LONG HAI HONG v. CHAN YU LYDIA AND OTHERS

HCMP 3179/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3179 OF 2013

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D E C I S I O N

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I.  INTRODUCTION

1. This case came before Master K Lo on 14 December 2015 (“Master Hearing”) for hearing of an application by 3^rd respondent Liu Dan (“Liu”) by summons filed on 12 March 2015 (“Summons”) for an order inter alia that the applicant (“Long”) do within 14 days furnish security for Liu’s costs in these proceedings in the sum of HK$4,874,777.10 by making payment into court on the ground that Long was ordinarily resident out of jurisdiction, and that pending the provision of such security all further proceedings against Liu in this action be stayed.

2. After hearing the parties, Master K Lo dismissed the Summons with costs to Long (“Master Order”). On 24 December 2015, Master K Lo ordered the costs of the Summons and the Master Hearing be paid by Liu to Long in the agreed sum of HK$200,000 to be paid forthwith (“Costs Order”).

3. On 21 December 2015, Liu filed Notice of Appeal and sought an order in terms of the Summons (“Appeal”). The hearing of the Appeal came before me on 19 April 2016 (“Appeal Hearing”).

II.  PROCEDURAL HISTORY

4. On 25 November 2013, Long commenced the present action by originating summons (“OS”) against the 1^st respondent Chan Yu Lydia (“Chan”) and the 2^nd respondent AJK Company Limited (“AJK Ltd”) for an order under section 114B of the former Companies Ordinance (now known as Companies Winding Up and Miscellaneous Provisions Ordinance Cap 32, “Old CO”) to convene an extraordinary general meeting (“EGM”) of AJK Ltd in her capacity as registered holder of 940,000 shares in AJK Ltd (“Shares”) representing 94% of its issued shareholding, remove Xing Zhi Rong (“Xing”) and Liu as directors, and appoint new directors for AJK Ltd (collectively, “EGM Relief”). On 20 December 2013, Long filed her affirmation in support of the OS (“Long 1^st Aff”).

5. On 6 January 2014, AJK Ltd (then represented by Stephenson Harwood (“SH”)) filed the affirmation of its solicitor Kang Jian (“Kang”) (“Kang Aff”) that alleged Long had ceased to be a member of AJK Ltd because according to the register of members of AJK Ltd (“Register”) Long had transferred the Shares to Liu on 14 June 2013 for a consideration of HK$940,000 (“2013 Transfer”), so AJK Ltd claimed Long had no standing to pursue the OS to convene an EGM.

6. By a summons filed on 13 January 2014, Long applied for leave to (a) amend the OS to join Liu (a PRC resident) as the 3^rd respondent, (b) introduce relief pursuant to section 100 of the Old CO for rectification of the Register for Liu’s name to be removed, struck out or otherwise recorded as to have ceased to be a member of AJK Ltd for the Shares, and Long’s name be entered in place of Liu for the Shares (“Rectification Relief”), and (c) serve the amended OS on Liu out of Hong Kong.

7. By a further summons filed on 13 January 2014, Long applied for an interlocutory injunction against Liu to restrain (a) Liu from dealing with and exercising rights as a member of AJK Ltd and (b) AJK Ltd from registering any transfer of the Shares or any part thereof and/or allowing Liu to exercise any rights as member of AJK Ltd by virtue of the Shares.

8. On 15 January 2014, Long filed her 2^nd affirmation (“Long 2^nd Aff”) and the 1^st affidavit of her solicitor Wu Ying (“Wu”). On 16 January 2014, Ng J granted the reliefs sought in respect of the 2 summonses filed on 13 January 2014 with slight changes (“Ng 1^st and 2^nd Orders”).

9. Pursuant to the Ng 1^st Order, Long filed the amended OS on 20 January 2014 (“Amended OS”). Long served the concurrent Amended OS out of jurisdiction on Liu. On 9 April 2014, Carpio, Mak & To replaced SH as solicitors for AJK Ltd, and SH became solicitors for Liu. On 3 June 2014, Liu through SH gave notice of intention to defend.

10. On 11 August 2014, Liu (still represented by SH) applied by summons to turn the Amended OS into a writ with consequential directions for filing/serving pleadings. On the same day, Liu filed her affirmation to oppose the Amended OS, to respond to the Long 2^nd Aff, and to support such summons (“Liu 1^st Aff”). On 12 August 2014, AJK Ltd filed the affirmation of Xing (“Xing Aff”).

11. By the order of Ng J dated 21 August 2014 (“Ng 3^rd Order”), the Amended OS was continued as if begun by writ, directions were granted for filing/serving pleadings, and leave was granted to AJK Ltd and Liu to file the Xing Aff and Liu 1^st Aff. Ng J also directed that the existing affirmations shall stand as witness statements with leave for the parties to file/exchange further witness statements within 28 days after close of pleadings, and that the EGM Relief be stayed pending the final determination of the Rectification Relief. Ng J did not grant any order for general discovery.

12. On 18 September 2014, Long filed her Statement of Claim (“SoC”). On 13 November 2014, AJK Ltd filed its Defence and Liu filed her Defence (“Liu Defence”). On 5 November 2014, Liu’s present solicitors filed Notice of Change of Solicitors. On 16 January 2015, Long filed her respective Reply via-a-vis AJK Ltd and Liu (“AJK Reply” and “Liu Reply”). On 23 April 2015, Long filed her Answer to the request for further and better particulars of the AJK Reply.

13. On 12 March 2015, Liu filed the Summons and the supporting affidavit of her solicitor Randall Ivan Arthur (“Arthur Aff”). Long filed her own 3^rd affirmation (“Long 3^rd Aff”) and Wu’s 2^nd affidavit in opposition (“Wu 2^nd Aff”). On 28 August 2015, Liu filed her own affirmation in reply.

14. So far, AJK Ltd being separately represented had not applied for security for costs against Long.

III.  PARTIES’ CASES

15. A succinct summary of the parties’ respective pleaded cases can be gleaned from paragraphs 4-8 of Anthony Chan J’s decision dated 12 October 2015[1] in which he dismissed AJK Ltd’s appeal against the master’s refusal to strike out parts of the SoC for alleged non-compliance with an unless order to provide further and better particulars.

16. Mr Chan, counsel for Long, submitted that although Liu claimed to be the true beneficial owner and Long a mere nominee of the Shares, she tactically refrained from raising any counterclaim for declaratory relief to avoid becoming the “attacker” under counterclaim which would have undermined her application for security. I disagree. Liu was recorded on the Register as holder of the Shares, so she did not require any declaratory relief as to her legal title to the Shares. If Long failed to obtain the Rectification Relief, Liu’s position would remain intact.

(a)  Background

17. AJK Ltd was incorporated in Hong Kong on 21 April 1992 with 1,000,000 issued shares of HK$1 each. AJK Ltd claimed that although these shares were credited as having been paid up, none of the shareholders paid any amount to AJK Ltd for shares held by or registered in their names.

18. Long claimed her husband Winston Lee So (who passed away in Beijing on 18 September 2013, “Lee”) financed the setting up of AJK Ltd, and she further averred:

(a)  the first subscribers were Lee’s friends Cheung Chau Bing (“Cheung”) and Poon Neng (“Poon”) who held their respective shares in AJK Ltd as nominees on trust for Lee;[2]

(b)  the subsequent shareholders, ie Chan, Hui Sing (“Hui”), Xing and Liu, were Lee’s subordinates or business associates who also held their respective shares in AJK Ltd as nominees for Lee;[3]

(c)  Lee was responsible for paying and did pay AJK Ltd’s share capital which was recorded as fully paid up;[4]

(d)  due to the nominee arrangement Chan, Hui, Xing and/or Liu did not pay any amount to AJK Ltd, Lee or any of their predecessors-in-title in exchange for the shares held/ registered in their names; and

(e)  Lee only became a shareholder of AJK Ltd on 28 March 1998.

19. According to the Register, on 27 December 1995 the registered holders were Chan (999,999 shares) and Hui (1 share). On 28 March 1998, Hui transferred his 1 share to Lee, and on 26 October 1998 Lee transferred his 1 share to Xing. On 14 November 1998 Chan transferred 949,999 shares to Xing and another 25,000 shares to Lee, and on 17 March 2001 Chan transferred her remaining 25,000 shares to Lee. On 6 January 2005, Xing transferred 940,000 shares (ie the Shares) to Liu and another 10,000 shares to Chan, and Lee transferred 20,000 shares to Chan. On 2 November 2011, Liu transferred 940,000 shares (ie the Shares) to Long (“2011 Transfer”) ending up with 3 shareholders, ie Long (940,000 shares), Chan (30,000 shares) and Lee (30,000 shares). In AJK Ltd’s annual return in April 2014, the shareholders were Liu (940,000 shares, ie the Shares), Chan (30,000 shares) and Lee (30,000 shares) with Lee/Xing as its directors. The present dispute concerned how/why the Shares were allegedly transferred from Long to Liu in 2013.

20. Long claimed the aforesaid changes of holders for the Shares were done pursuant to oral requests/directions by Lee as beneficial owner of all AJK Ltd’s issued shares, so except the 2011 Transfer by which Lee gifted the Shares to Long, such changes merely changed the nominee shareholders who held AJK Ltd shares but did not operate to transfer the beneficial interest in those shares. On the other hand, Liu claimed Xing was the Shares’ rightful owner when he transferred them to her on 6 January 2005, and by the 2011 Transfer she only made Long her nominee in holding the Shares, which did not operate to transfer beneficial ownership to Long.

21. According to the Register, (a) Long transferred the Shares to Liu on 14 June 2013 (ie the 2013 Transfer), (b) the current shareholders were Chan (30,000 shares), Lee (30,000 shares) and Liu (940,000 Shares, ie the Shares), and (c) Liu was the Shares’ registered holder since 6 January 2005 except from 2 November 2011 to 14 June 2013. But Long disputed the validity/effect of the 2013 Transfer and/or beneficial ownership of AJK Ltd’s issued shares held by the current holders.

