FENN KAR BAK LILY v. GOH KIM LAY and Another

IN THE COURT OF APPEAL

1994, No. 217
(Civil)

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J U D G M E N T

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Mortimer, J.A.:

1. This is an appeal against the order of Woo, J. on 12 December 1994 when he awarded the defendants costs against the plaintiff on an indemnity basis in respect of an application for a Mareva injunction originally granted ex parte by Wong, J. on 16 May 1994.

2. On 17 May 1994, the plaintiff took out an inter parte summons to continue the Mareva injunction which came before Deputy Judge Cheung (as he then was) on 24 May 1994. He suspended the Mareva on an undertaking that the defendants' solicitors would provide security for the $650,000 covered by Mareva until the hearing of the inter parte summons. In due course this came before Woo, J. with another matter on 26 July 1994. It was adjourned to 29 July 1994. The hearing was further continued on 22 August 1994 when the parties agreed that the Mareva injunction and the undertaking should be discharged but the hearing continued upon the costs related to the Mareva injunction. The hearing was concluded on 2 September 1994.

The judge's decision and the hearing

3. The judge decided rightly that there is jurisdiction to award a Mareva injunction which takes into account the costs of the action. This is not challenged. It is correct but the occasions when the court will take into account the incidence of costs in fixing the amount to be frozen in a Mareva injunction are extremely limited. This is not one of them.

4. In order to determine the appropriate level of costs to be awarded in these Mareva proceedings the judge undertook a detailed enquiry into the woeful history of the previous proceedings between these parties and associated parties.

5. It is sufficient to give some flavour of the previous proceedings by saying that they included the obtaining of a default judgment after bad service by post, followed by garnishee proceedings, a charging order on the defendants' flat, a payment into court after the garnishee order was stayed, the taking out of the money in court by the plaintiff on behalf of a company called Versatile and - a few days before the hearing by Woo, J. - orders by Deputy Judge Yeung setting aside the judgment, ordering the return of the money and consolidating District Court proceedings and this action.

6. That was the position at the time of the ex-parte Mareva application on 16 May 1994. Prior to the hearing before Woo, J. the 1st defendant took out a summons for directions as the company (Versatile) had not repaid the money to her. Before this was heard by Deputy Judge Yeung on 23 May 1994 the plaintiff's firm filed a notice ceasing to act in a District Court action. They wrote to the Registrar of the Supreme Court to say they acted for the company Versatile in the second District Court action and asked for a new High Court Action No. for the two actions when they were consolidated. Deputy Judge Yeung dealt with these matters firmly. He ordered costs against Versatile on a full indemnity basis, that if Versatile failed to return the money it was to become a judgment debt and the 1st defendant was given leave to levy execution, the charging orders against the defendants' Shatin Property were to be removed from the Land Register and the plaintiff's firm's conduct was criticised.

7. Later Woo J explained the relevance of this history when he said :

"I dwell on the Plaintiff's acts and conduct in the District Court proceedings in such details because they are part and partial [sic] of all the surrounding circumstances the consideration of which is required for making a decision on costs in this matter."

Having reviewed the whole history of proceedings between the parties and the Mareva injunction the judge concluded not only that there had been material non-disclosure but also that the Mareva proceedings had been undertaken for collateral motives and were not bona fide. He went on to pass serious strictures upon the whole conduct of the plaintiff in this litigation.

8. The context of the litigation was undoubtedly relevant to the issue before the judge. But the determination of motive and mala fides on affidavit evidence ought not have been undertaken. No doubt these issues will be determined at trial. With respect, therefore, the detailed examination of the history of the litigation, the motive and mala fides of the plaintiff as described on affidavits was not sufficiently relevant and germane to the determination of the simple issue on costs to justify the detailed enquiry which the judge was persuaded to undertake. In these circumstances on appeal we encouraged the parties to limit themselves to the bare factual background of the litigation and to concentrate upon the Mareva application itself in order to determine whether the judge was shown to be plainly wrong in making the order for costs on an indemnity basis.

