FREEMAN SECURITIES LTD (PREVIOUSLY KNOWN AS DYNASTY SECURITIES LTD v. IP PO KI

HCA 2368/2018

[2021] HKCFI 2549

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2368 OF 2018

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D E C I S I O N

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Introduction

1.  On 18 December 2020 I handed down judgment (“Judgment”) in respect of the appeal by the Defendant (“D”) from the decision of Master Gary C C Lam, by which the Master gave summary judgment to the Plaintiff (“P”) under RHC Order 14 r. 3 for HK$174,806,632.87, being the full amount of P’s claim.

2.  At paragraphs 25-28 of the Judgment I said as follows:

“25. This is a case where I am left with real doubt as to the veracity of the case put forward by D and my first inclination therefore was to affirm the decision of the Master and dismiss this appeal and I have been very close to doing so. In this respect it would seem unlikely that D can improve his case if the matter were to go to trial. In particular, if he has been unable to locate Zhang and Wang [potential witnesses who D had identified as being in a position to corroborate the defence which D had put forward] and obtain their assistance for the purposes of the application for summary judgment, there would appear to be no good reason to suppose that he will be able to do so for the purposes of any trial. However, in case I am wrong about this and D is able to obtain corroboration for his case…… I think it is right to give leave to D to defend these proceedings, albeit only on a conditional basis.

26. I have not heard the parties as to the conditions which it would be appropriate to impose on granting D leave to defend the proceedings and there is no evidence or other material before the court as to D's means or resources. The usual terms on which conditional leave to defend is given are to require the defendant to bring into court within a specified time a sum equivalent to the whole or part of the claim, in default of which the plaintiff is at liberty to sign final judgment. I am however conscious of the fact that the quantum of P's claim is very substantial and that I should not make a conditional order with which, in practice, it will be impossible for D to comply.

27. In the circumstances, I will make an order that D shall have leave to defend these proceedings conditional upon him paying into court the sum of HK$85 million (which is a little less than half of the amount of P's claim) within 14 days of the handing down of this judgment. If this condition is complied with the costs of P's application including the costs before the Master will be costs in the cause. However, if this condition is not complied P shall be at liberty to sign judgment for the full amount of the claim, interest and the costs of the action including the costs of this application both here and before the Master.

28. As I have not heard the parties as to the conditions which it would be appropriate to impose on granting D leave to defend the proceedings and there is no evidence or other material before the court as to D's means or resources, I will give the parties liberty to apply within 14 days of the handing down of this judgment to vary the order I have made as to the condition for granting D leave to defend these proceedings.  In the event that such an application is made within this time, the time for complying with the condition will be extended for 14 days from the determination of that application.”

3.  By summons issued on behalf of D on 31 December 2020, D applied for an order varying the condition I imposed for granting D leave to defend the proceedings by substituting HK$50,000 as the amount to be paid into court in place of the sum of HK$85 million which was specified in the Judgment (“D’s Application for Variation”).

4.  By summons issued on behalf of P on 4 January 2020, P applied for leave to appeal to the Court of Appeal from the Judgment (“P’s Application for Leave to Appeal”).

5.  On 18 January 2021 I directed that both applications be disposed of on paper and gave directions for their further conduct.

6.  On 11 June 2021, following the filing of written submissions, I dismissed both D’s Application for Variation and P’s Application for Leave to Appeal.

7.  By summons issued by D on 25 June 2021, D sought leave to appeal my decision of 11 June 2021 dismissing D’s Application for Variation on the grounds set out in the draft Notice of Appeal which was annexed to the summons (“D’s Application for Leave to Appeal”).

8.  On 12 July 2021, I directed that D’s Application for Leave to Appeal be disposed of on paper and gave directions for the filing of written submissions.  Pursuant thereto, D filed written submissions on 26 July 2021; P filed written submission on 9 August 2021 and D filed written submissions in reply on 16 August 2021.

D’s Application for Variation

9.  The basis for D’s Application for Variation was D’s alleged impecuniosity and the alleged impossibility of meeting the requirement of paying the specified payment into court as a condition of being permitted to defend these proceedings.

10.  It was common ground that in seeking the variation, the burden lay on D to adduce sufficient and proper evidence as to his means and assets; to make full and frank disclosure of his financial resources and to satisfy the court that it would be impossible for him to meet the condition.

11.  In paragraph 20 of the Judgment I handed down on 11 June 2021, I expressed concern relating to the evidence adduced by D in relation to his former holding of shares in listed companies; their sale in 2017 the question as to what had become of the proceeds of sale. In paragraph 27, I stated that (for the reasons I gave) I did not find D’s broad assertions (to the effect that the proceeds of sale were used to satisfy margin calls and to pay off unparticularisd debts) convincing and that I was not prepared to accept them as justifying the variation which D sought of the financial condition I imposed for defending these proceedings.

