LIN MING v. CHEN SHU QUAN AND ANOTHER

HCMP 1631/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1631 OF 2011

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DECISION

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The applications

1.  On 18 July 2012, Master Kwang made an order that the plaintiff pay security for costs for the sum of $400,000, which the plaintiff had complied with.  In the order, there is provision for liberty to apply for further security for costs if necessary.  The 1^st defendant now applies to the court for further security for costs of $3,825,292 including the costs for the trial.  The plaintiff opposes this application.

2.  Mr. C. Leung, counsel acts for the plaintiff and Ms. Ma, solicitor acts for the 1^st defendant.

The facts

3.  The facts of this matter are briefly summarized in Mr. Leung’s written submissions §§10-16:

“10. P owned a PRC enterprise known as Fujian Yuansheng Foods Industry Co. Ltd (“Yuansheng”) directly through a Hong Kong company known as Jointa Limited (“Jointa”) which is D2 in this action. P indirectly held D2 through other companies which P was the sole owner of those companies. As on 31^st December 2009, the undistributed profit of Yuansheng is RMB160,713,487.16. [A/247/3]

11.  P is the sole director of D2 since 10 January 2007. [A/247/4]

12.  On 22^nd October 2009, P was suddenly arrested and detained by the Mainland authorities. [A/248/8]

13. On 16^th November 2009, when P was still under detention, D1 instructed a PRC lawyer to visit P at the detention centre and asked P to sign certain documents which were written in English and which P believes, after he was release, to be including:- [A/13-15][A/27/4-7]

(a) an undated written resolution of Jointa purporting to appoint D1 as the director of Jointa and accepting the P’s resignation from his directorship in Jointa; and

(b) an undated resignation letter purported to be the P’s notice of resignation from his directorship in Jointa.

14.  P’s claim is that he had no intention to resign from his directorship in Jointa and not intention to appoint D1 as Jointa’s director.  But relying on the representation of the D1 that the documents were for progressing with a listing plan, P signed on the said documents. [A/27/5]

15.  On 24^th December 2009, a form D2A was filed with the Companies Registry showing that P had resigned from his directorship in Jointa on 17^th July 2009 and D1 was appointed as the director of Jointa on 17^th July 2009. [A/2/2]

16.  Therefore, P is now seeking the restoration of his directorship in this Action. ”

The 1^st defendant’s application for leave to adduce evidence in the 4^th affirmation of Ip Woon Shun

4.  I shall, first of all, deal with the 1^st defendant’s application for leave to serve the 4^th affirmation of Ip Woon Shun dated 4 March 2013.  Mr. Leung confirms that he has no objection to Mr. Ip’s 4^th affirmation to be adduced as evidence.  It is admitted as evidence and the costs for the application, as agreed, are to be paid by the 1^st defendant to the plaintiff, assessed at $800 within 14 days from the date hereof.

Discussion on grounds of objection

5.  I shall now deal with each of the plaintiff’s grounds of objection.

6.  Mr. Leung says that the 1^st defendant’s counterclaim against the plaintiff is on the same issue as the plaintiff pleaded in his statement of claim, so relying upon Success Wise Limited v Dynamic (BVI) Limited HCA 1463/2004 (Unreported), Recorder B. Yu SC, he submits that it is unfair to demand the plaintiff to pay the security for costs.

7.  Having considered the Defence and Counterclaim, it appears that the Counterclaim repeats the same issue in the Defence.  I reject Mr. Leung’s submission.  In Lai Jiang Ping v. Liu Zhu Ping HCA 407/2012, 13 March 2013, Deputy Judge Le Pichon said, referring to the Crabtree case, which was relied upon by the learned Recorder Yu in the Success Wise Limited case “I do not consider that Bingham and Parker LJJ were laying down any firm rule that where there is an overlapping of issues (which would almost inevitably occur in every case where the counterclaim does not arise from a distinct matter), it would generally be inappropriate to order security. Rather, their remarks were directed at the particular case before them… …where it would be ‘fair and just’ for an order for security to be made against the plaintiff even though the defendant is himself counterclaiming.”  See paragraphs 13 and 14.

8.  Mr. Leung submits that the plaintiff’s poor financial situation is due to the 1^st defendant’s conduct, details of which he has set out in his written submissions §§22-24:

“22. P used to own enterprise worthy of more than 1 billion. The heart of the present case was after P resigned from D2 and the appointment of D1, everything owned by P was gone.

23.    P’s shares in Win Power (Parent Company of D2) was transferred to D1 at the consideration of HK$5,000,000.  However, no payment was made. [A/250/13]

24.    The impecuniosity of P was not caused by other factors, but rather, it is caused by the removal of the directorship he used to have as well as the refusal of payment by D1.  Therefore, P’s genuine claim should not be stifled.”

9.  Throughout the pleadings, the plaintiff had never made any allegations against the 1^st defendant’s conduct that led to his arrest or his removal of directorship from the 2^nd defendant.  Those allegations mentioned above are not supported by the facts pleaded in the pleadings.  I reject this ground.