The Mareva injunction

9. It is unnecessary to repeat what has been said many many times before. A Mareva injunction is a draconian order which if made unjustly can cause incalculable damage to defendants. The order is one which should be regarded as unusual. It is designed for the preservation of assets in good commercial claims. As this court said in Tamco Electrical & Electronic (Hong Kong) Ltd. v. Ng Chung-fai Stephen [1994] 1 HKLR 178 at 191 L41 :

"... these wholly exceptional orders were devised for use in rare and extreme cases."

10. As the application is ex parte the duty on the party applying and its legal advisers is stringent. As Scott, J. said in Columbia Picture Industries Inc. v. Robinson [1987] Ch 38 - cited in Tamco at 192 :

"... since it was frequently accompanied by a Mareva injunction, it could have the effect that the defendant's business would be destroyed without the defendant being in a position to apply to the court for the order to be set aside before it was executed; that, therefore, applicants for an order of such severity were under a strict duty to make to the court a full and frank disclosure of all matters that could be relevant and, having obtained the order, neither to act oppressively, nor abuse their power in executing the order."

Further, there are two other matters relevant to this appeal. First, it is not a sufficient disclosure to put before the judge a pile of papers. He may not have the time to read them and to digest them in detail. It is the duty of legal advisers and counsel to call the judge's attention to everything that he must see. Intergraph Corporation v. Solid System CAD Services Ltd. 1993 F.S.R. 617.

11. Secondly, the plaintiff must put before the judge the grounds for his claim, the amount of the claim and any obvious matters of fact or law which could be raised by the defendant against the making of an order. As was said in Tamco at 191.6 :

"The court itself bears a heavy responsibility, which it must discharge in unusual circumstances, without the benefit of adversary argument, and for just this reason the applicant's solicitors and counsel come under a duty to assist the judge so as to ensure, so far as possible, that the court does not make an order which perpetrates an injustice against the absent party."

The ex parte application

12. The facts of this case speak adequately for themselves. The application was made on the following grounds;

(1) that there was a good arguable case likely to succeed on threat of assault, spraying paint on the door of an office, telephoning and coming to the office demanding to see the plaintiff and demanding the payment of money.

13. Leaving aside the strange pleading - at most this is a small claim on questionable grounds unlikely to succeed in the obtaining of a permanent injunction. At best it can be said that the judge was prepared to make the ex parte order in spite of these matters.

(2) That there was a risk of the defendants' dissipating assets to avoid the consequences of the judgment against them. As the damages in the case at most could amount to about $8,000, the risk of dissipation could only relate to costs of the action.

(3) On the evidence, costs had already been incurred by the plaintiff of about $320,000 and after trial would amount to $650,000.

14. At the ex parte application the nature of the associated proceedings between Versatile and the 1st defendant were not disclosed to the judge. The default judgment and its setting aside were not mentioned nor was the effect of this on the charging order which had been made. For my part, I agree with the judge below that these matters should have been put before the court on the ex parte application. These were closely associated on the facts and with the persons involved. The plaintiff was under strict duty to disclose these matters which could be relevant so the judge could consider the context of the order which was sought. However, although the failure to disclose these matters must have been deliberate, I am not prepared to say that there was a deliberate attempt to mislead the court. Having regard to matters which follow I leave the point there.

15. The Mareva injunction is designed to protect the plaintiff against the dissipation of assets against which he will execute judgment. It is not available to a plaintiff who simply seeks a declaration. See The Steamship Mutual Underrising Association (Bemuda) Ltd. v. Thkur Shipping Co. Ltd. [1986] 2 Lloyds Reports 439. Nor is it available to a plaintiff who seeks only a permanent injunction. It was therefore essential in this ex parte application that the plaintiff stated the amount of her claim. She failed to do so.

The strength of the application

16. The plaintiff's purported claims for "harassment" and "molestation" are misconceived. There are no such torts. If the plaintiff proves nuisance, a permanent injunction is unlikely. The monetary claim if successful is worth, on the plaintiff's case, only a few thousand dollars. The uncertain assumption that the plaintiff has a good arguable case for this sum puts the application in perspective. If the principles are properly applied there ought to be no possible chance of obtaining a Mareva injunction for such a sum in an assault/nuisance claim such as this.

