MENDLOWITZ & ASSOCIATES INC. v. WINNER INTERNATIONAL GROUP LTD AND ANOTHER

HCA 574 /2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 574 OF 2009

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BETWEEN

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D E C I S I O N

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A. Introduction

1.  On 24 February 2010, I gave the following orders under this action:

(1)  Leave to the Plaintiff to discontinue this action.

(2)  The Mareva injunction (“the Injunction”) made by Reyes J on 27 February 2009 be discharged.

(3)  Costs of the Injunction be to the Plaintiff, to be taxed if not agreed.

(4)  Leave to the Plaintiff to withdraw the Summons (“the Stay Summons”) filed on 16 October 2009 seeking to stay the action herein.

(5)  Costs of the Stay Summons be to the Defendants, to be taxed if not agreed.

(6)  Costs of the action, other than the costs of the Injunction, be to the Defendants, to be taxed if not agreed.

2.  This is the Defendants’ application for leave to appeal to the Court of Appeal against the above costs order relating to the Injunction (“the Injunction Costs Order”). The Defendants say the costs order should be that the Defendants should also have the costs of the Injunction.

3.  It is not disputed that for leave to be given, the Defendants have to show that their intended appeal of the Injunction Costs Order has a real prospect of success.

4.  Before I proceed to assess the merits of the Defendants’ intended appeal, it is necessary to look at the background context under which the Injunction was obtained.

B. The context

5.  In April 1998, there was a judgment granted by the California Court in favour of KDS Korea and KDS USA against, inter alia, one Jay Chiang (an individual residing in Ontario, Canada) and his brother for the respective sums of &US$6.4 million and US$3 million for breach of contract and unpaid invoices. In giving the judgment, the California Court made findings of fraud and breach of fiduciary duty against Jay Chiang and his brother.

6.  Shortly after the California judgment was handed down, Jay Chiang filed for voluntary bankruptcy in Ontario in September 1998.

7.  The Plaintiff was appointed as the trustee in bankruptcy of Jay Chiang.

8.  Since the Plaintiff was appointed as Jay Chiang’s trustee in bankruptcy, it has commenced various enforcement proceedings in Ontario, California and Hong Kong seeking to look for and recover Jay Chiang’s assets.

9.  In 2000:

(1)	The Plaintiff commenced proceedings in Hong Kong and obtained a Mareva injunction against Jay Chiang and his brother who had personal bank accounts and property in Hong Kong.  Eventually, vesting orders were granted, vesting all the movable assets of Jay Chiang held in Hong Kong in the Plaintiff.
(2)	The Plaintiff commenced proceeding in Ontario against Jay Chiang and others parties (including his wife) to enforce the California judgment.  A world-wide Mareva injunction (“the Ontario world-wide Mareva Order”) was granted by the Ontario court against Jay Chiang in October 2000.

10.  Suffice to say that, in these various enforcement proceedings, there is evidence to show that Jay Chiang and his family members have been using various nominees to convey, transfer and hide assets belonging to him and his brother into the names of the Chiang family members to try to frustrate the recovery of assets by the Plaintiff. In February 2007, Jay Chiang and his wife were sentenced to imprisonment by the Ontario Court after trial for their failure to comply with various undertakings (including undertakings to disclose financial information about themselves and their families) given to purge their previous contempt in breaching the Ontario world-wide Mareva Order. The sentence was reduced by the Ontario Court of Appeal in 2009.

11.  In February 2009, the Plaintiff discovered further evidence which it says showed that Jay Chiang was in control of and had interests in a HSBC bank account in Hong Kong and an E*Trade Account in California. The 1^stDefendant is the registered holder of the HSBC account and the E*Trade Account, while the 2^ndDefendant is the sole member and sole director of the 1^stDefendant.

12.  After discovering the above, the Plaintiff applied to the Ontario Court and was granted on 20 February 2009 an order to extend the Ontario world wide Mareva Order to also freeze the HSBC account and the E*Trade account. The order further directed HSBC to freeze all accounts held in the name of the Defendants and restrained them from dealing with the assets in the HSBC account.

