SUN YAN v. SUPERB JADE LTD AND OTHERS

HCA 813/2014

[2020] HKCFI 1770

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 813 OF 2014

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(by Original Action)

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(by Counterclaim)

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_____________________

DECISION

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1.  This is the paper application by way of summons dated 12 December 2019 (the “Further Security Summons”) taken out by the 1^st, 2^nd and 4^th Defendants in the Original Action (the “Defendants”) for further security for costs in the sum of $3,200,000.

2.  By another summons dated 13 July 2020 (the “Amendment Summons”), the Defendants apply to amend the Further Security Summons to increase the amount of security to $5,514.825.

3.  The hearing fixed on 22 July 2020 for the substantive argument of these two summonses was vacated due to the serious condition of the COVID-19 pandemic in recent days.  The court has directed for the summonses to be disposed of by paper, to which the parties have no objection.

4.  Earlier in the proceedings, the Defendants had already applied for security for costs up to trial in the amount of $4,900,000.  On 10 July 2018, the Plaintiff in the Original Action (the “Plaintiff”) paid into court a security of $3,000,000 pursuant to the order of Master Thomas Leung (the “Master”) dated 13 June 2018.

5.  The relevant legal principles for further security for costs are not in dispute and have been summarised by L Wong J in Hing Yip Holdings (Hong Kong) Ltd (in liquidation) v Cellmark China Ltd (formerly known as Pechinery Far East Ltd.[1]

6.  According to the Defendants, the Further Security Summons is occasioned by the Plaintiff’s introductions of new pleadings, witness statements and evidence since July 2019, which have increased the length of the trial from 12 to 20 days, put a different complexion to the case, and constitute a material change of circumstances which warrant further security to be ordered.  Since the Defendants issued the Further Security Summons, the Plaintiff has taken out another application to adduce a lengthy witness statement by the Plaintiff’s son.  According to the Defendants, this new witness statement, if allowed, would further change the complexion of the Plaintiff’s case and result in more work to be done by the Defendants in response thereto.  The Defendants therefore took out the Amendment Summons to increase the amount of security to be provided.

7.  In the Plaintiff’s Timetabling Questionnaire dated 11 June 2018, the Plaintiff’s solicitors confirmed, inter alia, that:

(i)  the Plaintiff would not amend his pleadings;

(ii)  he did not intend to serve any supplemental list of documents;

(iii)  he had already filed all the witness statements;

(iv)  he did not intend to make any further interlocutory applications; and

(v)  he would request for trial date to be fixed at the forthcoming CMC.

8.  The Defendants’ initial application for security for costs was heard by the Master on 13 June 2018.  Upon hearing the parties’ arguments and considering, inter alia, the said Timetabling Questionnaire, the Master allowed the application and ordered the Plaintiff to pay $3,000,000 into court as security for the Defendants’ costs up to and including trial.

9.  Thereafter, since July 2019, the Plaintiff has taken the following procedural steps:

(i)  On 3 July 2019, the Plaintiff issued a summons for leave to file: (a) the Re-Amended Statement of Claim (“RASOC”); (b) the Plaintiff’s supplemental witness statement; (c) the witness statement of a new witness Guo Bingjie.  This summons was allowed by the court in the CMC on 9 July 2019.

(ii)  On 18 November 2019, the Plaintiff issued a summons to strike out certain parts of the witness statements of the 2^nd and 4^th Defendants, which is now pending for substantive argument.

(iii)  On 13 December 2019, the Plaintiff issued a further summons to adduce the witness statement of another new witness, Sun Zhibing, which is now pending for substantive argument.

(iv)  At the CMC on 15 July 2019, the Plaintiff’s counsel indicated that 2 more summonses would be issued: (a) for leave to file the 2^nd supplemental witness statement of the Plaintiff; (b) to strike out part of the 2^nd Defendant’s supplemental witness statement.

10.  According to the Defendants, the amendments in the RASOC introduce a new pleaded case by claiming, for the first time, that:

(i)  the Plaintiff was and is the sole beneficial owner of the 1^st Defendant’s shares;

(ii)  the 2^nd Defendants not only holds the 1^st Defendant’s assets, but also the 1^st Defendant’s shares, on trust for the Plaintiff;

(iii)  all the set-up costs of the 1^st Defendant were paid by the Plaintiff; and

(iv)  the 2^nd Defendant used the overdraft facilities of the 1^st Defendant at its Zhongnan Securities Account without the Plaintiff’s prior knowledge or approval.