12.  At paragraphs 28-30 of the Judgment of 11 June 2021, I said as follows:

“28 In imposing the financial condition I did in granting D leave to defend the present proceedings I was prompted by considerations similar to those referred to by Dwight J in Bank of Leumi (UK) Plc v. Philip Robert Akrill [2014] EWHC 4341 (Ch.), viz: (a) to test the bona fides of the party against whom the condition is ordered (b) to protect the claimants to some extent and (c) to discourage the defendant from delaying the progress of the litigation. In my view, none of these purposes would be satisfied were I to accede to D’s present application and allow him to defend these proceedings by the payment of HK$50,000 into court, which is an insignificant sum compared to the amount of the claim.

29. On any basis, I am not satisfied that D has adduced sufficient or proper evidence as to his means and assets and I do not accept that he has made full and frank disclosure of his financial resources.

30. In all the circumstances, I am not prepared to accede to the application made by D’s Variation Summons.”

13.  In D’s Application for Variation, it was submitted on his behalf that, although D was obliged to adduce sufficient and proper evidence as to his means and make full and frank disclosure of his financial resources, that obligation was limited to D’s current means and resources and D was not required to provide a historical account of each and every asset he had previously owned and each dollar that he had previously earned. In other words, so it was contended, D was required to disclose his current financial state, not how that had come to pass.

14.  In paragraph 26 of my judgment of 11 June 2021, I rejected the proposition advanced by D that where a defendant seeks to argue his impecuniosity in order to avoid the imposition of a financial condition on being granted leave to defend proceedings or to limit or reduce such a condition, a defendant is not required to disclose how his current financial condition had come to pass. I there expressed the view that, where, as in this case, a defendant has in the past had substantial means or assets but asserts that he had become impecunious, he is required to disclose what has become of his means and assets and how he had become impecunious. I added that this is particularly so on the facts of the present case where it is apparent that D was once (not so long ago) a very wealthy man who had substantial shareholdings which were sold for about HK$155 million.

15.  The proposition advanced on behalf of D as summarized in paragraph 13 above is at the core of the D’s Application for Leave to Appeal.

16.  I do not consider that D’s intended appeal based on this proposition (paragraphs 1 & 2 of the draft Notice of Appeal) has a reasonable prospect of success. In this respect, it seems to me that the question as to what has become of certain assets or their proceeds of sale is directly relevant to any assessment of that Defendant’s current means and assets; to any consideration as to whether, in making an application to vary a financial condition for permitting a defendant leave to defend proceedings, that defendant has made full and frank disclosure and whether he has established to the satisfaction of the court that it was impossible for him to meet the condition. This is especially so on the particular facts of this case.

17.  The 3^rd ground of D’s intended appeal is that I erred in finding that D had failed to provide full and frank disclosure. This finding was made after considering and weighing the evidence and was made in the context of the broad discretion which the court has in considering the appropriate condition to be imposed in granting leave to defend proceedings. In my view an appeal based on this ground does not have reasonable prospects of success.

18.  The 4^th ground of D’s intended appeal is based on the proposition that the evidence clearly demonstrated that D was not capable of paying the sum of HK$85 million and that it was therefore wrong to require payment into court of that sum as a condition of being granted leave to defend the proceedings. The fact is however that no evidence as to D’s means or assets was adduced on the hearing of D’s appeal from the Master’s decision and, as I stated in paragraph 29 of my Judgment of 11 June 2021, I was not satisfied that the evidence which D subsequently adduced was sufficient to discharge the burden which was upon him to show that it was impossible for him to meet the condition. I do not believe that this is susceptible to challenge on appeal and again, in my view, an appeal based on this ground does not have reasonable prospects of success.

19.  The 5^th and last ground of appeal is to the effect that, in dismissing D’s Variation Application, I erred in taking into account the fact that the sum of HK$50,000, which D sought to substitute for the sum of HK$85 million as the sum to be paid into court as a condition for leave to defend the proceedings, was insignificant when compared to the amount of the claim. The fact is however that the conclusion I reached to the effect that D had not adduced sufficient evidence as to his means and assets; that he had not made full and frank disclosure of his financial resources and that he had therefore failed burden which was upon him on his application was fatal to and determinative of his application. In those circumstances the observation I made as to the insignificance of the amount of HK$50,000 as compared to the amount of the clam did not affect the outcome of D’s Variation Application and does not on its own justify leave being given to appeal.

20.  In all the circumstances I dismiss D’s application for leave to appeal. I make an order nisi that D shall pay P’s costs of  that application.