is very difficult for the court to decide who is telling the truth.

17.  According to the dicta of Ma J, as he then was, in Brand Farrar Buxbaum LLP v Samuel Ivan Rozenbaum Diamond Limited [2003] 1 HKLRD 600, in the context of interpleader proceedings, the court must look at the substance, try to analyse the issues and decide who essentially was the “attacker” or plaintiff. Sometimes, upon analysis, both claimants in an interpleader proceedings can be regarded as attackers, and in theory at least, either or both can be made to provide security for costs.  In this situation, whether the court does so will be a matter of discretion.

18.  As I see it, the only argument to support that the Plaintiffs are not the attackers is that Mr Try was the last person who handed the Painting to the 1st Defendant for custody.  However, upon my proper analysis of the case, the whole chain of events started when Mr Lau first handed the Painting to the 1st Defendant for auction in August 2007.  In this regard, I must say that the circumstances were most dubious.  Both the Plaintiffs and the 2nd Defendant were claiming that Mr Lau was acting on their behalf by that time, and it is very difficult for the court to tell who is telling the truth or whether there was a conspiracy of some sort against the opposite party.  There are weaknesses in both parties’ respective cases which are difficult to explain.  In such circumstances, I do not find that the Plaintiffs are any different from the 2nd Defendant simply because Mr Try was the last person who handed the Painting to the 1st Defendant. Unlike the Brand Farrar case where one of the parties was a judgment creditor and the other party was the apparent owner of the property in issue, the Plaintiffs and the 2nd Defendant are claiming in the same capacity.  They both claim that they had instructed Mr Lau as his agent to deal with the purchase of the artwork.  They both claim that they had provided the purchase money for the Painting.  The only difference is that Mr Lau at one stage stated that Dr Mau was the owner and later changed his words and stated that the 2nd Defendant was the owner.  Upon proper analysis of the facts of the case, I find that both parties are in substance the attackers for the purpose of the application for security for costs. 

19.  In the hearing, both parties are not seriously disputing the aforesaid analysis.  The difference then lies between the parties is whether the court should exercise the discretion to order security in such circumstances. 

Whether the court should exercise discretion to order security for costs?

20.  It is common ground that both Mr Loy and Mr Try are residents out of jurisdiction.  Prima facie, they should be ordered to provide security for the costs of the 2nd Defendant, and the issue is whether the court should exercise the discretion to do so.  I leave such question to be dealt with at a later stage.

21.  The Plaintiffs have also taken out the summons to ask for security for costs from the 2nd Defendant on the ground that the 2nd Defendant is only a nominal Plaintiff who is suing for the benefit of Mr Lau. 

22.  In this regard, I must say that there is no hard fact to prove such allegation, and both the 2nd Defendant and Mr Lau confirm that the former is the owner of the Painting.  However, there are some unsettling features in the present case.  Firstly, Mr Lau wrote in two letters dated 2 October 2007 and 9 October 2007, stating that he was the owner of the Painting.  Secondly, as the Plaintiffs have shown to the court that they had deposited money into the 2nd Defendant’s bank account upon the instruction of Mr Lau, the court has reason to believe that the 2nd Defendant had offered assistance to Mr Lau in the running of the latter’s business.  As I see it, the 2nd Defendant was a close business associate of Mr Lau.  Thirdly, the 2nd Defendant claims that she had instructed Mr Lau to put the Painting on auction in May 2006 so that she could use the proceeds of sale to pay for her mother’s medical expenses.  In such case, it is very hard to explain why Mr Lau only handed the Painting to the 1st Defendant for auction about 15 months later.  Fourthly, there are a lot of doubts in Mr Lau’s evidence.  As I see it, he was the person behind the scene pulling all the strings.  For instance, if GPT sold the Painting to the 2nd Defendant in February 2006, why did it offer the Painting for sale to Mr Loy again in December 2006?  Mr Lau also did not explain why he stated in the two letters mentioned above that he was the owner of the Painting.

23.  The circumstantial evidence shows that the relationships between GPT and Mr Lau and between Mr Lau and the 2nd Defendant were very close.  Coupled with the fact that Mr Lau is not an ordinary resident in Hong Kong and the 2nd Defendant is only a retired teacher with limited means, there are reasons for me to believe that the 2nd Defendant is only a nominal Plaintiff.

24.  However, can the court order the 2nd Defendant to pay security for costs based on such circumstantial evidence without the support of concrete fact?  If the court cannot order the 2nd Defendant to provide security in the absence of concrete fact, whether the court should take into account such factor in exercising the discretion not to order security for costs against the Plaintiffs?

25.  In the course of debating these issues, it becomes clear that the Plaintiffs are willing to provide security for costs on the condition that the 2nd Defendant is providing similar security for the Plaintiffs’ costs.  Further, the 2nd Defendant is eager to obtain security of some sort against the Plaintiffs, and in return she is also willing to provide similar security to the court. 

26.  By reason of such consensus, both parties agree to provide security for the opposite party’s costs in the form of an undertaking.  As a result, it is not necessary for the court to deal with the appeal and the Plaintiffs’ summons for security for costs.

27.  The court has indicated to the parties that there should not be further application for security for costs and the case should be set down for trial as soon as possible.  Both parties then agree, and in the case that the trial should take place before the end of this year (there is no reason why it should not be the case), the sum of $200,000 would be an adequate security to cover the opposite party’s costs up to the conclusion of the trial. 

28.  The order is therefore made accordingly.  To a large extent, this is a settlement between the parties relating to the appeal and the Plaintiffs’ application for security for costs, and so all the views that I have expressed above are purely academic.  However, I feel obliged to set out the aforesaid matters with a view to help someone who is not familiar with the case to understand how the hearing has resulted in the order I make today.  I also hope that the observations I made above can avoid some of the unnecessary complications in the latter part of these proceedings. 

Costs

29.  The only remaining issue is costs.  It is actually regrettable that both parties’ applications for security for costs could not be heard together before the learned Master.  As I have mentioned above, the two applications are relevant in the context of the interpleader proceedings, and they are very much inter-related.  Without dealing with both applications together, the learned Master did not have the whole picture before him in making the determination. In this regard, both parties should take some responsibility for the same.

30.  On the one hand, the Plaintiffs should take some responsibility for raising the argument about the nominal Plaintiff at such a late stage.  In fact, the Plaintiffs only applied for leave to amend the summons for security for costs to add such a new ground on 11 March 2011.  On the other hand, it has been quite clear from the outset that the Plaintiffs have all along been willing to provide security for costs on the condition that the 2nd Defendant also provides similar security for the Plaintiffs’ costs.  If the 2nd Defendant has agreed to provide the security at an earlier stage, today’s hearing can be avoided.  Taking into account all the circumstances of the case, a fair costs order should be that the costs of both applications for security for costs, including the appeal proceedings, be costs in the cause.  I therefore so order.