(b)  AJK Ltd’s case

22. The 2011 Transfer was effected by an instrument of transfer (“I/T”) and bought and sold notes (“B/SN”) both dated 2 November 2011 that were (a) on their face signed by Liu as transferor and a “龙海紅” “which [AJK Ltd] believed to be [Long] (as transferee)”, and (b) duly stamped on 7 March 2012.

23. According to the Register, Long ceased to be a member of AJK Ltd and Liu’s name was entered as a member of AJK Ltd for the Shares on 14 June 2013 (ie the 2013 Transfer). AJK Ltd claimed:

(a)   such change was based on information in I/T and B/SN both dated 15 January 2013 that were (i) on their face signed by a “龙海紅” “which [AJK Ltd] believed to be [Long] (as transferor)” and Liu (as transferee), and (ii) duly stamped on 14 June 2013;

(b)  it entrusted Lee to handle (which he did) the documents/ formalities for effecting the 2011/2013 Transfers including procuring the signatures of Long and Liu, and Lee then caused the original I/T to be kept by AJK Ltd;

(c)   all directors of AJK Ltd (ie Chan, Xing and Liu in 2011 and Xing and Lee in 2013) were aware of and agreed to the 2011/ 2013 Transfers;[5] and

(d)  the 2011/2013 Transfers as effected were/are valid and effective (and AJK Ltd were not concerned with Liu’s and Long’s private arrangements) particularly as the “龙海紅” signatures appended on relevant I/T and B/SN were signed (or appeared to have been signed) by the same person, and if those signatures were not Long’s signatures the 2011/2013 Transfers were void and had no legal effect, which meant Long was not and never had been a shareholder of AJK Ltd.

(c)  Long’s case

24. Long claimed she was the lawful wife of Lee since 1992, and although a Ting Ting Lee (“Ms Lee”) claimed to have married Lee in the United States on 16 March 1991 and commenced proceedings in Mainland China to declare Long’s marriage to Lee in 1992 null and void, on 21 May 2015 the PRC court upheld the validity of the Long/Lee marriage (“PRC Proceedings”). In 1992 AJK Ltd was founded by Lee, who claimed to be the beneficial owner of its entire issued share capital that was held for him by his trusted subordinates (including Liu who held the Shares from 6 January 2005 to 2 November 2011).

25. Long claimed that on/about 12 September 1994 Lee through AJK Ltd entered into a joint venture to establish 北京漢威大廈物業有限公司 (“Beijing Hanwei”) in Mainland China, which in turn (a) developed/owned an office building in Chaoyang District, Beijing called 漢威大廈 (“Hanwei Building”) and (b) owned various luxurious motor vehicles. Through his own resources and/or funds derived from AJK Corp that was incorporated in the United States and owned/controlled by Lee, Lee solely financed AJK Ltd’s investment share in Beijing Hanwei (US$18.05 million). On/about 16 May 2011, AJK Ltd acquired controlling shareholding in Beijing Hanwei (and indirectly Hanwei Building which was then worth RMB3 billion) from the minority shareholders, and eventually became its sole shareholder. Before his death Lee looked after the business of Beijing Hanwei and the management of Hanwei Building, and he was Beijing Hanwei’s director, chairman of the board and legal representative.

26. Long averred Lee intended to gift the Shares to her such that he gave directions for the 2011 Transfer. On 2 November 2011, Lee caused his then nominee Liu to transfer the Shares to Long, and Long (at all times a housewife) expressly authorised Lee to (a) take care of the share transfer documents/formalities, including executing any legal documents on her behalf, and (b) handle the registration of such transfer with AJK Ltd as he was more familiar with those matters. Long claimed she did not personally sign/execute any I/T or B/SN for the 2011 Transfer, and although she had no idea who physically appended the signatures of “龙海紅” on such documents, Lee procured execution thereof with her authority and orally told her he had duly completed the documents/ formalities on her behalf. Long agreed all directors of AJK Ltd at the time, ie Chan, Xing and Liu, were aware of and agreed to the 2011 Transfer. Long claimed the 2011 Transfer was valid, binding and subsisting as the relevant I/T and B/SN were executed with her authority/consent given to her lawful husband Lee,[6] and she became the legal/beneficial owner of the Shares. Lee told Long all relevant share certificate documents were deposited at AJK Ltd’s registered office where (she believed) they had been kept to date.

27. Long claimed that if the 2011 Transfer was void or had no legal effect for any reason, Liu held the Shares on trust for her as beneficial owner as (a) Lee intended to transfer his beneficial ownership to Long as gift by the 2011 Transfer, (b) Lee took all steps within his power to complete the 2011 Transfer by procuring the registration of Long as holder of the Shares in the Register and/or (c) it would be unconscionable for Lee to resile from gifting the Shares to Long.

28. Even though Long became the majority shareholder of AJK Ltd, she did not take part in its management until 30 March 2012 when its directors Xing/Liu resigned and Lee/Long agreed to take up their places. On 3 January 2013, Long resigned as a director for “personal reasons” whereupon Xing become a director until the present date.

29. On 29 September 2013, ie soon after Lee passed away, Xing without notifying Long appointed Liu as director of AJK Ltd to replace Lee. Then on 14 October 2013, AJK Ltd authorised Liu to remove Lee from all his positions in Beijing Hanwei, and to appoint Liu as Beijing Hanwei’s chairman of the board and legal representative.

30. On 21 October 2013, Liu and Long met at Beijing Hanwei’s office in Beijing, and Liu asked Long to sign a Chinese-typed document in duplicate which broadly stated「本人,龍海紅,現確認有關[AJK Ltd]的股權轉讓協定上的所有簽名,都是我的簽名,該簽名屬實,確認無疑」. Long was puzzled by and suspicious of such request because she (a) had never executed or agreed to execute any share transfer agreement or any I/T and/or B/SN or signed any blank form in relation to the Shares, and (b) had not agreed with anyone to sell or dispose of the Shares. Long told Liu she had to consult her lawyers, but Liu said if so Long would not sign the Chinese document and she took it back.

31. Shortly thereafter, on 28 October 2013 Beijing Hanwei posted a notice at Long’s residence stating she was no longer allowed to stay there or to use her 3 cars as they were Beijing Hanwei’s properties. Long subsequently discovered that since October 2013 Beijing Hanwei sold 2 luxurious motor cars with respective market values of about RMB9 million and RMB5.3 million. Long came to realise the Shares could be at stake, so she (as AJK Ltd’s majority shareholder) instructed her former solicitors to write to AJK Ltd on 4 November 2013 to ask for copies of inter alia the Register and all share transfer documents, but there was no response. Long caused her former solicitors to perform a company search, and discovered Chan had resigned as secretary of AJK Ltd on 11 November 2013 and was replaced by SHL Services Limited (“SHL”) being SH’s service company.

32. In view of the above matters, Long wished to convene an EGM, but the prescribed quorum under AJK Ltd’s articles of association (“AJK Articles”) was 2. Since mid-November 2013 Long tried to liaise with Chan to invite her to attend the proposed EGM, but there was no response. After some correspondence between Long’s former solicitors and SH/SHL, SH replied on 25 November 2013 they were instructed by AJK Ltd “not to allow [Long] to access or inspect any register, book or record of [AJK Ltd]”. So on the same day, Long instructed her solicitors to commence (a) HCMP3178/ 2013 on her behalf as member/shareholder of AJK Ltd for inspection of the Register and (b) the present proceedings for the EGM Relief.

33. On 6 January 2014, AJK Ltd filed the Kang Aff stating the handwritten entries on the Register (a copy of which as disclosed) showed Long had ceased to be a member of AJK Ltd upon transfer of the Shares to Liu on 14 June 2013 for a consideration of HK$940,000. Long claimed this was the first time she knew about the 2013 Transfer, and she (a) had never been informed of and had never consented to or authorised the 2013 Transfer, (b) had never intended or agreed to sell the Shares to Liu or any other party for HK$940,000 or at all, (c) had never received payment for any sale/transfer of the Shares to Liu, (d) had never personally executed/signed[7] or authorised the execution of any I/T and/or B/SN for the Shares in favour of Liu on 14 June 2013 or any other date and/or (e) had never delivered or authorised delivery of any proper I/T to AJK Ltd pursuant to section 66 of the Old CO for registering any transfer of the Shares to Liu. On such basis, Long claimed the registration of the 2013 Transfer by AJK Ltd was without consideration, unlawful and null/void, so she was “without sufficient cause omitted from the Register as the holder of the Shares and [Liu] is without sufficient cause entered in the Register as the holder of the Shares”.

34. At the time of the 2013 Transfer, Lee was still a director of AJK Ltd. If the 2013 Transfer did take place (which Long denied), article 3 of AJK Articles required such transfer to be approved by AJK Ltd’s directors (then Lee and Xing) before it could be recorded in the Register, but Lee never told Long about the 2013 Transfer. If the 2013 Transfer was arranged/procured by Lee (which Long did not admit), Long never authorised Lee or any other party to procure the 2013 Transfer or to execute any documents in relation to the same on her behalf, so the 2013 Transfer procured without Long’s due and proper authority was null and void. Long further agreed that since the signatures “龙海紅” appended on I/T and B/SN for the 2013 Transfer were not hers, the 2013 Transfer was void and had no legal effect.[8]

35. Long claimed article 3 of the AJK Articles required (a) a fee not exceeding HK$2 to be paid to AJK Ltd for any I/T, and (b) such I/T to be accompanied by a certificate of shares to which it related and such other evidence as AJK Ltd’s directors might reasonably require to show the transferor’s right to make the transfer. But Long never paid any prescribed fee nor surrendered or agreed to surrender the share certificate for the Shares in favour of any other party. Long claimed she had never made any transfer of the Shares, had not executed any documents which might be used to evidence her right to make any such transfer, had never lodged any application with AJK Ltd to transfer the Shares to Liu, and had never paid any stamp duty in relation to the 2013 Transfer, so Long claimed the 2013 Transfer was illegal, wrongful and contrary to section 66 of the Old CO. But as a result of Kang’s production of the Register, Long and AJK Ltd entered into a consent summons in HCMP3178/2013 for dismissal of such proceedings with costs to AJK Ltd, and Long applied to add the Rectification Relief in the OS in the present proceedings.