13.  On 24 February 2009, the Plaintiff through its former solicitors served the Ontario Court order on HSBC in Hong Kong and requested the bank to freeze the HSBC account pursuant to that order. HSBC refused on the basis that the said order was not made by the Court in Hong Kong.

14.  As a result, on 27 February 2009, the Plaintiff commenced this action in Hong Kong and applied ex parte for a Mareva injunction (i.e. the Injunction). The application was supported by an affirmation setting out in some detail the evidence in support of its contentions that the HSBC account was controlled and owned by Jay Chiang and that the Defendants were his nominees for that purpose.

15.  The Injunction was granted by Reyes J ex parte. The Injunction further contained an order to require the Defendants to disclose documents showing all the transactions relating to the HSBC account since January 2000. It was continued by A Cheung J on 6 March 2009 inter parte and the Defendants did not oppose it. Thus, the Defendants have not filed any evidence in opposition or in response to the various allegations made in the Plaintiff’s supporting affirmation for the Injunction.

16.  On 20 March 2009, the 2^ndDefendant made an affirmation making the discovery. The documents disclosed however show that between 6 February 2009 and the date of the service of the Injunction on HSBC, most of the HK$4,674,330.84 kept at the account was withdrawn leaving only HK$11,034.73. In other words, by the time the Injunction was granted, the HSBC account had very little money left.

17.  On 1^stApril 2009, the Plaintiff filed its Statement of Claim under this action. On 1^stJune 2009 (i.e, 2 months after the filing of the Statement of Claim and 3 months after the Injunction), the 1^stand 2^ndDefendants filed their Defence.

18.  At the same time, pursuant to an order made by Suffiad J on 13 March 2009, the Plaintiff has also commenced a set of proceedings in Ontario against the Defendants regarding HSBC account and E*Trade account, seeking similar reliefs as in the present action.

19.  On 16 October 2009, the Plaintiff took out the Stay Summons seeking to stay the action herein for either the Ontario Court or the California Court on the ground of forum non conveniens. The Defendants opposed this as they said they were fully prepared and ready to litigate in Hong Kong, which was the proper forum in any event.

20.  The hearing of the Stay Summons first came before me on 23 December 2009. It was adjourned part-heard after the Plaintiff indicated to the Court during the hearing that it would consider discontinuing the action instead of seeking a stay. The Plaintiff subsequently took out a Summons (“the Discontinuance Summons”) seeking leave to discontinue the action. In light of the Discontinuance Summons, the Plaintiff also asked the Stay Summons be dismissed.

21.  The parties came before me again on 24 February 2010. The Defendants did not oppose the Discontinuance Summons and the dismissal of the Stay Summons. The real arguments that needed to be heard on that day were on costs of the Injunction, the action and the 2 Summonses.

22.  After hearing arguments, I gave the orders set out above, including the Injunction Costs Order.

C. The present application for leave to appeal against the Injunction Costs Order

C1. The applicable principles

23.  The Defendants do not dispute that:

(1)

In order to be given leave under O. 58 r 2B of the Rules of High Court (Cap 4), they must show that the intended appeal has a “real prospect of success”, which means that “an applicant is required to show more than just an arguable case, but an appeal that has merits and ought to be heard, although he does not have to demonstrate that the appeal will probably succeed”:  Wynn Resorts (Macau) S.A. v Mong Henry (unrep., HCA 192/2009, 5 August 2009, Chu J), paras 17-19.

(2)

Costs is a matter of discretion of the Court, and an appellate court would only interfere the said exercise of discretion if it can be shown that the Court (a) has erred on a principle of law, (b) has taken into account of matters it ought not to have done or has failed take into account of matters which he ought to, or (c) was plainly wrong.

C2.  Grounds of the intended appeal

24.  In the draft Notice of Appeal, the stated grounds of appeal are as follows:

(1)	The Learned Judge erred in awarding the Plaintiff costs of the Injunction in circumstances where it was not determined by trial whether the Plaintiff had ownership as claimed in the asset which was subject matter of the Injunction.
(2)	In making the costs order as he did in respect of the Injunction in a discontinuance application by the Plaintiff, the Learned Judge departed without justification from the general rule that the Plaintiff should pay the costs of action.
(3)	By reason of the above, the Learned Judge wrongly exercised his discretion in making a costs order.

