ERIC EDWARD HOTUNG AND ANOTHER v. HO YUEN KI AND OTHERS

HCA 857/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 857 OF 2011

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D E C I S I O N
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Background

1.  There are 3 separate summonses all dated 16 December 2015 heard together before me.  They are taken out by the 1^st, 2^nd and 3^rd defendants respectively to seek further security for costs against the 1^st and 2^nd plaintiffs for the trial of the action which has been fixed for 17 days commencing on 23 May 2016.

2.  All 3 defendants had previously obtained security for costs against the plaintiffs.  On 13 December 2013, after a contested hearing, Registrar Lung found that the 1^st plaintiff was ordinarily resident out of the jurisdiction, and as the 2^nd plaintiff was admittedly a foreign company, he ordered the 1^st and 2^nd plaintiffs to provide security for the 3^rd defendant’s costs in the sum of $600,000.00.  Without appealing against Registrar’s Lung’s order, the plaintiffs then agreed with the 1^st and 2^nd defendants to provide each of them the same amount of $600,000.00 as security for costs and the matters were dealt with by way of consent orders made on 13 February 2014 and 12 March 2014 respectively.

3.  The 1^st to 3^rd defendants contend that the previous securities provided by the plaintiffs are not sufficient to cover the defendants’ costs up to the trial, and hence ask for further security in the sums of $10,000,000.00, $5,185,000.00 and 6,850,000.00 respectively.

4.  The plaintiffs oppose the applications on the ground that there has been a material change of circumstances, namely the 1^st plaintiff has by the time of the defendants’ applications in December 2015 (2 years after Registrar Lung’s order) been ordinarily resident within the jurisdiction.  Thus, there is no legal basis for seeking security for costs against the 1^st plaintiff.  As to the 2^nd plaintiff, since the ordinary rule of practice is that no order for security for costs will be made if there is a co-plaintiff resident within the jurisdiction (see paragraph 23/3/5 of Hong Kong Civil Procedure 2016, Volume 1), the 2^nd plaintiff should not be ordered to provide security for costs either.

5.  The plaintiffs also contend that there has been a long delay for the defendants to make the present applications, and that the amounts of security requested by the defendants are grossly inflated and should be assessed on a party-and-party basis.  The 1^st to 3^rd defendants’ respective defences are largely the same or at least substantially overlapped, and as a matter of good case management, they should not be allowed to duplicate work unnecessarily.  The 2^nd and 3^rd defendants have filed a single Defence.  There is no good reason why they should now have separate legal representation.  The plaintiffs should not be required to bear such unnecessary consequence.  The estimated length of trial of 17 days is too generous as there are only 4 witnesses.

6.  There are two preliminary issues raised by the defendants.  The first one is in respect of the 1^st plaintiff’s affidavit.  The 3^rd defendant contends that it is defective because the jurat does not follow immediately after the end of the text on the same page but on a fresh page.

7.  The second issue arises out of the consent orders made by the plaintiffs with the 1^st and 2^nd defendants.  The 1^stand 2^nd defendant both contend that the previous consent orders contain a term that gives them liberty to seek further security for trial of this action, and hence they are not making fresh applications for security for costs under Order 23, rule 1(1) of the Rules of the High Court but applications for further security pursuant to the terms of the consent orders already made.

8.  I shall deal with these preliminary issues first.

Jurat

9.  It seems that the 3^rd defendant does not want to pursue with the issue on the jurat of the 1^st plaintiff’s affidavit in order to save time and in view of the filing of the 1^st plaintiff’s 2^nd affidavit.  However, the 3^rd defendant is adamant that the jurat is defective and the parties cannot waive such defect.  I therefore find it necessary for me to deal with this issue.

10.  Order 41 of the Rules of the High Court lays down the rules for the form of affidavit. However, there is no specific rule requiring the jurat to follow immediately after the end of the text on the same page and not to be placed on a fresh page.  Order 41, rule 1(8) only requires that “Every affidavit must be signed by the deponent and the jurat must be completed and signed by the person before whom it is sworn”.

11.  The 3^rd defendant’s contention about the jurat is based on a passage in paragraph 41/1/9 of the Hong Kong Civil Procedure 2016, where it is stated as follows:-

“Affidavit should never end on one page with the jurat following overleaf. The jurat should follow immediately after the end of the text.”