17. The evidence of risk of dissipation was that the defendants' proposed sale of their flat, the fact that the defendants are Singaporean (and therefore could return there if they so chose) coupled with the plaintiff's affirmed belief in risk of dissipation. Whereas the plaintiff's case on this point was slim evidence of risk is often difficult to obtain and if the rest of the application was on firm ground the court's practice in the past (perhaps wrongly) has been to accept relatively weak evidence of risk if the other evidence is strong.

18. The plaintiff did not seek a freezing of the assets for any prospective judgment sum but only in respect of costs. There was one untaxed order for costs against the defendant in previous proceedings but freezing was not sought in respect of this costs order. Freezing was sought (a) for the sum of $320,000 alleged to have been expended already in the action and (b) for $330,000 not yet incurred. In the court below, there was considerable argument as to whether the court had jurisdiction to grant a Mareva injunction in respect of costs alone. As I have said already the judge decided rightly that there is jurisdiction but with respect this is not the real issue. The issue is whether this Mareva injunction ought ever to have been applied for, and if applied for, granted. Assuming everything had been properly taken into consideration, was there any real chance of a judge granting the injunction had he a full knowledge of the facts and the background?

19. Here, the plaintiff was seeking an order in circumstances which in my experience are unique. Whereas parties should not be discouraged from seeking to advance the law by placing full and balanced legal argument before the court, as the Plaintiff was applying ex parte the duty here was to ensure that the judge was aware of the unique nature of the application. This was not done. The plaintiff cannot rely upon the fact that the judge granted the ex parte order nor that on the return date the judge was prepared to continue it.

20. The situation can be summarised in this way :

(a) There was a material non-disclosure.

(b) The unique nature of the application was not brought to the judge's attention in the following respects;

(i) it was an non-commercial claim;

(ii) the chances of obtaining a permanent injunction were small;

(iii) the plaintiff was seeking protection for costs, most of which had not been incurred, and the rest of which - apart for a small and unknown amount - was not the subject of any order;

(iv) the value of the claim was not disclosed to the judge and was only $8,000;

(c) That the defendants were in the process of selling their apartment, a Mareva injunction would prevent this, therefore the effect of the injunction was likely to be oppressive or at least severe.

21. In summary therefore the plaintiff's application for Mareva injunction was oppressive and misconceived. It succeeded because the full circumstances of the facts and the law were not placed before the judge.

22. In these circumstances I would hold without hesitation that the judge's order was correct. Although I would uphold his decision on rather different grounds in my judgment the order was the only proper one in the circumstances.

23. I would dismiss the appeal and make an order nisi that the costs of the appeal should follow the event and be taxed and paid forthwith.

Liu, J.A.:

24. The 1st defendant was the former Marketing Manager of Versatile Advertising Company Limited. I shall call it "Versatile". The 2nd defendant is her husband. The plaintiff is a solicitor and a former shareholder/director of Versatile. When the 1st defendant's employment contract with Versatile was terminated, her claim against her former employer was left outstanding, and friction was thereby caused between the 1st defendant and Versatile. Such friction was spilling over onto the plaintiff. Foul and abusive messages in red paint were sprayed outside the offices of Versatile and the legal firm of the plaintiff, demanding payment for money due. In addition, key holes of the locks on the main office door of Versatile were plugged and painted over in red. Both the 1st and 2nd defendants made themselves a nuisance at the reception area of the plaintiff's legal firm. Time and again the 1st and the 2nd defendants also telephoned Versatile demanding to see the plaintiff, threatening the plaintiff with menaces and pressing for a settlement of the debts claimed to be due from Versatile. The 1st defendant even personally intimidated the plaintiff. In no time the 1st defendant and Versatile brought proceedings in the Labour Tribunal against one another. Later, Versatile instituted a District Court action against the 1st defendant for various relief including its Labour Tribunal claims which were thereupon discontinued. By consent the 1st defendant's Labour Tribunal claim was also transferred to the District Court, and the two sets of District Court proceedings between Versatile and the 1st defendant were consolidated.

