CHINACAST EDUCATION CORPORATION AND OTHERS v. CHAN TZE NGON AND OTHERS

HCA 1062/2012

[2019] HKCFI 1711

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1062 OF 2012

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DECISION

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Relevant procedural background

1.  On 19 June 2012, the plaintiffs obtained an ex parte Mareva injunction (“Injunction”) against the 1^st to 4^th defendants[1]upon its cross-undertaking that if the court later found that the Injunction has caused loss to the defendants or any other party and decided that they should be compensated for that loss, the plaintiffs will comply with any order the court may make (“Damages Undertaking”).

2.  On 11 November 2013, the Injunction was continued against the 3^rddefendant until the conclusion of trial or further order save that the 3^rd defendant was allowed to withdraw HK$2 million for business expenditure and the plaintiffs were ordered to fortify the Damages Undertaking, which they did by making a payment of HK$3 million into court on 2 January 2014.

3.  On 31 July 2017, after trial, Deputy High Court Judge Kent Yee handed down judgment (“Judgment”) which, inter alia:

(1)   dismissed all the plaintiffs’ claims against the 3^rd defendant;

(2)   discharged the Injunction forthwith;

(3)   entered judgment for the 3^rd defendant on his counterclaim for HK$495,000 less RMB 25,000 for outstanding remuneration; and

(4)   dismissed the 3^rd defendant’s counterclaim for damages for his alleged loss and damage caused by the Injunction.

4.  On 15 September 2017, the plaintiffs applied to renew the Injunction against the 3^rd Defendant pending their intended appeal against the Judgment. On 19 September 2017, DHCJ Kent Yee dismissed such application but, to maintain the status quo, granted an interim renewal of the Injunction until the determination of the plaintiffs’ renewed application to the Court of Appeal which was to be made within 21 days, failing which the renewed Injunction would cease to have effect.

5.  On 27 September 2017, DHCJ Yee further dealt with the parties’ following applications as follows:

(1)   the plaintiffs’ application by the summons filed on 7 August 2017 for payment out of the HK$3 million paid into court as fortification of the Damages Undertaking, which was dismissed, presumably upon the 3^rd defendant’s oral application for an inquiry as to damages as a result of the Injunction against him (“Damages Application”);

(2)   the plaintiffs’ oral application for the cessation of the interim renewal of the Injunction against the 3^rd defendant upon the plaintiffs’ abandonment of their intended appeal against the Judgment, which was granted whereupon the Injunction was discharged; and

(3)   the 3^rddefendant’s oral Damages Application, in respect of which DHCJ Yee gave directions for the filing and service by the 3^rd defendant and the plaintiffs of their respective evidence in support of / opposition to the Damages Application and for a pre-trial review (“PTR”) of the Damages Application before a master in chambers on a date to be fixed.

6.  The PTR of the Damages Application came before Master M Wong (“Master”) on 8 February2018 and 23 April 2018.  Insofar as it is material, at the latter PTR, the Master ordered, inter alia, that the Damages Application be heard on a date to be fixed and that the 3^rd defendant’s 10^th affirmation dated 19 October 2017, the 20^thaffidavit of Douglas Nelson Woodrum dated 21 November 2017 and the 3^rddefendant’s 11^thaffirmation dated 11 December 2017 do stand as the parties’ evidence.

7.  When the Injunction was first obtained against the 3^rd Defendant, the only valuable assets that he had were credit balances in various bank and securities accounts owned and controlled by him amounting to just over HK$15 million, part of which came from the proceeds of sale of his shares in the 1^st plaintiff (US$990,000) in 2009 and 2010 and of his property in Hong Kong at Kornhill (about HK$5 million) in September 2011.

8.  Pursuant to the exceptions of the Injunction as initially granted and as continued, as at 27 September 2017 (i.e. the date on which the Injunction finally ceased to have effect against the 3^rd defendant), the 3^rd defendant had withdrawn sums totalling HK$7.65 million from his said accounts for his personal, business and legal expenses.