12.  In the same paragraph, it is also stated that “Irregularities in the form of the jurat cannot be waived by the parties but see r.4.”  Rule 4 of Order 41 stipulates that “An affidavit may, with the leave of the Court, be filed or used in evidence notwithstanding any irregularity in the form thereof.”  Thus, the 3^rd defendant contends that the parties cannot waive this irregularity and the 1^st plaintiff’s affidavit may only be filed or used in evidence with the leave of the Court.  However, the plaintiffs did not make any application for such leave to be given to them.  The 3^rd defendant therefore objects to the use of the 1^st plaintiff’s affidavit in these proceedings.

13.  I do not accept the 3^rd defendant’s contention in this regard.  It is clear to me that there is no such rule requiring the jurat to follow immediately after the end of the text and not to be placed on a fresh page.  The passage in paragraph 41/1/9 as cited above does not refer to any case law authority.  However, there is a reference in the judgment of Lord Justice Stocker in Rajankumar Nemchand Shah Illa Ketchi Shah v Habib Bank AG Zurich, 1988 WL 1608840 saying that jurat on a separate page is defective.  The judgment did not elaborate on why such a jurat is defective and no rule has been referred to in the judgment.  It is therefore unclear on what basis Lord Justice Stocker made that finding.  Without any specific rule requiring a jurat to be on the same page as the ending of the text, I am of the view that it will only amount to a good practice to follow that suggestion, but it will not make the jurat irregular or defective when the practice is not followed.

14.  The 3^rd defendant submits that when the jurat is not on the same page as the one where the text ends, there could be missing pages in between.  However, this cannot be the case for the 1^st plaintiff’s affidavit, which ends clearly with a conclusion, namely paragraph 40, and the text of which is “For the reasons stated above, the Defendants’ Summonses should be dismissed with costs to the Plaintiffs.”  The jurat is just on the next page after paragraph 40.  With such clear concluding words, it is highly unlikely that there could be missing pages in between.  I do not see any real concern that could be caused by the placing of the jurat on a fresh page.

15.  In the circumstances, I do not accept that the jurat is irregular or defective as submitted by the 3^rd defendant.  In fact, there is no problem with the form of the jurat at all.  It is just the location of the jurat that is in question.  Even if the jurat could be regarded as irregular or defective in form, I have the power to waive such irregularity or defect under Order 41, rule 4 of the Rules of the High Court, and I would exercise this power in respect of the 1^st plaintiff’s affidavit.  I do not think that there is any need for the plaintiffs to make formal application for such leave to be given before I can exercise such power.  I would therefore grant leave to the plaintiffs to file and use the 1^st plaintiff’s affidavit in evidence, on the assumption that such leave is required.

Consent orders

16.  The consent order dated 13 February 2014 made between the plaintiffs and the 1^st defendant contains the term that “There be liberty for the 1^st Defendant to seek further security for trial of this action”.  Likewise, the consent order dated 12 March 2014 made between the plaintiffs and the 2^nd defendant contains the term that “There be liberty for the 2^nd Defendant to seek further security for trial of this action”.

17.  Relying on these terms, the 1^st and 2^nd defendants contend that they are not making any fresh application for security for costs.  They submit that these terms are contractual in nature and the plaintiffs are contractually bound to provide further security for costs of the trial, subject only to the Court’s discretion over the amount of such security.  Thus, they argue that the plaintiffs cannot resile from the consent orders just because of some material change of circumstances, and the onus is on the plaintiffs to apply to vary or discharge the consent orders.

18.  I do not accept the 1^st and 2^nd defendants’ contention in this regard.  The words “liberty … to seek further security” in the consent orders must be given their ordinary and natural meaning, namely the 1^st and 2^nd defendants are at liberty to make applications to apply for further security.  Normally, when there is an order for “liberty to apply”, it just means that the parties are not restricted in any way to apply.  The aforesaid terms of the consent orders should be understood in the same way.  That is the 1^st and 2^nd defendants are not restricted in any way to make application for further security, but it does not mean that they do not need to apply again.  The word “seek” must refer to seeking an order from the Court.  In other words, there must be an application before the Court before the 1^st and 2^nd defendants can “seek” for an order of the Court and before the Court can grant such an order.

19.  It does not make any sense to me to say that this is not a fresh application under Order 23, rule 1(1) of the Rules of the High Court.  If it is not such an application, are the 1^st and 2^nd defendants making an enforcement application because of a breach of the consent orders?  However, I do not see any words in the consent orders that can give rise to the understanding that the plaintiffs are bound to give further security without the 1^st and 2^nd defendants making fresh applications.  I also cannot see how the Court’s discretion is restricted by the consent orders to deal with the amount of security only.  If the parties had intended that the plaintiffs must pay further security for the trial of the action and only the amount is to be determined by the Court, there should be clear wordings such as “the plaintiffs shall pay further security to the defendant for the trial of the action, the amount of which shall be determined by the Court” instead of just stating that there be liberty to seek further security for the trial.