(d)  Liu’s case

36. Liu claimed that since 1987 she was a businesswoman with an advertising business, and since 1994 she invested in real estate and operated other cultural-related businesses. Liu claimed she controlled a number of PRC companies, including 北京高斕大廈有限公司, 北京創普空間科技孵化器有限公司and 北京漢威聯合集團有限公司 with combined registered capital totalling about RMB200 million, and she also invested in various PRC property investments.

37. Liu met Lee in 1988, and they were business partners from 1993 until Lee’s death. Since 1998 they had a romantic relationship and cohabited together, so Liu trusted Lee who had an important role in many of her investment enterprises. Nevertheless, Liu was directly responsible for the management and profit/loss of her own businesses, and most business loans were supported by her personal guarantees. Lee as an American Chinese was mainly responsible for dealing with external matters including customer liaison/entertainment.

38. Liu came to meet Long through Lee, and understood from Lee (whom she believed to be single) that Long and Ms Lee were his ex-girlfriends. Liu did not object to Lee’s wish to financially support Long and Ms Lee, so with Liu’s approval Lee let Long and her family have use of a residential property and some motor cars, and paid part of their living expenses. But Long never participated in any of Liu’s or Lee’s business enterprises/activities.

39. On the day Lee passed away, Long claimed to be Lee’s lawful widow and showed Liu a Chinese marriage certificate issued in 1992. Ms Lee also told Liu she married Lee in the United States on 16 March 1991, which such marriage had not been dissolved before Lee’s death. On 27 November 2013 Ms Lee commenced the PRC Proceedings for a declaration that Lee’s marriage to Long was null and void (but Long claimed the PRC court upheld the validity of her marriage).

40. As regards AJK Ltd, Cheung and Poon were the subscriber shareholders, and Lee only became a shareholder on 28 March 1998. Lee held 30,000 AJK Ltd shares (ie 3% shareholding) when he died on 18 September 2013. Xing claimed to be a director of AJK Ltd from 20 October 1998 to 30 March 2012 and from 3 January 2013 to date, and the legal/beneficial owner of the Shares from 14 November 1998 to 6 January 2005.

41. As regards Beijing Hanwei, Liu claimed AJK Ltd was never its shareholder. Beijing Hanwei was a sino-foreign joint venture company incorporated on 24 November 1994 in Beijing to develop/manage Hanwei Building. Its establishment was approved by 北京市對外經濟貿易委員會(now known as 北京市商務委員會), and the relevant documents showed the PRC investors were 北京市光華染織廠, 北京漢威經濟技術發展總公司 and 北京市京工房地產開發總公司, and the foreign investor (to date) was a Hong Kong partnership called AJK Company (“AJK Company”). Liu claimed AJK Ltd and AJK Company were separate entries such that various documents in relation to Beijing Hanwei made reference to AJK Company and not AJK Ltd.[9] There was no record that AJK Company transferred its interest in Beijing Hanwei to any other party, which transfer would have required approval of other investors and approving authorities, and no document that AJK Company had applied to the other investors and approving authorities for such approval and/or they had granted such approval. Since April 2011 北京漢威經濟技術發展總公司 and 北京市京工房地產開發總公司 retired from the joint venture, so the remaining joint venture parties were AJK Company and 北京市光華染織廠 (with subsequent name-change to 北京市光華紡織集團有限公司).[10]

42. Liu therefore claimed AJK Ltd never invested or never had any interest in Beijing Hanwei. But she frankly accepted that in 2013 the names and company chops of both AJK Ltd and AJK Company appeared in Beijing Hanwei’s internal documents which might have caused confusion and/or led to the erroneous belief that AJK Ltd was an investor in Beijing Hanwei. To dispel any misunderstanding, 北京市光華紡織集團有限公司 and AJK Company issued a joint confirmation to make clear the foreign investor in Beijing Hanwei was AJK Company.

43. As regards Lee, he was Beijing Hanwei’s chairman of the board and legal representative from August 1996 until his death in September 2013. Liu claimed that after Lee passed away, there was urgent necessity to replace these positions to maintain Beijing Hanwei’s normal operations. So on 14 October 2013, Beijing Hanwei’s board of directors approved Liu’s appointment as chairman of the board and legal representative. Liu said it was unnecessary to notify Long or to seek her consent since she had no legal relationship with Beijing Hanwei.

44. Liu claimed it was Xing (whom she claimed to be the rightful owner) who transferred the Shares to her on 6 January 2005. Xing was Liu’s long-time business partner, and in 2004 they discussed using AJK Ltd (then a shell company without any investment, asset or subsidiary) to be the foreign party in a PRC project company to be set up for investing in a real estate project in Beijing, and giving Liu leadership and control for such project. As a result of the 2011 Transfer, Liu became the legal/ beneficial owner (and not Lee’s nominee/trustee) of the Shares and thus AJK Ltd’s majority shareholder, and Xing did not require Liu to pay any consideration for the 2011 Transfer since AJK Ltd was just a shell company.

45. The intended project company called 北京托普世紀科技企業孵化器有限公司 (“Project Company”) was established on 9 January 2007 with AJK Ltd as the foreign party and 北京世紀星空影業投資有限公司as the sino party. Up until 18 October 2011, the sino party (中國境內有限責任公司) with share capital of RMB80 million was held/controlled by Liu (who was its 62.5% shareholder, legal representative and chairman of the board), Xing (who was its 25% shareholder and together with Lee were the other 2 directors) and another party. Liu was responsible for the operation, management and investments of the Project Company, and the Project Company’s loans were supported by her personal guarantees.

46. In order to protect Liu’s interest in the Project Company, Liu, Lee and Xing discussed/decided to transfer AJK Ltd’s shares in the Project Company to another Hong Kong company China Terry Limited (“China Terry”) of which Liu was the 99.9% majority shareholder. On 29 January 2012, AJK Ltd transferred its 35.36% shareholding in the Project Company to China Terry, and such transfer was approved by the board of the Project Company and by 北京豐台區商務委員會 on 15 February 2012. So AJK Ltd again became a shell company, and no longer had any investment, fixed asset or subsidiary.

47. For the 2011 Transfer, Liu claimed she was the legal/ beneficial owner of the Shares. Lee never told her he had any intention to transfer any AJK Ltd shares he held or he once held to Long. He could not do so, but even if he did, he could only transfer all/part of the AJK Ltd shares in his name and not the Shares that did not belong to him. AJK Ltd’s Register did record the 2011 Transfer, which came about because of the needs of Liu’s business operations in/about 2011. She was then looking for a nominee who did not have any connection with her to hold the Shares and to act as director on her behalf temporarily, and Long was 1 of 3 persons Lee recommended to her as whom she could trust, the other 2 being Wang Yanping (Lee described her as his ex-wife) and her brother. As Liu did not know them she told Lee to liaise with Long for her to hold the Shares on Liu’s behalf. As part of such arrangements, Liu signed I/T and B/SN both dated 2 November 2011, and gave them to Lee for him to make necessary arrangements for the 2011 Transfer. The fully signed I/T and B/SN for the 2011 Transfer that bore the signature “龙海紅” above the printed name “Long Hai Hong” suggested Long herself signed them.

48. Xing also recalled Liu told her in 2011 that because of business needs she required Long to hold the Shares and to act as director on her behalf to which Xing agreed. At the time of the 2011 Transfer on 2 November 2011, Xing, Chan and Liu were directors of AJK Ltd, and they all agreed to the 2011 Transfer.

49. Liu complained Long had not pleaded her case as to whether she had in fact appended or signed each of the signatures “龙海紅” appearing on I/T and B/SN for the 2011 Transfer, or whether any or all of them were appended by another person with her authority or were forgeries. Liu claimed she never received any consideration from Long for the above arrangements.

50. According to AJK Ltd’s records with the Company Registry, Xing and Liu ceased to be its directors since 30 March 2012, and Lee and Long became its directors. In the annual return dated 21 April 2012, Long’s name appeared for the first time as registered shareholder for the Shares.

51. Liu claimed that when the nominee arrangement was no longer necessary in/about the end of 2012, she asked Lee to help return the Shares to be held under her name and to release Long from her appointment as director of AJK Ltd. Long ceased to be a director of AJK Ltd on 3 January 2013, and Xing became a director on the same day. As part of the arrangements for return of the Shares to her, Liu signed I/T and B/SN both dated 15 January 2013 for the 2013 Transfer, and then gave the signed documents to Lee for him to make the necessary arrangements. The fully signed I/T and B/SN for the 2013 Transfer bore the signatures “龙海紅” above the printed names “Long Hai Hong”, which suggested Long herself signed them. According to the Register, the Shares were transferred from Long to Liu on 14 June 2013. As at 14 June 2013, AJK Ltd’s directors were Xing and Lee. Xing confirmed they both agreed to the 2013 Transfer, and AJK Ltd retained the 2 original I/T for the 2011/2013 Transfers, so Long was never the beneficial owner of the Shares.

52. Liu complained Long had not pleaded her case as to whether she had in fact appended or signed each of the signatures “龙海紅” appearing on I/T and B/SN for the 2013 Transfer, or whether any or all of them were appended by another person with her authority or were forgeries.

53. Liu relied on Lee to liaise with Long, and she did not have any direct contact with Long. But Liu never received any consideration from Long for the above arrangements. Since the Register recorded Liu was registered as a member as from 14 June 2013 and given the nominee arrangement, Liu claimed Long was not and had never been a beneficial owner of the Shares. Further, since there was no payment from Liu to Long for return of the Shares upon cessation of the nominee arrangement, section 66 of the Old CO was not engaged.

54. Ever since Lee passed away, Long claimed to be his lawful widow and asked Liu for Lee’s estate/assets. At that time, Liu was shocked by Lee’s sudden death and Long’s disclosure of her marriage to Lee, so on the night Lee passed away Liu gave Long 5 valuable watches (worth about RMB20 million), some RMB/foreign currency and Lee’s identity documents. Thereafter, quarrels ensued between Long and Liu over where Lee’s cremated ashes should be kept and over the purchase of a suitable grave site for Lee’s remains, which caused a breakdown of their relationship. Liu agreed she met Long once on 21 October 2013 in Hanwei Building, but denied she gave Long a Chinese-typed document. Rather on that occasion there was discussion about a suitable grave site for Lee, but such discussion ended up in unhappy disagreement.

