HOWARD ROBERT BALLOCH AND ANOTHER v. ING YIM LEUNG ALEXANDER ALSO KNOWN AS ALEX ING

DCCJ 1556/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1556 OF 2013

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D E C I S I O N

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1.  There are two summonses in front of me today. The first is the plaintiffs’ application for summary judgment under Order 14, and the second, the defendant’s summons for security for costs under Order 23.

2.  Background of the case is this:  The 1st named plaintiff, a citizen of Canada and a former ambassador to China, and the 2nd named plaintiff, a US citizen and a prominent lawyer, former professor of law and counsel to a law firm in Washington DC.

3.  The defendant is a businessman and a director of China Alarm Holdings Limited.

4.  The plaintiffs state that they were enticed by the defendant to become the directors of China Alarm Holdings. 

5.  And on or about 29 June 2010, China Alarm Holdings Acquisition LLC and Pope Investment LLC commenced proceedings in the United States District Court in Tennessee against the defendant and the plaintiffs herein as directors of China Alarm Holdings. 

6.  By a letter dated the 1st day of December 2010 (“the letter of indemnity”), the defendant provided an indemnity to the plaintiffs for any legal fees, judgment expenses or loss and related expenses incurred as a result of the lawsuit commenced by China Alarm Holdings LLC and Pope Investment LLC and other related companies in the Tennessee court.

7.  The plaintiffs also stated the defendant had wrongfully and in breach of the letter of indemnity failed to pay the plaintiffs’ further legal fees in the sum of US$107,312.46, therefore, the plaintiffs filed this claim.

8.  The defendant’s defence are as follows:  First, the indemnity was only for the legal costs incurred by the plaintiffs as a result of defending the US lawsuit.  The defendant has never agreed to indemnify the plaintiffs for any legal costs incurred as a result of pursuing their counterclaim or any other purpose other than defending themselves in the US proceedings.

9.  Second, the indemnity by the defendant was subject to two conditions, namely that the legal fees incurred must be: (a) reasonable; and (b) pre-approved by the defendant. 

10.  The defendant also stated that he agreed with the plaintiffs verbally on various occasions that he shall only indemnify the plaintiffs if he himself considered the legal fees incurred by the plaintiffs in the US proceedings to be reasonable; to which the plaintiffs’ reply that the counterclaim and discovery proceedings in the US lawsuit were conducted at the directions and to the benefit of the defendant, and all their US legal fee invoices were sent to the defendant and his accountant for their review.  And prior to the lawsuit, the defendant’s accountant, Eppie Tseng, had once again reviewed all of the outstanding invoices.  The defendant did not raise any issues as to the budget or the reasonableness of these legal fees.  The defendant had promised on numerous occasions to pay these legal fees prior to the commencement of this action.  

11.  The relevant law in Order 14 is well-known.  The only one that I would repeat is Lord Lindley’s seminal statement which stated:

“Unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine, Order 14 ought not to be applied.”

12.  Lord Bingham in Crownhouse Engineering v Amec Project Limited also stated:

“Order 14 is for clear cases; that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise. But it does mean that where there are substantial issues of genuine complexity the parties should prepare for trial rather than dissipate their energy and resources on deceptively attractive short-cuts.”

13.  Issues in this matter, as I see it, are as follows:

(1) (a) Was the extent of the indemnity include the counterclaim and the discovery proceedings?  And (b) were the counterclaim and discovery procedures in the US proceedings conducted at the direction and to the benefit of the defendant? 

(2) Were the twin conditions of “reasonableness” and “pre-approval” contained in the indemnity letter meant: (a) the plaintiffs had to only seek the defendant’s approval on the initial selection of US counsel; or (b) the preliminary budget or each significant step taken in that litigation, the legal fees are again subject to the defendant’s approval and reasonableness test?

14.  Now, even if the defendant knew of the plaintiffs’ counterclaim and discovery proceedings, it does not automatically mean that the same was intended to be included under the indemnity letter.  The indemnity letter itself was vague on what was included and what was not included.  What was intended by the parties to be covered under the indemnity cannot be determined simply by looking at the document itself.  This would require further evidence in support of the propositions expressed by the parties this morning. 