25.  In explaining these grounds in her submissions, Ms Chan for the Defendants say in granting the Injunction Costs Order, I have erred on a principle of law in that:

(1)	It is a general principle that costs of an injunction should be in the cause, unless there are good reasons to justify a departure.
(2)	In the present case, there is nothing to justify such a departure.
(3)	Thus, and given that costs of the action (upon giving the Plaintiff’s leave to discontinue) are to the Defendants, the costs of the Injunction should also be to the Defendant.

26.  Therefore, Ms Chan further submits, the intended appeal has a real prospect of success.

C3. Discussion

27.  With respect to Ms Chan, I am not persuaded that in granting the Injunction Costs Order, I have erred on the principle of law as submitted. My reasons are as follows.

28.  I do not think it is now right to say that as a matter of principle, the costs of an interlocutory injunction should be in the cause unless there is justification for its departure. The Court is entitled to and should look at the merits of the injunction itself as at the time of the application to decide what should be the proper costs order for that application in all the circumstances, which do not necessarily depend on the outcome of the trial.

29.  In Bushbury Land Rover Ltd v Bushbury Ltd [1997] FSR 709, the first instance judge refused to grant an interlocutory injunction against the respondent in relation to passing off on the balance of convenience and further ordered the applicant to pay the respondent’s costs. The applicant sought leave to appeal against that costs order, contending that it should be the respondent’s costs in the cause, which was the normal costs order for interlocutory injunction, and that there was nothing to justify a departure from it in that case. A single Lord Justice dismissed the application for leave, and the applicant renewed its application before two members of the Court of Appeal. In dismissing the renewed application for leave and in dealing with the applicant’s said submissions, Auld LJ said as follows at 712:

“In my judgment, that argument [that the normal costs order for interlocutory injunction should be the respondent’s costs in the cause unless there was anything to justify a departure] … ignores the clear distinction between entitlement to interlocutory relief and final judgment which underlines Lord Diplock’s identification in American Cyanamid Co v Ethicon Ltd [1975] AC 396 of the criteria on which the court should exercise its discretion whether to grant the former.  The fact that a plaintiff may succeed ultimately does not demonstrate that he should have been granted interlocutory relief when the merits of the matter were still unresolved and the court was balancing convenience.  Final judgment provides no hindsight, tipping the earlier balance one way or the other.”

See also:  Hong Kong Civil Procedure 2010, para 29/1/44.

30.  There is thus nothing wrong in principle for this Court, in the exercise of its discretion, to look at the merits of the application for the Injunction on its own to decide what proper costs order should be made in all the circumstances, without “linking” it to what may happen at the end of trial or to the action itself.

31.  And on that, it is clear to me that the evidence filed so far shows that there were strong merits to support the application for the Injunction.

32.  Although she says the Plaintiff may fail to prove its case against the Defendants at the end of the trial (if there is one), Ms Chan in absolute fairness, also accepts that the Injunction was in fact rightly and properly made and granted with the evidence before the Court.

33.  In the premises, I do not think I have erred on any principle of law (as submitted by Ms Chan) in the exercise of my discretion in making the Injunction Costs Order after having regard to the merits of the successful application for the Injunction and in all the circumstances.

34.  I therefore do not see any real prospect of success in the Defendants’ intended appeal against the Injunction Costs Order.

D. Conclusion

35.  For the above reasons, I refuse the Defendants’ application for leave to appeal against the Injunction Costs Order to the Court of Appeal.

36.  Ms Chan has asked me to reserve the costs of this application in case I dismiss it, as she says the Defendants would apply to the Court of Appeal directly for leave. However, I do not think that is correct. The Defendants have failed in their application before me and costs should follow the event. The fact that they may apply again before the Court of Appeal for leave is not a good reason not to make the costs order against them in relation to the present unsuccessful application.

37.  I therefore further order that costs of this application be to the Plaintiff to be taxed if not agreed.