20.  Thus, I do not find that the plaintiffs are bound by the consent orders to give further security as suggested by the 1^st and 2^nd defendants.  The 1^st and 2^nd defendants’ applications for further security will be dealt with as fresh applications and in the same way as the 3^rd defendant’s application.

Material change of circumstances

21.  The parties have no issue on the Court’s power in ordering further security under Order 23, rule 1(1) of the Rules of the High Court when the plaintiffs are ordinarily resident out of the jurisdiction.  It is also not disputed Registrar Lung made a finding on 13 December 2013 that the 1^st plaintiff was not ordinarily resident in Hong Kong.  However, the 1^st plaintiff contends that he is now ordinarily resident in Hong Kong because of material change of circumstances.

22.  The 1^st plaintiff relies on the following matters to contend that there has been a material change of circumstances: -

(a) Registrar Lung’s order was made more than 2 years ago.

(b) Dr Leung’s medical report dated 5 January 2016 and Dr Lam’s medical report dated 21 January 2016 show that the 1^st plaintiff has since Registrar Lung’s order been admitted to hospital for endoscopic, gallbladder, and laparoscopic (cholecystectomy) operations on a number of occasions, his health has substantially deteriorated since Registrar Lung’s order, and he is no longer fit to travel given his health conditions.

(c) The 1^st plaintiff has a Hong Kong ID card as stated in Dr Lam’s medical report dated 21 January 2016.

(d) Now, the 1^st plaintiff has no ability and energy to travel, and has no intention to do so either.

(e) The employment contracts in relation to domestic helpers entered into by the 1^st plaintiff as employer as approved by the Immigration Department show that the 1^st plaintiff has been residing in Hong Kong at least since 2014 (if not earlier).

(f) Consistently, the 1^st plaintiff has been active in Hong Kong socially and culturally.

(g) The 1^st plaintiff’s sons have been residents in Hong Kong and the 1^st plaintiff would like to be with his sons when in his deathbed.

(h) Both the 1^st and 3^rd defendants owe the plaintiffs substantial costs in HCMP 643 of 2012 and CACV 83 of 2013 running up to at least $2,000,000.00.  The plaintiffs are now willing to have those outstanding costs paid into Court as security for the present proceedings or alternatively to give an undertaking not to remove those costs if paid.

23.  The plaintiffs submit that the above are uncontradicted evidence of what has happened after Registrar Lung’s order, and they deal with some of the concerns of Registrar Lung as follows: -

(a) The question of the lack of evidence to show the 1^st plaintiff’s physical condition or health before Registrar Lung is now addressed by the medical evidence in relation to the 1^st plaintiff’s health conditions after Registrar Lung’s decision.

(b) The question of the lack of particulars of his close family members before Registrar Lung is now addressed by the 1^st plaintiff’s desire to stay with his sons.

(c) The 1^st plaintiff’s preference to the lifestyle in the United States and his residence in the United States are now made impossible due to his health conditions and his intention to stay in Hong Kong.

(d) The 1^st plaintiff’s occasional brief stay in Hong Kong is no longer the case, as evidenced by the 1^st plaintiff’s travel record.

(e) The 1^st plaintiff is now willing to give an undertaking as to the costs in HCMP 643 of 2012.

24.  In gist, the 1^st plaintiff is saying that the deterioration of his health conditions has led to changes of circumstances in that (1) he would like to stay with his sons so that they would be at his bedsides at the hour of his death; (2) he has no intention to go abroad; and (3) he simply cannot travel and thus stay in Hong Kong far more substantially than before.  These changes have resulted in him being ordinarily resident in Hong Kong.

25.  However, I do not accept that there is any material change of circumstances as suggested by the plaintiffs.  All these matters had in fact been argued before Registrar Lung and what the plaintiffs are doing is just to supplement some evidence that were not available before Registrar Lung.  From the notes of proceedings for the hearing before Registrar Lung, it is clear that Registrar Lung has already ruled that the 1^st plaintiff was ordinarily resident out of the jurisdiction notwithstanding his assertion that he chose Hong Kong as his place of residence because he wanted to be close to his family and his need to seek medical treatments here.  There was also production of his entry and exit records showing that he stayed in Hong Kong most of the time in 2012 and 2013. So there have been rulings on all these matters.

26.  The present evidence shows that the 1^st plaintiff’s health conditions are worse than before and he has no choice now but to stay in Hong Kong for medical treatments.  It is clear to me that the 1^st plaintiff’s stay in Hong Kong is purely caused by his health conditions and not out of his free choice.