9.  The 3^rd defendant’s claim for damages under the Damages Undertaking before the Master was premised upon his having suffered loss in sums totalling HK$7,290,000 in consequence of his having been prevented by the Injunction him from (1) purchasing a property in Hong Kong, in particular, Flat 1404, Block B, Kornhill or Flat 808, Block H, Kornhill which he had viewed on 16 September 2012 in the hope that the Injunction would be discharged at the hearing on 27 November 2012[2]; (2) buying a property in Beijing where he was living and where he was actively looking for a property in the price range of RMB 5 million to RMB 6 million; and/or (3) obtaining a reasonable return at say 8% per annum on the sums restrained.  

10.  The hearing of the Damages Application took place on 16 August 2018 in open court before the Master who dismissed the same with costs to the plaintiffs (“Master’s Order”) by a decision handed down on 12 October 2018.

11.  More particularly, the Master held as follows:

(1)   At [38]: An undertaking in damages is given to the court, not to the party enjoined.  The party enjoined therefore cannot ask the court to enforce the undertaking as of right.  The court is not bound to enforce the undertaking save “under special circumstances” as suggested by the 3^rd defendant.  Rather, the court has absolute and unfettered discretion to decide whether to enforce the undertaking or not.

(2)   At [34] and [40]: Hence, on an application to enforce an undertaking as to damages, the court has to consider 2 separate questions:

(a) First, should the court, as a matter of discretion, order that the undertaking be enforced?

(b) Second, if so, what loss has the defendant suffered in terms of money, was it caused by the injunction and was it too remote?

(3)   At [41]: On the first question, although the court is likely to enforce the undertaking when the injunction should not have been granted, an inquiry as to damages should not be ordered unless there is at least some reasonably arguable case that the injunction has caused the complaining party some loss or damage for which compensation ought to be paid.

(4)   At [42]: The 3^rd defendant has not established a reasonably arguable case for any of the losses allegedly suffered by him.

(5)   At [64]: In view of the lack of cogency of the 3^rd defendant’s evidence on his alleged loss, the court should not exercise its discretion to enforce the Damages Undertaking by ordering an inquiry as to damages.

(6)   At [65]-[66]: Even if there should be inquiry as to damages, for the same reasons, the 3^rd defendant’s loss would be assessed at nil.

12.  By a notice of appeal dated 25 October 2018, the3^rd defendant appealed against the Master’s Order (“CFI Appeal”) to a judge of the Court of First Instance (“CFI”) in chambers under Order 58, rule 1 of the Rules of the High Court (Cap 4A) (“RHC”) and prayed that the Damage Application be allowed, with assessment of the plaintiffs’ liability under the Damages Undertaking at HK$3,160,000 or HK$2,890,000[3].

13.  The CFI Appeal was heard in chambers on 5 March 2019 by Deputy High Court Judge Sakhrani who dismissed the same with costs to the plaintiffs (“Judge’s Order”) at the end of the hearing on jurisdictional ground and handed down written Reasons for Decision on 27 March 2019[4].

14.  More particularly, DHCJ Sakhrani agreed with the plaintiffs that the proceedings before the Master on 16 August 2018 was an assessment of the damages allegedly suffered by the 3^rd defendant as a result of the Injunction pursuant to the Damages Undertaking and, as such, comes within the expression “or otherwise”[5] in Order 58, rule 2(b)[6] of the RHC so that an appeal should lie to the Court of Appeal (“CA”) and not to a judge of the CFI in chambers under Order 58, rule 1.

15.  Before DHCJ Sakhrani handed down his Reasons for Decision on 27 March 2019, the 3^rd defendant had, on 19 March 2019, filed and served a summons applying for leave to appeal to the CA against the Judge’s dismissal of the CFI Appeal (“Leave to Appeal Application”) “out of an abundance of caution”.

16.  Then, on 1 April 2019, the 3^rd defendant filed and served a notice of appeal under CACV 162/2019 to appeal against the Judge’s Order to the CA (“CA Appeal”).

17.  To complete the procedural history, in the meantime, on 15 October 2018, the plaintiffs again applied for payment out of the HK$3 million paid into court by them as fortification of the Damages Undertaking (“Payment Out Application”) on the basis that the purpose of the payment has become spent upon the dismissal of Damages Application. On the other hand, on 18 October 2018, the 3^rd defendant also made a cross-application for payment out of the said HK$3 million or part thereof to him on the account of, inter alia, the unpaid judgment sum (HK$495,000 less RMB 25,000), a number of taxed costs orders and the untaxed costs of the entire action in his favour (“Cross Payment Out Application”).  