55. Xing said on 29 September 2013 he as remaining director of AJK Ltd appointed Liu (who was the majority shareholder) as a new director in accordance with the AJK Articles (that required 2 directors). Xing claimed there was no relationship between Long and AJK Ltd, so there was no need to notify her or seek her consent. Xing confirmed that ever since he became a director of AJK Ltd, AJK Ltd had never issued any share certificates. A book of blank share certificates was kept at AJK Ltd’s registered office, so he disagreed Long had received a share certificate for the Shares.

56. Liu complained that Long made various unfounded reports against her to the public security bureau to cause disturbance to her life/work. Due to the deterioration in their relationship, Liu decided to withdraw her previous approval in letting Long have use of the residential property owned by 北京高斕大廈有限公司 and the cars owned by Beijing Hanwei. Beijing Hanwei had no practical use for luxurious cars, so they were sold to enable Beijing Hanwei to utilise the proceeds. Hence, 北京高斕大廈有限公司 and Beijing Hanwei instructed PRC lawyers to give notice to Long to repossess her residence and cars, which matters had nothing to do with whether Long was a beneficial or nominee holder of the Shares. Anyway, these were not steps of dissipation for Beijing Hanwei still had use of the sale proceeds and its overall assets were not diminished.

IV.  LEGAL PRINCIPLES: SECURITY FOR COSTS

57. There was no dispute Long resided in Mainland China and hence outside the Hong Kong jurisdiction.[11] The applicable principles are well established.[12] Order 23 rule 1(1)(a) of the Rules of the High Court provides that where the plaintiff is ordinarily resident out of the jurisdiction, the court may order security for costs if having regard to all the circumstances of the case it is just to do so. It is trite that the power to order security is discretionary and the court should have regard to all the circumstances of the case,[13]and consider what was just,[14] but even if there is no inflexible or rigid rule, as a matter of discretion it is common that the court will require a foreign plaintiff to give security for costs because it is ordinarily just to do so.[15]

V.  LEGAL PRINCIPLES: APPEAL AGAINST MASTER’s DECISION

58. It is trite that an appeal from the master to judge in chambers is dealt with by an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time. The judge will give the weight it deserves to the previous decision of the master; but he is in no way bound by it.[16]

VI.  SUMMONS

59. There was no evidence Long had available assets within the jurisdiction against which costs orders could be enforced. There was also no reciprocal enforcement of Hong Kong judgments on costs in Mainland China.[17] So Liu would have difficulty in enforcing any costs order made against Long in Mainland China which was not a common law jurisdiction. Long raised the following grounds of opposition: (a) her claim had a high probability of success, (b) an order for security would stifle her claim, (c) there was substantial delay in bringing the application to Long’s prejudice, and (d) the quantum of security sought was sparse in particulars and grossly inflated.

VII.  HIGH PROBABILITY OF SUCCESS

60. Legal principles  In considering all the circumstances, the court will have regard to the plaintiff’s prospect of success, but should not go into the merits in any detail unless it can be clearly demonstrated one way or another there is a high degree of probability of success,[18] and the threshold is very high.[19]

61. Contextual background  Mr Chan asked this court to view the Summons in its proper context, ie (a) Lee died suddenly in September 2013, (b) Long soon discovered Liu/Xing swiftly took steps to seize control of AJK Ltd (by appointing Liu as director in place of Lee) and Beijing Hanwei[20] (by appointing Liu as legal representative in place of Lee), and (c) Long’s attempts to protect her interests by seeking inspection of AJK Ltd’s records, eg the Register, were stonewalled. But I note Liu’s case was diametrically different. She painted a picture of Long as a grasping widow who was anxious about Lee’s estate/assets, who made unreasonable and extravagant demands[21] and who harassed Liu,[22] but Liu herself made appropriate business decisions for AJK Ltd and Beijing Hanwei following Lee’s death (see paragraphs 55-56 above). In my view, these factual disputes could not be resolved before trial, and they did not demonstrate P’s case had a high probability of success.

62. Issue  Pursuant to section 635 of the Companies Ordinance Cap 622 (“New CO”), in the absence of evidence to the contrary, the Register was proof of any matters that were by the New CO required or authorised to be inserted in it, eg Liu was the holder of the Shares. To obtain inter alia the Rectification Relief, Long had to show she was “without sufficient cause” omitted from the Register as the holder of the Shares and Liu was “without sufficient cause” entered in the Register as holder of the Shares.[23] Could Long show a high probability of success on such issue?

63. Discussion  I start with the 2011 Transfer. There was no dispute (a) on 2 November 2011 Liu transferred the Shares to Long who became the registered holder even though the relevant I/T and B/SN that effected the 2011 Transfer (which Long did not personally execute/sign such that the appended signatures “龙海紅” were made by person unknown to her) were stamped 4 months later on 7 March 2012, and (b) Lee handled the arrangements for the 2011 Transfer (by attending to the relevant documents/formalities), liaison with Long and Liu, and registration of such transfer on the Register. The real dispute was whether Long as transferee held the Shares as nominee (as Liu alleged) or as legal/beneficial owner (as Long alleged).

64. Long’s case was that Lee intended to and did gift the Shares to her (as his lawful wife), but she only found out on 6 January 2014 the Register had been altered on/about 14 June 2013 with Liu’s name entered in her place as holder of the Shares pursuant to the 2013 Transfer. In short, Long claimed she never (a) knew, consented to or authorised the 2013 Transfer, (b) agreed to sell/transfer the Shares to anyone (including Liu), (c) executed or authorised anyone to execute any document for the 2013 Transfer, (d) received any payment for the 2013 Transfer and/or (e) delivered or authorised delivery of a proper I/T to AJK Ltd in 2013 or at all, so she sought the Rectification Relief.

65. Mr Chan submitted the lack of a validly executed I/T for the 2013 Transfer would be determinative because under section 66 of the Old CO then in force, “[notwithstanding] anything in the articles of a company, it shall not be lawful for the company to register a transfer of shares in …… the company unless a proper instrument of transfer has been delivered to the company……” He argued the absence of a proper I/T being lodged with AJK Ltd would be fatal to the registration of the 2013 Transfer on the Register,[24] and since Long’s position was clear/simple from the beginning,[25] it clearly had a high probability of success.

66. But the present action was quite different from the situation in Cheung Hing v Sidepec International Limited & anor[26] that Mr Chan cited. The plaintiff in that case similarly complained he never consented to the transfer of shares or signed any corresponding I/T and B/SN, but the defendant companies did not file any opposing evidence and there was no evidence suggestive of the existence of any proper I/T, so “there is no room to raise any dispute”. The present action was far different with executed I/T and B/SN for the 2013 Transfer that appeared on their face to have been executed/signed by Long and stamp duty was actually paid on such transfer documents.

67. Long’s case of denial that the appended signatures on I/T and B/SN for the 2013 Transfer were executed/signed or authorised by her suggested they were forged, falsified or otherwise made without her authority. But in my view it would be idle to think there could be sterile determination of the vitality of such denial without proper fact-finding and assessment of witness credibility against the relevant factual matrix, undisputed facts and documentary evidence. Having considered Long’s, AJK Ltd’s and Liu’s respective case outline above, there was plainly room for dispute, and I fail to see how Long’s denial would have high probability of success given (a) the contents of the Register, (b) the appended signatures on I/T and B/SN for the 2013 Transfer, (c) Xing’s corroboration of Liu’s case, and (d) the evidential lacuna following Lee’s death.

68. Mr Chan argued otherwise and suggested Long had a strong case because AJK Ltd’s / Liu’s pleaded case was nebulous on the crucial issue as to whether there was a proper I/T. But Mr Wong SC (and with him Mr Lui), counsel for Liu, disagreed, and submitted AJK Ltd and Liu (supported by the Xing Aff) did put forward a clear positive case.

69. First, Mr Chan pointed out (a) AJK Ltd pleaded “[the 2013 Transfer] was effected by an [I/T and B/SN] both dated 15 January 2013 which were on their face signed by one ‘龙海红’ which [AJK Ltd] believed to be [Long] (as transferor) and [Liu] (as transferee) and duly stamped on 14 June 2013”, and (b) Liu pleaded “[the] fully signed 2013 Transfer [I/T and B/SN] bear the signatures ‘龙海红’ above the printed names “Long Hai Hong”, which suggest that [Long] had herself signed the 2013 Transfer [I/T and BS/N]”, but neither AJK Ltd nor Liu committed to any positive averment that Long did in fact execute (or authorise the execution of) I/T and B/SN for the 2013 Transfer, and they just conveniently stated Lee (now deceased) was responsible for arranging the paperwork.

70. But, as Mr Wong SC submitted, AJK Ltd and Liu did have a positive stance. For AJK Ltd, it claimed that changes to the identity of the holder of the Shares in the Register were made pursuant to the 2011/2013 Transfers as evidenced by I/T and B/SN that appeared on their face to be signed by Long, and that all AJK Ltd’s directors were aware of and agreed to those transfers at the material times, so there was no reason for AJK Ltd to doubt the 2011/2013 Transfers were otherwise than valid and effective. For Liu, she claimed to be the legal/beneficial owner of the Shares but acceded to recommendation by Lee (her business partner and lover/ cohabitee) for Long to be her nominee when she needed one in 2011 to temporarily hold the Shares on her behalf. Liu entrusted Lee to make the necessary arrangement with Long, and executed I/T and B/SN for the 2011 Transfer. But when the nominee arrangement was no longer required by the end of 2012, Liu asked Lee to procure the return of the Shares, and for such purpose executed 1/T and B/SN to effect the 2013 Transfer.