15.  Also the defendant stated that in the conference call on 6 December 2011, he clearly instructed the plaintiffs not to proceed with the counterclaim and the discovery proceedings.  The plaintiffs of course dispute this instruction.

16.  On this point, the parties must testify and be subjected to cross-examination before this court can decide which version is correct.

17.  On the second point, the plaintiffs stated that all US legal fee invoices had been delivered to the defendant or his accountant and the defendant has never raised any issues with their reasonableness.  The defendant, on the other hand, stated that he did raise concerns on a number of occasions.

18.  Each party pointed to a number of emails as support for their proposition.  The meaning of a sentence in a particular email may look clear; however, if you read the entire email, the meaning of these sentences starts to get a little obscure.  And when the entire chain of emails are read, the meaning of these sentences pointed to by the parties this morning starts to get murky.  To find the true meaning of these communications, the factual backgrounds and the testimonies of the parties must be thrashed out.  At trial, under cross-examination, that is when it is appropriate to do so.   

19.  In any event, these issues are clearly not “crisp legal questions” but rather “serious material factual dispute” that should go to trial.

20.  Accordingly, the Order 14 application is dismissed.

21.  On the Order 23 application, everybody knows the law.  I am not going to read it out loud but the White Book gives us the following guidance.  In page 519, paragraph 23/3/3, the learned authors of the White Book state:

“Rule 1(1) provides that the court may order security for costs ‘if, having regard to all the circumstances of the case, the court thinks it must do so’. These words have the effect of conferring upon the court a real discretion, and indeed the court is bound, by virtue thereof, to consider the circumstances of each case, and in the light thereof to determine whether and to what extent or for what amount a plaintiff (or the defendant as the case may be) may be ordered to provide security for costs. It is not an inflexible or rigid rule that a plaintiff resident abroad should provide security for costs.”

22.  Then further down, it states:

“In exercising its discretion under rule 1(1) the court will have regard to all the circumstances of the case. Security cannot now be ordered as of course from a foreign plaintiff, but only if the court thinks it just to order such security in the circumstances of this case.”

23.  Further down, it states:

“A major matter for consideration is the likelihood of the plaintiff succeeding. In exercising its discretion, the court may take into account the merits of the plaintiff’s claim. If the case of the plaintiff is genuine and strong, no order for security would be granted.”

24.  The plaintiffs’ case is based on a written letter of indemnity.  The defendant admit to having issued the indemnity and have paid a substantial sum to the plaintiffs based on that indemnity.  There is no dispute that these legal fees had been incurred and paid by the plaintiffs.  The defence is based on what I have already stated in the Order 14 reason for decision.  The defence involves dispute of facts and that must be tested under cross-examination, and therefore the plaintiffs’ summons under Order 14 failed; however, this does not automatically mean that the plaintiff has a low likelihood of success.  On the contrary, the plaintiff has as good a chance to succeed as the defendant in this case.  

25.  When each party has an even chance of success, I will have to look to other factors to help me decide if an order for security for costs should be ordered against the plaintiffs. 

26.  First, the plaintiffs are well-known individuals in their respective communities.  The 1st plaintiff is a former Canadian ambassador to China.  The 2nd plaintiff is a former professor of law to several top US law schools and now at his advanced age is still a prominent lawyer in Washington, District of Columbia.  If the plaintiffs should lose, it is highly unlikely that either of these individuals will try to run away from their legal fee obligations in a Hong Kong court.  

27.  Second, other than stating that the plaintiffs reside abroad, the defendant has not provided any other reason that security for costs should be ordered against the plaintiffs.

28.  As I see it, the chance of success at this stage is even.  The plaintiffs, although reside abroad, are nevertheless prominent individuals in their respective communities.  The chance of the plaintiffs not honouring their obligation for legal fees ordered in a Hong Kong court is minimal.

29.  Accordingly, the Order 23 application is also dismissed.

30.  Now I come to costs.  These summonses are in many ways interrelated.  Many of the issues and considerations in the Order 23 application are the same or very close to the Order 14 application.

31.  In my assessment, the time required for the parties to prepare for these two applications are about the same.

32.  In view of the fact that both summonses have been dismissed, the fairest way is for each party to bear their own costs.  Therefore, there is no order as to costs for both summonses.