18.  On 2 April 2019, the Payment Out Application and the Cross Payment Out Application came before Master Kot. In opposition to the Payment Out Application, the 3^rd defendant relied upon the pending CA Appeal as one of the grounds for resisting payment out to the plaintiffs. According to the 3^rd defendant, counsel for the plaintiffs then argued that the 3^rd defendant’s opposition to the Payment Out Application was tantamount to a stay of execution for which the 3^rd defendant had not applied. In such circumstances, the 3^rd defendant undertook to apply for stay of execution of the Judge’s Order within 14 days and the plaintiffs agreed to an adjournment upon that undertaking. The master therefore adjourned both applications sine die with liberty to restore upon an undertaking by the 3^rd defendant that “he will take out the application for stay of proceedings from the Court of Appeal within 14 days”. I note that the undertaking as described by the 3^rd defendant is not the same in terms as that recorded in the preamble of the sealed order dated 2 April 2019.  However, nothing material turns on such difference.

Application before the court

19.  Against the aforesaid procedural background, before the court now is the 3^rd defendant’s application by summons dated 16 April 2019 for

(1)   stay of execution of the Judge’s Order and the Master’s Order (“Stay Application”); and

(2)   leave to withdraw the Leave to Appeal Application (“Withdrawal Application”).

20.  The plaintiffs do not oppose the Withdrawal Application provided that they be granted costs.

Stay Application misconceived

21.  The Stay Applicaton can be disposed of very shortly.  Although not spelled out in the summons, it appears from the supporting 6^th affirmation of Fred Lee (solicitor for the 3^rd defendant) dated 16 April 2019 that the stay of execution sought by the 3^rd defendant is pending the CA Appeal.

22.  However, the Master’s Order dismissed the Damages Application by the 3^rd defendant.  The Judge’s Order dismissed the CFI Appeal (i.e. the 3^rd defendant’s appeal against the Master’s Order).  Neither of these decisions entails any order (save as to costs) in respect of which the plaintiffs may have to take any enforcement or execution step in order to enjoy the fruits of their success thereunder.  There is nothing to be stayed.  See Joseph Ghossoub v Team V&R Holdings Hong Kong Ltd, HCMP 1074/2015, unreported, 28 October 2016, per Deputy High Court Judge Le Pichon at [24].

23.  The Stay Application is simply misconceived.  The misconception lies in the erroneous view that the 3^rd defendant’s opposition to the Payment Out Application on the ground of the pendency of the CA Appeal is somehow tantamount to a stay of execution pending the CA Appeal.

24.  Wear Me Apparel LLC v Lam Na, HCA 149/2009, unreported, 25 April 2013, cited by the 3^rd defendant, does not on a close look support such view. In that case, the plaintiff did obtain final judgment against the defendant after trial for repayment of a loan in the sum of US$800,000.  The defendant appealed against the judgment to the CA and applied for a stay of execution pending appeal. A stay was granted on condition that the defendant paid into court the judgment sum.  In compliance with such condition, the defendant paid into court US$800,000. The CA dismissed the defendant’s appeal. The plaintiff then applied for payment out of the said sum of US$800,000. The defendant, who enjoyed the right to appeal “as of right” to the Court of Final Appeal (“CFA”) pursuant to the since repealed s 22(1)(a) of the Hong Kong Court of Final Appeal Ordinance (Cap 484) and who had given notice to her intention to appeal to the CFA, had filed and served an affirmation asking for the adjournment of the plaintiff’s application for payment out sine die pending conclusion of her forthcoming application for leave to appeal to the CFA.

25.  Au-Yeung J analysed that an adjournment, if granted, would effectively stay the execution of the judgment for the plaintiff. Section 26(1) of the Hong Kong Court of Final Appeal Ordinance is the only source of power to grant a stay of execution pending an appeal to the CFA. It vests such power in the CA and the CFA. The CFI cannot somehow confer on itself the power to effectively stay execution of a judgment by acceding to a request by the losing party to adjourn the successful party’s application for payment out of the judgment sum paid into court by the losing party to secure an earlier stay of execution on the ground that there is a pending further appeal to the CFA.