25. The plaintiff commenced this High Court action against the defendants for, inter alia, an injunction restraining them from assaulting, threatening to assault, harassing, molesting, interfering with, disturbing, approaching or attempting to approach the plaintiff for assaults or harassment and from entering the premises of Versatile and the plaintiff's legal firm. The plaintiff further claimed against the defendants "damages for harassment and intimidation as pleaded in paragraphs 6 and 7 of the Statement of Claim". Thus, the damages claimed in the Statement of Claim flowed in effect from the alleged wrongdoings pleaded in its paragraph 6, viz.:

"The defendants have maliciously and wrongfully and with intent to injure the plaintiff, by threats and unlawful means intimidated and coerced the plaintiff directly and indirectly to pay to the 1st defendant a sum of money allegedly due to the 1st defendant by Versatile which alleged debt the plaintiff was not legally bound to pay".

26. These wrongdoings were threats allegedly delivered on some eight occasions by the 1st defendant to the plaintiff, whereby the 1st defendant was said to have intentionally caused the plaintiff to act to her own detriment. The eight incidents were particularised. What is averred in paragraph 6 of the Statement of Claim is the tort of intimidation, allegedly committed in a great many manifestations. Of the tortious damages claimed, only $6,000 in loss of professional chargeable time was pleaded as special damages.

27. The steps taken by Versatile and the role played by the plaintiff in the course of the proceedings led to judicial strictures and the plaintiff's legal firm being mulcted in costs on solicitor and own client basis. Whilst the defendants were accused of roguish behaviour, the conduct of relevant proceedings by the plaintiff through her firm was censured, in the main, for being procedurally high-handed and oppressive.

28. This High Court action was commenced on 28 December 1992, and on 6 January 1993 the plaintiff obtained an interlocutory injunction against both defendants in terms of the above permanent injunction prayed for in the Statement of Claim. Thereafter, there has been no further incident causing the plaintiff anguish or embarrassment. The plaintiff had by then been awarded costs which had yet to be taxed, but the amount said to have been already incurred was some $320,000 with another $330,000 estimated costs to follow. When the plaintiff applied ex parte to Wong, J for a Mareva injunction on 16 May 1994, her primary purpose was clearly identified to the judge as one of securing sufficient fund within jurisdiction for satisfying litigation costs in execution. Her pleaded special damages of $6,000, being fees for lost professional chargeable hours, were not particularly highlighted, but the Statement of Claim in which damages including these special damages were claimed was placed before Wong, J. On the return date on 24 May 1994 before Deputy Judge Cheung, that purpose became all the more apparent when the Mareva injunction was suspended by consent on the given undertaking to secure an amount sufficient for covering the $650,000 estimated costs. Evidently, the ex parte Mareva injunction needed to be affirmed, and the inter partes application for its continuation came before Woo, J on 26 July 1994. Some time prior to the institution of this High Court action, the 2nd defendant had disposed of his Taikoktsui property. Shortly before this action, the plaintiff came to learn of defendants' intention to sell their Shatin flat. These defendants were from Singapore and Macau. The plaintiff then looked upon all this as evidence of risk of dissipation of assets. In fact later the 1st defendant so categorically stated in her affirmation. Such harboured intention to sell was also subsequently verified by the defendants and their counsel later in the Mareva proceedings. On the second day of hearing before Woo, J, the plaintiff became aware that the defendant had re-invested the net proceeds of sale of their Shatin flat in the purchase of a new property. The plaintiff had yet to obtain documentary confirmation of the re-purchase. After the luncheon adjournment on the second day of hearing i.e. 29 July 1994, the plaintiff concluded that there was no longer any real risk of dissipation of assets to sustain the Mareva injunction, and she proposed to allow the injunction to be discharged and give the defendants costs on an indemnity basis provided that the defendants could produce an updated land search for the said new property acquisition. The parties failed to come to terms and the proceedings were proceeded with before Woo, J exclusively on the question of costs. The plaintiff offered party and party costs; the defendants sought indemnity costs. Woo, J handed down judgment on 12 September 1994, in which he awarded costs against the plaintiff in the Mareva proceedings on an indemnity basis.

29. Leave to appeal against Woo, J's judgment on costs was ultimately granted by Bokhary, JA on 22 November 1994. Leave had previously been refused by Woo, J and Godfrey, JA.