71. Further, at this interlocutory stage of the proceedings and in the absence of handwriting expert evidence, the executed/stamped I/T and B/SN for the 2013 Transfer which bore the signatures “龙海紅” above the printed names “Long Hai Hong” (as transferor)[27] gave apparent evidential support to the aforesaid pleas by AJK Ltd and Liu, who went on to aver in their respective Defence that it was believed Long herself signed such instrument/notes. There were further considerations. First, the transfer documents for the 2011/2013 Transfers were stamped a few months after the relevant transfers, ie the transfer documents for the 2011 Transfer dated 2 November 2011 were stamped on 7 March 2012, and those for the 2013 Transfer dated 15 January 2013 were also stamped a few months later on 14 June 2013. Secondly, even though Long denied she personally signed the appended signatures “龙海紅” on the executed/stamped I/T and B/SN for both the 2011 Transfer (which validity she did not dispute) and 2013 Transfer (which validity she disputed), they were not signed in the name of the signatory on Long’s behalf (or purportedly on her behalf), but simply signed in the 3 Chinese characters of her name. In my view, there was arguable basis to suggest the 2013 Transfer appeared to have adopted similar modus operandi as the 2011 Transfer that raised a clear dispute between the parties.

72. Still further, at this interlocutory stage, I am unable to dismiss Liu’s assertion that Lee arranged the paperwork for the 2013 Transfer when, according to all of Long, AJK Ltd and Liu, Lee was also responsible for and arranged the paperwork for the 2011 Transfer. In such circumstances and in the absence of handwriting expert evidence at this stage, the fact AJK Ltd and Liu could not plead definitively that Long was actually the one who signed I/T and B/SN for the 2013 Transfer was understandable. But they were not shy about their stance. Indeed, they marshalled the relevant material facts to plead they believed Long herself signed I/T and B/SN for the 2011/2013 Transfers. But more importantly for present purpose, this did not mean Long’s case had high probability of success. In the present context, Long could not by putting forward a denial pull her own case up by its bootstraps to the level of high probability of success. Ultimately, it would be a matter of assessment of witness credibility against the surrounding relevant factual/documentary matrix that explained why the 2013 Transfer took place (if at all) and if so, the manner in which the I/T and B/SN for the 2013 Transfer came about.[28]

73. Secondly, Mr Chan submitted AJK Ltd and Liu did not explain how/why I/T and B/SN for the 2013 Transfer came to be dated 15 January 2013 and were stamped/registered 6 months later on 14 June 2013, but in the intervening period AJK Ltd filed an annual return dated 21 April 2013 that still recorded Long as holder of the Shares but not as a director of AJK Ltd, which was consistent with Long’s case that she resigned for personal reasons on 3 January 2013. But Mr Wong SC reminded that even though Long claimed she resigned as director of AJK Ltd for unspecified “personal reasons” on 3 January 2013 (ie shortly before execution of I/T and B/SN for the 2013 Transfer on 15 January 2013), she never alleged the signature “龙海紅” on the relevant Form D4, which again was quite similar to the appended signatures “龙海紅” on I/T and B/SN for the 2011/2013 Transfers, was not appended or authorised by her. However, Mr Chan argued deferred stamping/registration of I/T and B/SN for the 2013 Transfer demonstrated Liu’s attempt to associate the timing of Long’s resignation as director of AJK Ltd on 3 January 2013 with the 2013 Transfer to support her nominee theory was opportunistic and plainly an afterthought.

74. In my view, these various arguments put forward by Long and Liu merely showed both parties had arguable contentions that could only be resolved at trial, but they did not reach the threshold of demonstrating high probability of success on Long’s part. As explained above, the transfer documents for both the 2011 and 2013 Transfers were not stamped immediately, and given the undisputed validity of the 2011 Transfer the deferred stamping for the 2013 Transfer might not necessarily have any sinister connotation. As regards Long’s resignation as director of AJK Ltd, Long’s criticism against what Mr Chan described as Liu’s nominee theory was must be viewed against Long’s reticence in giving enlightenment as to her “personal reasons” for resignation as director, and also as to (a) whether or not she personally signed the Form D4 or (b) if not, whether or not she authorised the execution thereof. There was arguable basis to suggest similar modus operandi was adopted for I/T and B/SN for the 2011/2013 Transfers that the signatory actually signed Long’s name “龙海紅” instead of the signatory’s own name marked to be on behalf of Long. In my view, these were all matters that need to be assessed, weighed and considered for fact-finding at trial.

75. In light of the above, there was force in Mr Wong SC’s submissions that AJK Ltd and Liu did put forward a positive case, and it was therefore incumbent upon Long to show the appended signatures on I/T and B/SN for the 2013 Transfer were forged, falsified or otherwise made without authority. It was doubtful whether AJK Ltd and Liu were required to adduce separate proof of due execution of I/T before registration of the 2013 Transfer on the Register, especially when (a) Long/Liu entrusted Lee (who was a director of AJK Ltd) to handle the documents/formalities for the 2011 Transfer and (on AJK Ltd’s / Liu’s case) to handle the 2013 Transfer as well, and (b) when AJK Ltd claimed its directors all approved the 2011/ 2013 Transfers. But even if there was arguable basis to suggest AJK Ltd might have more stringent responsibility, this would be a matter for trial.

76. On the aforesaid analysis of Long’s and Liu’s respective case, there was plainly arguable basis for Liu to contend there was sufficient cause for AJK Ltd to register the 2013 Transfer and/or to dispute Long’s claim that the executed I/T and B/SN for the 2013 Transfer were invalid, null and void.  I am not persuaded the aforesaid analysis demonstrated Long’s case had high probability of success

77. Mr Chan next submitted the Privy Council recently held in Nilon Ltd & anor v Royal Westminster Investments SA & ors[29] that the court in an action for rectification[30] was concerned with legal title only and should not embark on an inquiry over beneficial interest in the shares. Mr Chan also drew my attention to section 101 of the Old CO (now section 634 of the New CO) that provides: “[no] notice of any trust, expressed, implied or constructive, shall be entered on the register, or be receivable by the Registrar”).

78. Given Mr Chan’s great reliance on Nilon & anor, I set out below relevant parts of Lord Collins’ observations:[31]

“37. There are two points which emerge from the cases. The first is that from the earliest days of the legislation, the courts have made it clear that the summary nature of the jurisdiction makes it an unsuitable vehicle if there is a substantial factual question in dispute: …… In such a case an issue may be directed to be tried …… or the application may be adjourned or stayed……, but it may also be dismissed or struck out: Re Hoicrest Ltd [2000] 1 WLR 414, at 420, citing Re Greater Britain Products Development Corporation Ltd (1924) 40 TLR 488, where it was said (at 489):

“Where it was clear that there was something to be answered and something to be investigated, the ordinary course, as far back as the court had been able to trace, had been for the judge to dismiss the summons or motion, but to leave it open to the party to bring his action.”

38. The second point is that Re Hoicrest Ltd appears to be alone in deciding that it is sufficient for the applicant to have a prospective right against the company, and not an immediate right, to be entered on, or removed from, the register.

39. There is no doubt that the legislation is primarily concerned with legal title. ……

40. The great majority of the cases on the power of the court to order rectification involve a situation where a transfer has been executed but not registered, and the applicant seeks to be put on the register: ……

41. The next largest category is cases …… where the applicant is already on the register but wishes to be removed, eg because the registration was effected as a result of misrepresentation …… or was effected without authority …… or was illegal because exchange control permission was not obtained …… or bonus shares were improperly issued ……

……

48. Re Hoicrest Ltd stands alone in being an actual decision which turned on the question whether proceedings for rectification are a permissible vehicle for determining a dispute about beneficial ownership, and whether they can be used not only by a person seeking registration of a share transfer, but also by a person claiming an order for transfer of shares.

49. In reality Re Hoicrest Ltd was a case management decision. First, nothing other than costs turned on whether the rectification proceedings should be allowed to go ahead. ……. Second, [Mummery J] referred (at p 420) to …… the overriding objective …… was more likely to be furthered by actively managing the case with appropriate directions rather than by simply striking it out and requiring K to start fresh proceedings against M claiming that she held the shares in trust for him.

50. In the present case much more than costs might have turned on whether Re Hoicrest Ltd was correctly decided. ……

51. In the view of the Board, proceedings for rectification can only be brought where the applicant has a right to registration by virtue of a valid transfer of legal title, and not merely a prospective claim against the company dependant on the conversion of an equitable right to a legal title by an order for specific performance of a contract. It follows that Re Hoicrest Ltd was wrong as a matter of principle, however sensible it might have been as a matter of case management.

52. The claim form seeks an order that the register be rectified forthwith to give effect to what is described as the true and proper state of affairs…… The [claimants] have no such present right, which could only arise after they had been successful in their principal claim against [the 2^nd defendant], and only after he had been ordered to procure the issue and allotment of the shares to them. In these proceedings the [claimants] have no arguable case to a present right to rectification, and there is therefore no claim against Nilon to which [th 2^nd defendant] can be a necessary and proper party.

53. Even if, contrary to the view of the Board, proceedings for rectification could be a vehicle for deciding questions of beneficial interest or the right to specific performance of an obligation to transfer, or procure the allotment of, shares, this case is not a suitable one for the application of what has always been meant to be the summary procedure which, in the BVI, is contained in section 43 of the BVI Act. …… the combination of the motive and the artificiality of the rectification proceedings, and the fact that they are dependant on a trial of the underlying facts, means that the appropriate order in these circumstances is not to stay or adjourn the rectification application, but to strike it out.”

79. Mr Chan submitted the single relevant issue was whether Long executed any valid I/T for the 2013 Transfer and once it was established that no proper I/T for the 2013 Transfer was ever executed by Long,

(a)  Liu’s case taken to its highest would be that Long held the Shares on trust for her, but AJK Ltd was not entitled to register Liu as a member unless and until she proved her beneficial interest by separate action or counterclaim to convert her equitable title into a legal one, ie Liu did not have a present right to rectification;[32]

(b)  in the absence of any counterclaim by Liu the court was not concerned with resolving the dispute regarding beneficial ownership in the present case;

(c)  but even if Liu were able to establish she was the beneficial owner of the Shares (which Long did not accept), she could not have procured her own registration as a member by presenting a forged/invalid I/T without Long’s consent; and

(d)  once it was demonstrated the registration of the 2013 Transfer was wrongfully premised on a forged/invalid I/T, AJK Ltd would be compelled to reinstate the original member (ie Long) in the Register.[33]

Mr Chan suggested Liu could not point to the Ng 3^rd Order to suggest there were substantial factual disputes and hence Long did not have any strong case. Since the Privy Council judgment in Nilon Ltd & anor was handed down after the Ng 3^rd Order, Ng J might have mistakenly thought Liu’s allegations about her beneficial ownership of the Shares[34] arguably raised sufficiently substantial factual disputes to justify the order made. But Nilon & anor authoritatively confirmed the court is not concerned with beneficial interests in a rectification action, so the Ng 3^rd Order could not be extrapolated to mean Long’s case did not have strong merits. Mr Chan argued that on the aforesaid analysis Long’s claim for the Rectification Relief had a demonstrably high probability of success.