27.  As held in Xu Xiuzhi v Wong Yuk Choi & anor, HCA 1525/2012 (see also Hong Kong Civil Procedure 2016, paragraph 23/3/4 and R v Barnet LBC, ex p Shah [1983] 2 AC 309), ‘the phrase “ordinarily resident” should be construed according to its ordinary and natural meaning, and that a person is ordinarily resident in a place if he habitually and normally resides lawfully in such place from choice and for a settled purpose, apart from temporary or occasional absences, even if his permanent residence or “real home” is elsewhere’ (emphasis added).  I do not find that the 1^st plaintiff’s decision to stay in Hong Kong is made “from choice”, as he has no choice at all.

28.  In Robbie Ilana Tenza v Dr Vincent C Goh, HCPI 718/2011, the plaintiff there was absent continuously from Hong Kong for a lengthy period of time due to her dental treatments and poor state of health rather than for work or other reasons, and the Court held that she was not “ordinarily resident” out of the jurisdiction. By the same token, the 1^st plaintiff cannot be regarded as “ordinarily resident” in Hong Kong, when his lengthy stay here was due to his medical treatments and poor health.

29.  The 1^st plaintiff’s intention to stay close with his family has already been argued before Registrar Lung.  His present intention to have his sons staying around him in his deathbed is basically the same thing.  I do not consider it as material change of circumstances.  In any event, there is no supporting evidence that his sons live in Hong Kong apart from the 1^st plaintiff’s bare allegation.  There is also no evidence that if the 1^st plaintiff moves out of Hong Kong, his 2 sons cannot be with him.  In fact, his alleged intention to be with his family members in Hong Kong is contradicted by his own case, when it was heard before Registrar Lung, that he mistrusted his family members who allegedly took away his assets.  Thus, the 1^st plaintiff’s intention to stay in Hong Kong because of his sons is just untenable.

30.  Although the 1^st plaintiff has a Hong Kong ID card, it does not automatically make him an ordinary resident in Hong Kong (see Chan Ker Chi Paul v Super Zone Investment Ltd & anor [1994] 2 HKC 679).  Indeed, from the evidence before Registrar Lung, it is clear that the 1^st Plaintiff used to live in Virginia.  There is no evidence to show that the 1^st plaintiff has “up-rooted” or “re-located” from Virginia to Hong Kong, even though he stays here for medical treatments (see Robbie Ilana Tenza v Dr Vincent C Goh, supra).  Despite being a very wealthy man, the 1^st plaintiff did not even purchase a property for his own stay in Hong Kong.  He has only rented different premises to stay in Hong Kong.  Although there is no law saying that a person must own a property in a place before he can be regarded as resident in that place, with the 1^st plaintiff’s background, this would be an indicator of whether he really has the intention to up-root or re-locate to Hong Kong.

31.  There is also no evidence that he has transferred any asset of permanent nature to Hong Kong.  Although ordinary residence within the jurisdiction and existence of assets within or without the jurisdiction are two different concepts, the existence of assets of permanent nature within the jurisdiction is again an indicator of the 1^st plaintiff’s intention to treat Hong Kong as his place of residence, and the lacking of it indicates otherwise.

32.  In fact, there is no evidence to show the 1^st plaintiff has any ties in Hong Kong.  His social and cultural activities in Hong Kong cannot be regarded as such ties in Hong Kong, as any person not residing in Hong Kong can also take part in such activities.

33.  As to the plaintiffs’ suggestion that they are now willing to have the outstanding costs in HCMP 643 of 2012 and CACV 83 of 2013 paid into Court as security or alternatively to give an undertaking not to remove those costs if paid, I do not find it as material change of circumstance, and in fact no such costs have been paid.  Moreover, the 3^rd defendant is appealing against the ruling in those proceedings including costs and the result of the appeal is still pending.  It is still not sure yet if the plaintiffs would definitely obtain such costs.  In any event, the amount of the taxed costs is just $1,763,223.40, which is far below what the defendants are seeking as further security.  I do not consider such an undertaking should have any bearing in the present applications.

34.  By reasons aforesaid, I do not find that the 1^st plaintiff has established that he is now ordinarily resident in Hong Kong or that there is any material change of circumstances.

Delay

35.  The plaintiffs submit that the 1^st and 2^nd defendants in their respective Timetabling Questionnaires confirmed that they would make an application for further security before the case is set down for trial and the 3^rd defendant in his Timetabling Questionnaire confirmed that he would take out further application for security of costs upon leave is granted to set down the case for trial.  However, without any explanation, the defendants waited until December 2015 (10 months after the notice of trial was given and 13 months after leave for setting down was granted) to send out demand for further security.