10.  Mr. Leung further says that there had not been substantial change in the circumstances since Master Kwang’s order for $400,000 security for costs up to the stage of setting down for trial.  He also complains that it is too early for the 1^st defendant to apply for further security for costs.  However, he admits that there had been amendments to the statement of claim and the defence.  Such amendments will, no doubt, incur costs for the preparation for the trial.  Ms. Ma submits that there had been application by the plaintiff for summary judgment, which failed and the court had ordered the plaintiff to pay $100,000 as costs to the 1^st defendant.  There is another sum of $148,000, which are the costs for the application for security for costs by the 1^st defendant before Master Kwang.  Both sums had been paid out of the $400,000 originally held by the court; the balance is $152,000.

11.  The 1^st defendant is entitled to apply for further security for costs.

12.  Mr. Leung also argues that the plaintiff has already disclosed all his assets to show his impecuniosity.  The matrimonial home and the office of the commercial building owned by his wife have been mortgaged to the bank.  It will be unreasonable to ask the plaintiff to show further on these properties.

13.  Ms. Ma submits that in Sunil Khemaney v Vijay Khemaney, P was an ordinarily resident in the US and the defendant applied for an order that the plaintiff provide security for defendant’s costs.  P contended that order for security for costs would stifle hisclaim.  The Court held “The 1st Plaintiff deposed that he could not locate any financial assistance.  In this respect, it suffices for me to say that: by answering the Defendant’s queries that he should have sought assistance from the 2nd Plaintiff and Hindu religions organization does not advance the 1st Plaintiff’s case as it is for the 1st Plaintiff to satisfy this Court that he has tried his best endeavours to look for assistance from other backers or interested parties within his knowledge.”  Paragraph 17 of the Decision by Master J. Wong.  I should make a note that Ms. Ma’s written submissions have not cited the reference of the Decision and she has not set out the correct facts and findings of the Master.  It is unhelpful to make such reference in her written submissions in this manner.

14.  The plaintiff, in order to assist the court to exercise its discretion, has the burden to show to this court his means of providing security for costs once he is found to be under an obligation to do so under Order 23 rule 1 of the RHC.  Mr. Leung admits that the plaintiff has not made full disclosure of all his assets such as the valuation of the matrimonial home and the valuation of his wife’s office in a commercial building.  Simply to say that the matrimonial home and the office have been mortgaged to the bank does not assist the court and he fails to discharge his burden under the law.  Ms. Ma further submits in her written submissions at §33 that apart from the matrimonial home, his wife is the owner of the office of a commercial building, which was valued at not less than 40 million RMB in 2010, which Mr. Leung has not disputed.  There is no information as to how much the matrimonial property or the office has been mortgaged to the bank.  On this issue alone, the plaintiff can be shown to have failed to make full disclosure of his assets, which will not assist him in his resistance to the 1^st defendant’s application.

15.  Finally, Mr. Leung argues on the quantum, which he complains that the proposed amount is excessive.  It is well known that the Court in assessing quantum for security for costs adopts a “broad brush approach” and should not condescend to a line by line evaluation of the skeleton bill: Daimler Chrysler Services China Ltd. v. Harbour Union Investments Ltd., HCCL 34/2002, (7 May 2004) at § 32.

16.  However, Ms. Ma is unable to explain to me today why in the first application for security for costs, the 1^st defendant had only asked for security up to the stage of setting down whereas on this occasion, he asks for security covering the trial as well.  Those reasons given in her written submissions are not sufficient to explain this situation.  They can only explain to me that the plaintiff is a litigious person, taking interlocutory applications unnecessarily and to appeal as well.  I can say that without any good reasons to support the 1^st defendant’s application to cover the costs for the trial, I will top up the security up to the stage of setting down only.

17.  Having considered the skeleton bill of costs at page 81-85 of the bundle, I consider that the estimated counsel’s fees are excessive.  I am informed that the present proceedings have come to the stage of close of the pleadings.

18.  In conclusion, I order the plaintiff to make further payment into court as security for costs for the amount of $200,000, which has taken into account of the possibility of settlement through mediation and up to the stage of setting down only, with liberty to apply for further security for costs, if required.

19.  The costs of this application should be given to the 1^st defendant summarily assessed under Order 62 rule 9A at $80,000, which include the costs reserved and for today’s hearing for 2.5 hours.

20.  I shall now make an order in terms as follows:

a.  The plaintiff shall, within 14 days from the date hereof, make a further payment of $200,000 as security for costs of this action up to the stage of setting down for trial and with liberty to apply for further security for costs and all costs incurred for the interlocutory applications may be paid out from the security;

b.  All further proceedings before the payment into Court for further security for costs shall be stayed except for the payment in for security for costs;

c.   If the plaintiff fails to make the payment in for further security for costs under paragraph a. hereof, the plaintiff’s statement of claim shall be struck out and his action be dismissed accordingly, with costs to the 1^st defendant to be  taxed, if not agreed;

d.  The costs of this application, including all costs reserved and for this hearing today, be to the 1^st defendant, summarily assessed at $80,000, subject to a set off of $800 costs to the plaintiff, to be paid by the plaintiff within 14 days from the date hereof.