80. In my view, when Mr Chan’s arguments on Nilon were put under closer scrutiny, it appeared they rested on the anterior question as to whether or not Long could establish there was no proper I/T for the 2013 Transfer, and this in turn rested on whether I/T and B/SN for the 2013 Transfer were forged, falsified or otherwise invalid. This harked back to the earlier analysis that Long’s case was essentially premised on her denial of having executed or authorised the execution of such transfer documents. Mr Chan’s arguments on Nilon & anor could not take Long’s case any further unless she were able to establish high probability of success on this anterior question, but as I have explained above, there were factual issues to resolve in respect of the dispute on legal title, and the court could not make a blinkered decision divorced from consideration of the relevant factual matrix for the 2013 Transfer. This alone would have supported the case management direction under the Ng 3^rd Order to continue the Amended OS as if it had been begun by writ.

81. Mr Wong SC adopted a more nuanced approach by asking me to primarily consider the court’s approach to rectification actions pursuant to section 100 of the Old CO (now section 633 of the New CO) before turning to (a) the applicability of Nilon & anor in this jurisdiction, and (b) (if applicable) the implications thereof.

82. The starting point was the Amended OS that applied for the Rectification Relief. It has been said that “[if] the court thinks that the case could be more satisfactorily dealt with by action, an order will not be made on motion …… and since the section only provides for summary jurisdiction, this will not be exercised where there is a difficult question such as a dispute between two alleged owners of shares which should be decided by an action commenced by writ ……”[35] In Re Hoicrest Ltd, Mummery LJ said as follows:

“ Although the power to resolve the dispute on title exists on the section 359 application, it does not follow that the power of determination should always be exercised in proceedings in this form. …… There have been instances of the court striking out the application on the ground that the summary procedure should not be adopted where there is a substantial factual question to be investigated. In re Greater Britain Products Development Corporation Ltd (1924) 40 TLR 488, 489 it was stated:

‘ Where it was clear that there was something to be answered and something to be investigated, the ordinary course, as far back as the court had been able to trace, had been for the judge to dismiss the summons or motion, but to leave it open to the party to bring his action.’

See also In re Leon Needham Ltd (1996) 110 SJ 652.” (my emphasis)

Mr Wong SC suggested that given the factual issues discussed above, Long’s application for the Rectification Relief was liable to be struck out on the ground that the procedure should not have been used.

83. Mr Chan submitted Re Hoicrest Ltd was doubted and not followed in Nilon Ltd & anor, and Lord Collins in paragraph 37 of the latter case indicated that even “if there is a substantial factual question in dispute”, dismissal or striking out is not the only option for a court can direct an issue to be tried or to stay/adjourn the application. In my view, whilst Nilon & anor doubted Re Hoicrest Ltd on the point that rectification action are for claimants with present right to registration (not prospective claim yet to be established) and the court is concerned with legal title only, the Privy Council maintained and indeed emphasised that rectification actions are summary in nature.[36] For the present purpose, it was sufficient to note that the fact other options (apart from dismissal or striking out) were open to the court in face of factual disputes between two owners[37] would not lead to the view that Long’s case had high probability of success. Rather, as explained above, the Ng 3^rd Order suggested there were factual issues to be resolved in order to decide whether the Rectification Relief should be granted.

84. In light of the above and given my view that there were factual issues that had to be resolved at trial in respect of the anterior question concerning the dispute over legal title, it is unnecessary for me to deal with Mr Chan’s suggestion that Ng J in making the Ng 3^rd Order might have been mistaken as he did not have the benefit of the guidance in Nilon & anor that barred investigation into beneficial ownership of shares in rectification actions. Anyway, Nilon & anor was not followed in Hong Kong in Pilot International Investment Limited v Ingredients Plus Holdings (Pte) Limited & ors.[38] That case concerned an application inter alia to declare that a share transfer in breach of pre-emption rights was invalid and to rectify the share register accordingly. It was held that although the legal estate passed to the transferee upon entry of his name on the company’s register, the shareholder whose pre-emptive rights (an equitable interest) had been infringed had locus to seek rectification. DHCJ Le Pichon concluded at paragraph 26 that “[as] Nilon is not binding on this court and that case had the scope of the service out of jurisdiction central to its focus, I am not prepared to follow Nilon given the considerations set out above”. Whilst I need not come to any definitive view on the applicability of Nilon & anor, such dissenting judicial view in this jurisdiction added weight to Mr Wong SC’s submissions that Long’s case did not have high probability of success.

85. But even if Nilon & anor was applicable, it would not have taken the matter further because here there was no segregation of legal and beneficial interests over the Shares. On Long’s case, there was no such segregation ever since the Shares were gifted to her on 2 November 2011. On Liu’s case, she was the legal and beneficial owner of the Shares since 6 January 2005 and she was the beneficial owner of the Shares after the 2011 Transfer until just prior to the 2013 Transfer, but by terminating the nominee arrangements she had an immediate right to the legal title, so when the legal estate returned to her pursuant to the 2013 Transfer and upon entry of her name in respect of the Shares on the Register, she became once again the legal and beneficial owner.

86. But if Nilon & anor was not applicable and the approach In re Hoicrest Ltd prevailed such that “rectification proceedings are a permissible vehicle for determining a dispute about beneficial ownership”, then there would be even more factual disputes[39] which could only be resolved at trial, and they would not lend support to any suggestion of high probability of success in respect of P’s case.

87. Mr Wong SC complained Long failed to come clean in her pleadings as to whether the appended signatures “龙海紅” on I/T and B/SN for the 2013 Transfer were forged or falsified, which flied against the trite principles that an allegation of fraud must be pleaded distinctly and with the utmost particularity, and fraud should not be left to be inferred from the facts.[40] But I note Long did plead in the AJK and Liu Replies that she did not execute and she never authorised Lee or anyone else to execute any documents in relation to the 2013 Transfer on her behalf, so it must have been an implicit assertion that the appended signatures were forged, falsified or not authorised. Mr Wong SC then submitted a bare denial was insufficient cogent evidence of fraud. Whilst I accept in certain circumstances the essential evidence of fraud might well be a denial, the significant question here whether such denial amounted to high probability to success. As explained above, the vitality of Long’s denial must be assessed in the context of the relevant factual matrix, and there were sufficient countervailing considerations as discussed above that would warrant evaluation at trial. I am not convinced Long’s case satisfied the threshold of high probability of success.

VIII.  STIFLING LONG’S CLAIM

88. Long’s case  Liu claimed she was a full-time housewife since she married Lee in 1992, and was dependent on Lee to support her and her family. Since Lee died in September 2013, Long no longer had any regular source of income and had to use her limited savings for living expenses. By 28 May 2014 she had exhausted her savings and was unable to make ends meet (as she needed money for living and legal expenses[41]), so she sold the only joint-name (Long/Lee) property at 北京市朝陽區霄雲路28號B29幢1至2層(“Jt-Name Ppty”) previously occupied by Long’s younger brother and his family for RMB19.19 million.

89. In the Long 3^rd Aff, Long claimed that out of the sale proceeds of the Jt-Name Ppty, she had spent (a) RMB3.2 million to engage PRC lawyers to handle her shareholding dispute and to defend the PRC Proceedings, (b) RMB6.5 million to buy a smaller/cheaper apartment as residence for her younger brother’s family, (c) RMB4.8 million (about 25% of the sale proceeds) to be put aside for Lee’s aged mother since Lee was co-owner of the Jt-Name Ppty. Long claimed she incurred substantial legal expenses for the present litigation and expected more legal costs to be incurred as the case progressed towards trial, so she had to make provisions for the same. Further, she had limited cash savings but required RMB500,000/year to support herself and her family including her aged parents in their 70s. Long claimed they lived at 北京市朝陽區霄雲路18號D區61號 (“No 61 Ppty”) owned by her younger sister. Long claimed Lee supported them (including paying for their medical/care expenses) before he passed away. Long claimed she had to put aside 5 years of reserve for regular living expenses “生活才可以得到相應的保證”.

90. Long claimed her only assets were the Shares that indirectly held Hanwei Building through Beijing Hanwei (if this could be confirmed) and the sale proceeds of the Jt-Name Ppty. She tried to ask relatives and friends for financial help but to no avail, and she believed she would not be able to secure more financial support before end of the present litigation. She could just barely support the present litigation, and any order for security would be unjust as she would not have been able to continue such litigation. Long believed the Summons was a tactical move to stifle her claim.

91. Liu’s case  Liu claimed Lee beneficially owned the No 61 Ppty which was held by nominees on his behalf, firstly by Wang Yanping, then by Lee’s younger sister 李倩, and then in 2010 by Long’s younger sister 龍海方. Liu claimed Long’s younger sister never paid any consideration for the No 61 Ppty, which was 3,980 sq ft in size and located in an exclusive residential district in Beijing. Liu claimed most villas in that residential district had a market value of RMB20-90 million (as seen from asking prices of such villas from an estate agency website), so the No 61 Ppty would not be less than RMB20 million. Liu claimed that if Long was Lee’s lawful widow and beneficiary of his estate, Long and Lee’s mother would be entitled to 75% and 25% of his estate respectively. In any event, Long actually occupied and controlled the No 61 Property. Liu also said on the day Lee passed away she personally handed over to Liu some of Lee’s valuable personal belongings worth over RMB20 million. Lee also collected expensive wooden furniture (with market value of about RMB10 million) and expensive red wine (with market value of about RMB1million) during his lifetime, and upon his death they fell into Long’s possession and control.