36.  The plaintiffs contend that such delay is inordinate, inexplicable and unacceptable.  The defendants’ failure to keep their confirmation to the Court in the Timetabling Questionnaires has caused the plaintiffs to incur costs for the Pre-trial Review and the preparation for the trial.  The delay is a sufficient ground for dismissing the applications, and if necessary, for a substantial discount of the further security that would be ordered, as the plaintiffs would have very little time to raise more than $20,000,000.00 (besides their own costs) for the trial (see Raj Kumar Mahajan v HCL Technologies (Hong Kong) Limited & ors, HCA 1510/2004).

37.  Although I accept that the defendants could have applied for further security at such time as indicated in their respective Timetabling Questionnaires, I do not consider the delay as one that is inordinate, inexplicable and unacceptable, or warrant dismissal of the applications.  As pointed out by Muttrie DHCJ in Midland Realty International Ltd v Wise Surplus Ltd, HCA 3065/2001, the decision on the timing of an application for security involves a balancing act between applying too early and applying too late.  It is not unreasonable for the defendants to wait a bit longer until the time when they have a clearer idea as to how much costs would be incurred after the trial dates have been fixed and agreement with counsel on their fees are made.

38.  The defendants requested for further security in November/December 2015.  There was still about half a year before the trial.  I see no reason why the plaintiffs would be prejudiced by the time frame.  There is in fact no evidence that the plaintiffs would have difficulty in giving further security whether in term of the time or the quantum, as the 1^st plaintiff is admittedly an extremely wealthy man.

39.  Thus, I do not accept that the defendants’ application for further security should be dismissed or the amount of further security should be reduced on the ground of delay.

Liability to pay further security

40.  Since the 1^st plaintiff fails in his contentions that there has been material change of circumstances and that there was inordinate, inexplicable and unacceptable delay on the part of the defendants in making the applications, the 1^st plaintiff has simply no ground to oppose the defendants’ applications for further security.  The 1^st plaintiff has been held to be ordinarily resident out of the jurisdiction and this remains the case.  The defendants are clearly entitled to make applications under Order 23, rule 1(1)(a) of the Rules of the High Court to ask for further security for costs.  The amounts ordered previously are clearly not sufficient to cover the costs of the trial.  There is no reason not to grant further security to the defendants.

41.  As to the 2^nd plaintiff, it cannot rely on the general rule that there is a co-plaintiff who is ordinarily resident in Hong Kong, as the 1^st plaintiff is not such a person.  Although the 2^nd defendant has recently been registered in Hong Kong as a non-Hong Kong company, it still does not change its identity as a foreign company.  Being a foreign company and in the absence of any special reasons, the 2^nd plaintiff is also liable to pay further security to the defendants.

Quantum

42.  As to the amount of further security, there is no dispute that I can apply a broad-brush approach.  After all, the aim is just to give security for the defendants’ costs, not to assess their actual costs that would be incurred for the trial, whether on party-and-party basis or otherwise.

43.  The plaintiffs have raised the arguments that there is substantial overlapping of work when the defendants are separately represented and that the 2^nd and 3^rd defendants should not be separately represented when they have filed a single Defence.  However, I do not think that the defendants can be deprived of their rights to have separate legal representation or that they should suffer in costs when they are separately represented.

44.  The 17 days fixed for the trial may or may not be too generous, but this is the length of trial that has been fixed and the defendants are entitled to prepare the costs estimate based on that length.  After all, counsel’s diaries would be marked for that length.

45.  Judging from the complexity of the case, the volume of documents involved, the length of the trial and the number of witnesses to be called, I estimate that it would be sufficient for each of the defendants to have $4,000,000.00 as further security for the trial.

Conclusion

46.  In the circumstances, I find that the plaintiffs should provide further security to the defendants in the sum of $4,000,000.00 each.

47.  I therefore order as follows: -

(a) The plaintiffs do on or before 26 April 2016 pay a total sum of $12,000,000.00 into Court in an interest bearing account as further security for the defendants’ costs up to the conclusion of the trial (ie $4,000,000.00 for each of the defendants);

(b) In default of payment of the said further security, the plaintiffs’ action against the defendants be dismissed;

(c) Pending payment of the said further security, all further proceedings in this action be stayed;

(d) Costs order nisi: The plaintiffs do pay the defendants costs of the 3 summonses all dated 16 December 2015 with certificate for one counsel for each of the defendants to be assessed summarily on paper;

(e) The defendants do submit and serve their respective statement of costs on or before 19 April 2016; and

(f) The plaintiffs do submit and serve their statement of objection on or before 3 May 2016.