11.  In order to substantiate the Plaintiff’s new pleaded case, he has to: (i) adduce the Plaintiff’s supplemental witness statement which runs for 64 pages and the witness statement of Guo Bingjie; and (ii) seek the leave of the court to adduce 2 more new witness statements including the witness statement of Sun Zhibing and the 2^nd supplemental witness statement of the Plaintiff.

12.  In my judgment, all these new developments initiated by the Plaintiff constitute a material change of circumstances which substantially increase the Defendants’ costs exposure in the Original Action. I accept the submission of Ms Seto, counsel for the Defendants, that additional work, including investigation of the Plaintiff’s new claims, discovery of documents and preparation of amended pleadings and supplemental witness statements, has been and would have to be done by the Defendants to meet the new pleaded case and evidence adduced by the Plaintiff.   Under such circumstances, an order for further security should be made to protect the Defendants’ exposure for the additional costs.

13.  This is not a case about underestimation of costs by the Defendants.  The Defendants’ estimate could only be made based on the materials adduced by the Plaintiff at the relevant times and the indications made by the Plaintiff regarding the conduct of the case as stated in the Listing Questionnaires.  If there are further steps to be taken by the Plaintiff which would increase, to a significant extent, the Defendants’ exposure for costs, then the basis for the making of the original order for security for costs has been changed, and so the court should consider ordering additional security for costs.

14.  The estimated length of the trial of 20 days was made in the CMC on 9 July 2019.  That estimate was made after the court granted the order allowing the amendment of pleading and the filing of additional witness statements pursuant to the Plaintiff’s summons filed on 3 July 2019.[2] Hence, the time estimate was revised after considering the latest steps taken by the Plaintiff.

15.  Mr Lo, counsel for the Plaintiff, seeks to argue that the amendments in the RASOC are only technical in nature.  Further, there are no new materials in the new witness statements, and so the filing of these witness statements should not amount to a material change of circumstances.

16.  I disagree.  At this stage, I do not propose to analyse the nature of the Plaintiff’s claim in great details.  It suffices for me to say that the time estimate of the trial had been revised upwards on 9 July 2019 to take into account the new amendments in the RASOC.  Further, witness statements of substantial length have been filed or sought to be filed after July 2019.  It certainly goes beyond some normal additional works that the court may expect the parties to accept as ordinary risks of litigation. After all, the parties’ indications as stated in the Listing Questionnaires as to the future conduct of the case provide the basis as to how much security for costs has to be ordered by the court in a particular case.

17.  Parties have referred me to different decided cases. However, every case would have to be determined according to its own facts, and so apart from the general principles set out in Hing Yip Holdings (Hong Kong) Ltd (in liquidation) v Cellmark China Ltd (formerly known as Pechinery Far East Ltd[3], these cases are of limited assistance.

18.  I then turn to quantum of the further security for costs.  Since the Plaintiff has taken other procedural steps after the Further Security Summons, I allow the Amendment Summons.  However, it does not make a great difference in the end result.

19.  The Defendants claim additional security for costs in the sum of $5,514,815, which far exceeds the original sum of $3,000,000 ordered by the court for the Defendants’ costs up to and including trial.

20.  I agree with the observation of Mr Lo that the Defendants are seeking for complete indemnity for their costs, which the court would not allow in such kind of application.  Further, the steps taken by the Plaintiff since July 2019 do not justify the substantial increase in counsel’s fees as stated in the Amended Bill of Cost.  According to Mr Lo, there should be substantial discount to the amount claimed, and according to his calculation, the amount of additional security should be in the region of $1,800,000.

21.  The court can only adopt a broad-brush approach in determining the quantum of the additional security.  Taking into account: (i) the original sum of $3,000,000 ordered by the court; (ii) the amount of the additional work; and (iii) sufficient and not complete security should be ordered by the court, I take the view that the appropriate amount of the additional security should be $1,800,000.  I therefore so order, and such further security shall be paid into court within 28 days.  I also make an order in terms of paragraph 2 of the Further Security Summons as amended.

22.  I make a costs order nisi that the Plaintiff shall pay the Defendants half of the costs of the Further Security Summons and the Amendment Summons, which shall be made absolute 14 days after the date of the handing down of this Decision.