26.  Wear Me Apparel LLC v Lam Na is clearly distinguishable. In that case, there was indeed a monetary judgment in the plaintiff’s favour.  The monies in court the payment out of which was sought to be delayed by the defendant until the conclusion of her pending application for leave to appeal to the CFA was in the first place paid into court by the defendant to secure an earlier stay of execution of the plaintiff’s judgment while the defendant appealed against the same to the CA. The plaintiff applied for payment out of such monies in court in enforcement or execution of its judgment. In those circumstances, granting the adjournment sought by the defendant would of course be tantamount to granting a further stay of execution of the judgment for the plaintiff.

27.  On proper analysis, the present case involves the reverse situation.

(1)   First, the plaintiffs have not obtained any judgment, monetary or otherwise[7], against the 3^rd defendant at all.

(2)   Therefore, logically, the 3^rd defendant’s opposition to the Payment Out Application can have nothing to do with the enforcement/execution of any judgment for the plaintiffs.

(3)   Second, the HK$3 million was into court by the plaintiffs themselves. The purpose of such payment into court is to fortify the Damages Undertaking, i.e. to secure any order that the court may subsequently make that the plaintiffs should compensate the 3^rd defendant for the loss caused to him by the Injunction.

(4)   In seeking an adjournment of the Payment Out Application until the conclusion of the CA Appeal, the 3^rd defendant is in fact asking the court to continue to keep the HK$3 million in court as security for the judgment that the 3^rd defendant himself hopes to eventually obtain under the Damages Undertaking upon a successful CA Appeal.

28.  So analysed, instead of making the misconceived Stay Application, the parties should have argued the 3^rd defendant’s application for an adjournment until the conclusion of the CA Appeal at the hearing of the Payment Out Application on 2 April 2019.

29.  It therefore remains for the parties to restore the hearing of the Payment Out Application before a master.

30.  In this regard, under Order 22A, rule 1(1) of the RHC:

“…, any money paid into court in an action (whether or not in accordance with Order 22) may not be paid out except in pursuance of an order of the Court which may be made at any time before, at or after the trial or hearing of the action.”

31.  As stated by Au-Yeung J at [9] in Wear Me Apparel LLC v Lam Na, supra, this rule gives wide powers to the court not to order a payment out, which powers are of course to be exercised judiciously, taking into account only matters that can be legitimately considered.  

32.  In the instant case, based on the analysis set out in paragraph 27(3) and (4) above, one would have thought a material consideration is the purpose intended to be served by the payment into court by the plaintiffs.  

33.  And one of the questions raised by the 3^rd defendant’s application for an adjournment grounded upon his pending CA Appeal appears to me to be whether the need for fortification of the Damages Undertaking became spent once the Damages Application by the 3^rd defendant pursuant to the Damages Undertaking was rejected by the Master or once the CFI Appeal was dismissed by the Judge or remains live because of the 3^rd defendant’s pending CA Appeal against the Judge’s Order. It is not appropriate for me to comment any further.

Disposition

34.  For the above reasons, I dismiss the Stay Application with costs to the plaintiffs. In awarding costs to the plaintiffs, I have not overlooked the 3^rd defendant’s statement that it was counsel for the plaintiffs who first raised before Master Kot at the hearing on 2 April 2019 that the 3^rd defendant’s opposition to the Payment Out Application was tantamount to a stay of execution which the 3^rd defendant should have applied for first. However, those acting for the 3^rd defendant did not have to go along with such erroneous suggestion. They should have exercised independent professional judgment and realised the fallacy of such contention by the plaintiffs. Indeed, the plaintiffs’ solicitors have by their 2^nd letter dated 18 April 2019 to the 3^rd defendant’s solicitors pointed out the absurdity of the Stay Application.

35.  The Withdrawal Application is allowed with costs to the plaintiffs.

36.  The plaintiffs have filed and served a statement of costs in the total amount of HK$60,956 for summary assessment under Order 62, rule 9A pursuant to paragraph 7 of the directions given by Au-Yeung J by letter dated 23 May 2019. I now summarily assess the plaintiffs’ costs under the preceding 2 paragraphs at HK$50,000, to be paid within 14 days by the 3^rd defendant.