92. Liu claimed the above assets (which were quite realisable) were worth over RMB51 million, and she suspected some of them might have been sold already. Liu believed Long might have possession and control of other assets of Lee’s estate which she was unaware. Liu claimed that since Long had significant assets and a high living style in Beijing, an order for security would not stifle Long’s claim. But if security was not ordered, Liu claimed it would be unfair to her because she would not be able to enforce costs order in Hong Kong as Long had no assets here.

93. Legal principles Where a plaintiff claims an order for security for costs would stifle his claim, he should be candid with the court as to his financial resources as he carries the burden of adducing credible evidence to show in truth it is at least more likely than not funds are not available from any source to provide or support security.[42] In Bart Willem Jozef Bost v Jerry Teng Mei Sheng & anor,[43] Barma J (as he then was) explained:

“33. …… In order to resist the provision of security on this ground, it is necessary for a plaintiff to do more than simply assert the he is not in a position to provide security. Generally, it will be necessary for him to provide the court with reasonably detailed information as to his resources, and to show not only he is unable to meet any order for security from his own resources, but also he is unable to raise funds from other sources, whether through commercial borrowing, or from other backers.

34. In this case, the Petitioner has done no more than to asset his own impecuniosity. He has provided no evidence as to his financial position, whether in the form of bank statements or other material. Nor has he explained why he would not be able to raise funds from any other source to meet an order for security that might be made. ……In these circumstances, a much more cogent and compelling explanation of the reasons why he would be unable to put up security and would therefore be forced to abandon these proceedings is required from the Petitioner. None having been provided, I am not satisfied that an order of an appropriate level of security would necessarily result in the Petitioner’s claim being stifled.”

Indeed, as DHCJ Lam (as he then was) said in China Smart Properties Limited v Manson Holdings Limited,[44] the ultimate question is whether the court would be satisfied on all the evidence and relevant circumstances that if Long was ordered to pay security for costs the claim would be stifled.

94. Discussion  Mr Chan submitted even Liu acknowledged Long was financially dependent on Lee for, say, her residence/cars and family support. Beijing Hanwei attempted to repossess Long’s residence/cars after Lee died, so Long was stripped of financial support, residence and transport, and forced to sell the Jt-Name Ppty (ie her only residential property jointly owned with Lee and then occupied by her younger brother’s family) to fund her living expenses and litigations in Beijing and Hong Kong. Mr Chan argued that Liu’s attempt to portray Long’s potential inheritance from Lee’s estate consisting of real properties, valuable personal items, furniture and wines as a means to satisfy an order for security was far too simplistic when it could be reasonably inferred such potential inheritance could not be readily realised and (as Liu accepted) Lee’s mother was also a beneficiary of Lee’s estate. Mr Chan submitted that realistically speaking satisfying any order for security would leave Long quite unable to prosecute the present action, so it would be oppressive/unjust to order substantial security. Further, it would be unreasonable to suggest Long’s claim would not be stifled because she should be able to raise funds by selling properties which her other family members lived in or had an interest in.

95. In my view, Long claimed her essential assets were (a) her savings that she claimed she had exhausted, and (b) the sale proceeds of the Jt-Name Ppty which was sold for RMB19.19 million from which she had expended and reserved various sums. It was suggested Long had to and did sell the Jt-Name Ppty because she was financially straitened, and the remaining sale proceeds left her with limited cash funds that were barely sufficient to support her and her family and also to fund her litigations in Beijing and Hong Kong.

96. In my view, Long’s case in this respect was long on assertions and short on evidence. As Mr Wong SC submitted, Long failed to provide basic/ primary evidence to substantiate her contention on unfair stifling of her claim. More significantly, Long did not say she did not have or she could not have procured substantiating documents. Mr Wong SC submitted this was the classic situation where the court would draw adverse inference against Long in respect of her bare allegation of being short of funds.[45] I find there was no need for me to go so far because in the absence of such primary and fundamental documents which Long should have but failed to disclose, she did not even begin to show she had limited financial/cash resources or that any substantial order for security would stifle her claim.

97. On Long’s alleged depleted savings, there was no information as to the amount of her savings prior to Lee’s death and how such savings had been disbursed since his death. Long did not disclose any bank passbooks/statements at all. As regards her living expenses and financial support to her parents, Long also had not stated the amounts she gave to support her parents nor explained why in her straitened circumstances her other siblings (eg younger brother and younger sister) would not contribute to the care and support for their parents (especially when Long claimed her younger sister owned the rather valuable No 61 Ppty that presumably could be used to raise, say, a mortgage loan).  Long did not disclose any credit card statement or any document at all to evidence her expenditure.

98. On the alleged sale of the Jt-Name Ppty, Long disclosed not a shred of documentary evidence to establish such sale, when ordinarily one would expect to see sale and purchase agreement, land registration records, estate agency or legal paperwork, etc. The absence of such obvious documentation led to concern whether, as Liu claimed, such sale truly existed, and even if it did, whether the alleged sale price of RMB19.19 million was below the market value and hence not credible.[46]Apart from 12 remittance slips, ie “所得款項的匯兌支付來帳憑證”, Long did not produce any other documentation. But the 12 remittance slips did not support Long’s bare assertion that the Jt-Name Ppty was sold for RMB19.19 million. In my view, there was doubt as to whether such remittance slips were referable to the alleged sale of the Jt-Name Ppty at all since:

(a) 8 remittance slips were marked as “附言:房款” and the remaining 4 were marked differently as “附言:网银转账” (which tended to suggest the latter 4 were not related to property transaction);

(b) Long did not explain why 3 remittances (ie 2 sums of RMB4.99 million each and a 3^rd sum of RMB10,000 totalling RMB9.9 million or 52.06% of the alleged price of RMB19.19 million) were received on 15 May 2014 (ie about 2 weeks before the alleged sale on 28 May 2014); and

(c) Long did not explain why the 12 remittance slips showed payments made to Long’s younger sister “龙海方” and not to Long even though (i) the Jt-Name Ppty were in the joint names of Long and Lee, and (ii) the Long 3^rd Aff represented it was Long who received the proceeds of RMB19.19 million from which various amounts had to be expended/reserved.

Mr Wong SC submitted (and I agree) the fact Long’s younger sister received substantial funds (evidenced by the remittance slips) also militated against Long’s bare assertion that she was unable to raise funds from her relatives or friends, which undermined Long’s allegation of insufficient funding.

99. Next, even if the Jt-Name Ppty was truly sold for RMB19.19 million, apart from her own assertions Long failed to produce any documents that evidenced how she expended and/or reserved the alleged sale proceeds of the Jt-Name Ppty, and the quantum of such sums. I start with the alleged purchase of a smaller/cheaper residential property for Long’s younger brother and his family in the sum of RMB6.5 million:

(a)  Long did not even give the address of the new residence of Long’s younger brother to show whether the alleged purchase price of RMB6.5 million would be reasonable;

(b)  there was no sale and purchase documentation (eg land title documents, land registration records and receipts for payment) or financial paper trail (eg bank statements) to show Long actually purchased a “smaller and cheaper” residence for her younger brother and his family, to prove when such purchase was made (eg whether it was after the sale of the Jt-Name Ppty), to identify the owner of the property and the purchase price of RMB6.5 million, and to demonstrate such purchase price was paid from sale proceeds of the Jt-Name Ppty;

(c)  Long did not explain why her younger brother (and his family) did not look for residential accommodation on his own given her allegedly dire financial situation that necessitated sale of the Jt-Name Ppty or paid some occupation rent for living at the new but “smaller and cheaper” property; and

(d)  there was no suggestion other than the purchase price was fully paid up (as Long claimed it was disbursed out of the sale proceeds of the Jt-Name Ppty), but there was no explanation why Long could not have raised a mortgage loan on the security of such property.

100. Next, Long did not produce any invoices/receipts in respect of her legal expenses in Hong Kong and Beijing even though she claimed it cost RMB3.2 million to engage PRC lawyers to (a) handle matters relating to the Shares that represented 94% shareholding in AJK Ltd to which Long claimed a legal/beneficial title and (b) contest PRC Proceedings brought by Ms Lee against Long.

101. Then, as regards RMB4.8 million said to be reserved for Lee’s mother, there was quite simply no document produced to show the existence of such sum and/or it was paid over to Lee’s mother.  In respect of a total sum of RMB2.5 million (ie RMB500,000 x 5 years) said to be reserved for Long’s and her parents’ living expenses, this was again a bare assertion with no documentary support as to the existence of such reserved fund that could be traced back to sale proceeds of the Jt-Name Ppty. There was no explanation why Long’s siblings could not have contributed to support their parents, particularly when the remittance slips showed substantial funds were paid to Long’s younger sister, and on Long’s case the younger brother already had the benefit of the accommodation she provided.

102. I find that even on her own case Long failed to cogently demonstrate she was financially incapable and/or an order for substantial security at an appropriate level would cause unfair stifling of her claim. I also note although Liu’s affirmation evidence filed before the Summons deposed that on the day Lee passed away she gave Long valuable watches (estimated to worth RMB20 million) and cash in RMB/foreign currencies, Long never disputed that in the Long 3^rd Aff. 

103. In view of the above conclusions, there was no need for me to consider Liu’s suggestions that (a) Long (if she were Lee’s lawful widow) would be the major beneficiary of Lee’s estate, and (b) Long always maintained Lee was a man of substantial wealth (but she chose not to disclose the amount of his inheritance that she stood to obtain), which called into question the necessity of putting aside funds from the proceeds of the alleged sale of the Jt-Name Ppty for future use by Lee’s mother and her parents. But if these allegations were true, it appeared the bulk of such sums would not be needed immediately which meant there would have been ready cash that could have been utilised for security payment. There was also no need for me to consider Mr Wong SC’s submissions that despite Long’s complaint that she was short on funds with barely enough to “勉强支持[Long]的法律費用”, she changed solicitors recently with inevitable duplication of work and escalation of legal costs that militated against Long’s claim.

104. Apart from Long’s bare assertions, Long clearly failed to adduce credible/documentary evidence to prove her impecuniosity, and I am unable to conclude Long’s claim herein would be unfairly stifled if security was ordered.

IX.  DELAY

105. On 25 August 2014, SH wrote to tell Long’s solicitors Liu was advised to apply for security for costs and to indicate such application would be made after pleadings were filed/served “so that [they] have a clearer picture of the issues in dispute and the likely costs to be incurred”. Mr Chan complained that even before such letter the parties’ respective affirmation evidence had set out their respective stance so there was no reason to defer the application for security.

106. Legal principles  Hong Kong Civil Procedure 2016 provides that:[47]

“The right to security is not waived by service of the defence, and an order for security may be made at any stage of the proceedings.

……

Delay in making an application for security for costs, however, may be relevant to the exercise of the court’s discretion to order security …… Although in most cases delay is not a decisive factor, it may be treated as important especially where it has led, or may have led the plaintiff to act to his detriment, or may cause him hardship in the future conduct of the action ……”

107. It has also been said that “[where] failure to seek an order for security earlier has resulted in prejudice to the plaintiff, a defendant may be refused security, either in respect of past costs, or at all”.[48]  This was echoed in China Smart Properties Limited in which DHCJ Lam (as he then was) emphasised the consideration is not merely a matter of delay, but whether the conduct of the defendant in making a late application is oppressive and/or caused prejudice to the plaintiff.[49] The learned judge went on to say:

“13. In my judgment, the case cited by Mr Sakhrani, counsel for the Defendant on this point, is more pertinent. In Croft Leisure v Gravestock & Owen [1993] BCLC 1273, Staughton LJ said at page 1279,

‘As Hirst LJ pointed out, it is often a difficult decision when to make a substantive application [for security for costs] before trial. If one makes it too early one is reproached because one cannot forecast accurately how long the trial will take and how much it will cost. If one makes it too late, one is said to have led the plaintiff up the garden path. October 1992 was perhaps rather late in this case; may be the application should have been made 2 or 3 months earlier, but there was little, if any prejudice here to the plaintiffs through that’.”

108. Discussion  Long claimed Liu’s suggestion that she would not apply for security for costs until after close of pleadings meant she chose not to seek security in stages (as was usually the practice) and undertook the risk that costs already incurred by then and costs to be incurred in preparation of the pleadings was unsecured. Mr Chan argued Long suffered prejudice by incurring her own legal costs to prosecute the present action in the expectation that security would be sought in respect of costs that could not be estimated yet.

109. The letter dated 25 August 2014 was issued shortly after the Ng 3^rd Order that directed the present proceedings to continue as if it had been begun by writ, so Liu did give prompt notice to Long she would be making an application for security for costs, and she further explained why such application would be made after close of pleadings, ie to provide a more reasonable estimate of costs. Long was specifically asked whether she would dispute such order to be made, but there was no reply. The Summons was filed shortly after close of pleadings, which was consistent with Liu’s earlier indication. In my view, there was no basis for Long’s complaint of delay when she had full knowledge of Liu’s intended application even before the filing of the SoC on 18 September 2014. More importantly, as Mr Wong SC submitted, Long could have no cause to complain that any delay led her to act to her detriment. It was evident from the Long 1^st and 2^nd Affs that she would have pressed on with the present action anyway.

X.  QUANTUM

110. On 5 February 2015, Liu’s solicitors sent to Long’s solicitors further request for the provision of security together with a skeleton bill of costs (“Bill”) for their consideration, but there was no reply (and such silence led to the present application).

111. Legal principles  A party was only entitled to sufficient (and not complete) security that would be just in all the circumstances, and not necessarily on full indemnity basis. What constitutes sufficient security depends on the circumstances of each case.[50]

112. It was for the party seeking security to place materials before the court to enable the court to come to a view on the quantum to be ordered as security for costs. It has been said that if an applicant fails to provide a properly itemised bill of costs with the necessary breakdown for each item, the judge may use his own experience to decide on the amount to be ordered as security for costs.[51] But in Hero Rich International Limited v Benefun International Holdings Limited & ors[52] the court went further and held that when faced with an unhelpful (and especially overly ambitious) skeleton bill, it is entitled in an appropriate case to dismiss the application for security on this ground alone. In my view, this must be a consideration of last resort.

113. Discussion  Mr Chan submitted the Bill claiming past and future costs in the sum of HK$4,874,777.10 up to and inclusive of trial was unparticularised and grossly inflated. Mr Wong SC submitted Liu had already incurred costs in the sum of HK$1,756,777.10, so Long’s allegation of disproportionality was exaggerated.

114. Liu challenged the Bill on the following grounds:

(a)  Fee earners’ rates were in excess of the standard rates allowable in party and party taxation of costs.

(b)  For incurred solicitor profit costs, the Bill only provided the total time spent by each fee earner with no breakdown as to how the costs were incurred.[53]

(c)  For incurred counsel’s fees, there was no breakdown as to what work was done by Liu’s former counsel Mr Shieh SC and Mr Nip even though it appeared they settled the Liu Defence and attended the hearing on 21 August 2014 when the Ng 3^rd Order was granted, but there was no certificate for two counsel for such hearing, so disbursements would be substantially reduced on party and party taxation.

(d)  For future costs, the estimates were grossly inflated,[54] and there was substantial duplication of costs between solicitor and counsel given the (apparent) heavy involvement of leading and junior counsel.

(e)  It could not be assumed that certificate for two counsel would be granted.

(f)   Given AJK Ltd’s / Liu’s stance that AJK Ltd was a shell corporation with no substantial business/assets, why would they instruct 2 teams of leading/junior counsel to run essentially the same case? There was no suggestion AJK Ltd represented the interests of any shareholder other than Liu’s.

(g)  It was exaggerated to suggest the trial would last for 6 days when 4 days would be sufficient.

115. I start by saying I do not consider the skeleton bill inadequate. It was not an itemised bill in the form usually adopted for item-by-item taxation of costs, but civil litigation had moved with the times by introduction of summary assessment of costs. By now, both courts and parties are familiar with the succinct form of statement of costs for summary assessment of costs. Here, for incurred costs, the Bill gave particulars of the documents prepared and reviewed, the number of conferences with client and counsel, the letters and other written communications with the client, counsel and solicitors for other parties.[55] It could not be said the Bill was devoid of helpful information. Whilst there may be other cases in which a more detailed breakdown would assist in the proper assessment of the security to be ordered, I find in the present case reasonably sufficient material had been placed before this court to come to a view on quantum.

116. Taking a broad brush approach, I consider security in the sum of $2.6 million to be appropriate. In doing so and bearing in mind the consideration in the above paragraph and the need to grant sufficient and not necessarily complete security, I make the following observations:

(a)  The intense disagreement between Long and Liu touched on serious allegations of forgery/falsification of documents and/or uttering/using invalid or unauthorised documents that, as Mr Wong SC submitted, had a potential criminal connotation. Further, the determination as to the Rectification Relief might have significant consequences on Long’s and Liu’s respective rights (eg the EGM Relief and their entitlements (if any) through corporate vehicles over other assets). Much, of course, would depend on assessment of the relevant factual matrix and witness credibility at trial. But that said, the involved issues did not appear to be too complicated, especially when Ng J did not see fit to make any order for general discovery.

(b)  In light of (a) above, given the seriousness of the allegations, the engagement of senior and junior counsel would be appropriate but the focus of counsel’s involvement should be on key applications, trial and advice on merits/evidence.

(c)  Whilst the standard rates allowable in party and party taxation would not be binding on the taxing master, from the present perspective there did not appear to be special features or significant complexity that would justify enhancement beyond the current standard rates on an overall basis for the relevant fee earners. Mr Wong SC suggested the bulk of solicitor profit costs were incurred by more junior fee earners with modest involvement by more senior fee earner, but whilst such submissions might have relevance to the issue of time spent, it would not impact on the allowable hourly rates in party and party taxation.

(d)  I accept the engagement of senior and junior counsel would not dispense with necessary service/work of instructing solicitors who had to attend to matters within their own scope of duties. But the involvement of experienced solicitor fee-earner would have effect in that the legal skill/experience that such solicitor fee-earner would bring to the handling of the present action suggested there would not be any need to regularly seek counsel’s advice. On the other hand, strategic involvement of counsel in respect of key advisory work and important hearings also meant solicitor fee-earners could spend less effort on advisory and research matters. The engagement of reasonably experienced junior counsel also meant there was no need to involve leading counsel on every point.

(e)  I am not persuaded by Long’s complaint against having separate legal representation for AJK Ltd and Liu. For AJK Ltd, it proceeded to register the 2013 Transfer on I/T presented by Lee on Liu’s behalf and believed to be in order. Depending on the outcome of the Rectification Relief, there would be risk AJK Ltd might have recourse against either Liu or Long on costs.

(f)   I find the reasonable estimated length of trial to be about 5 days since cross-examination of witnesses would be a significant feature although the issues themselves would be confined. I also bear in mind the separate legal representation of Liu and AJK Ltd.

117. Taking all the above considerations in mind, upon careful review of the Bill and the available materials in the present proceedings, I am persuaded a fair and just order for sufficient security covering both incurred and future costs up to trial would be HK$2.6 million.

XI.  CONCLUSION

118. I reject the notion that the application for security was clearly designed to drive Long from the judgment seat before her day in court. Instead, in all the circumstances, an order for security against Long would plainly be just. I therefore allow the Appeal, and set aside the Master and Costs Orders. I grant an order that:

(a)   Long do give security for Liu’s costs in this action up to and including trial in the sum of HK$2,600,000 by paying such sum into court within 21 days from today;

(b)  save and except that Liu be at liberty to tax her costs pursuant to the costs order nisi in the paragraph below (if made absolute) and to execute for recovery of such taxed/agreed costs, in the meantime until such security is paid into court all further proceedings against Liu be stayed;

(c)  liberty to Liu to apply for further security.

119. There is no reason why costs should not follow event, and I grant a costs order nisi that Long do pay Liu costs of and occasioned by the Summons and of the Appeal (including all costs reserved if any) to be taxed forthwith if not agreed with certificate for 2 counsel.