30. When the appeal was called on before us, the real issues were relatively uninvolved, and they could be shortly stated as follows:

(1) whether Woo, J was right in awarding indemnity costs, leave to appeal having been granted; and

(2) if Woo, J was wrong, whether his order can be otherwise supported.

31. In entertaining the plaintiff's resistance to the defendants' application for indemnity costs, Woo, J considered as the threshold question the court's jurisdiction to grant a Mareva injunction for primarily securing payments of costs, including estimated costs. The judge concluded that an injunction could be issued to protect "orders for costs that (might) be obtained by a plaintiff". Under 23 Rule 1 RSC security for costs cannot be ordered against a defendant. The procedural nature of Order 23 Rule 1 was acknowledged by Woo, J as being juridically incapable of abrogating the court's liberal jurisdiction to grant Mareva injunctions for securing payment of costs, spent or to be incurred. Clearly, in exercising such a jurisdiction, the court should have regard to the basic rule that a defendant cannot be called upon to provide security for costs. With the view of Woo, J I entirely agree. The judge's decision on jurisdiction was not even sought to be impugned before us.

32. Was Woo, J wrong in awarding indemnity costs? The judge took into account the District Court proceedings and what had transpired as "surrounding circumstances" for deciding costs in the Mareva injunction. For costs in an interim application, Buckley, LJ had this to say in Scherer v. Counting Instruments Limited (C. A.) [1986] 1 WLR 615 at p. 618 Letters E - J:

"Conduct which might be relevant to how the costs of the action should ultimately be borne may be quite irrelevant to whether a party was justified in making a particular interlocutory application. In such a context one naturally starts from a basis of considering whether the defendants were justified in launching their motions for dismissal of the actions for want of prosecution. The relevant proceedings are not the actions in their full extent, but the motions for dismissal."

33. Whilst the courts should consider, with reference to the question of costs in an action after trial, "all circumstances relevant to the issues in the action and the history of the action hitherto and the matters leading to the action", that is to say, "the whole battlefield of the action and the whole of the conduct of the parties in relation to the matter in dispute", for deciding costs in an interlocutory application, Woo, J ought to have focused on the application itself "from a basis of considering whether the (plaintiff was) justified in launching (her Mareva application)". See Scherer, ibid. P. 61B Letters D - E. Before Woo, J, the plaintiff did not find it right to seek to maintain the Mareva upon being fed the confirmatory evidence of a re-investment of the proceeds of sale of the defendants' Shatin property. The concession was readily made as soon as the plaintiff was satisfied with the evidence of that re-investment. Resorting to the court's jurisdiction to grant a Mareva injunction for securing payment of costs awarded or to be awarded was good justification for the plaintiff to launch, on the evidence of risk of dissipation she then had, her interlocutory application. Whether the plaintiff would succeed, wholly or in part, at the substantive hearing of her interim application was a matter which did not call for a determination because continuation of the injunction was regarded as no longer necessary or supportable in the developing circumstances. It was not open to the judge to take into consideration the previous unconnected proceedings as surrounding circumstances in his deliberation on costs. Whether Versatile and the plaintiff had been unreasonable, unconscionable, oppressive or vexatious are not matters relevant to the plaintiff's interlocutory application for securing payment of costs. Such draconian protection with respect to payment of costs claimed in the plaintiff's interlocutory application could hardly be affected by her and Versatile's ulterior motive, if any, or their past conduct in the District Court proceedings. Moreover, no finding was made by Woo, J that the plaintiff, by herself or through her legal advisers, had deliberately withheld information pertaining to the District Court proceedings, which for the reasons given the plaintiff was not obliged in any case to disclose in her ex parte application.

34. It is also indefensible to ascribe mala fides to the plaintiff on the face of affidavit evidence. I need not go any further with counsel's critical examination of the judgment of the judge.

35. What are the guidelines for awarding indemnity costs? Except for the recognised contempt cases, special or unusual features have as a rule to be shown to justify an award of costs on an indemnity basis, such as abuse of court process, scandalous or vexatious proceedings, proceedings improperly prosecuted with malice or an ulterior motive or in an oppressive manner, circumstances constituting an affront to the court etc. See Overseas Trust Bank Limited v. Coopers and Lybrand and Others [1991] 1 HKLR 177 at p. 183 A - C, per Godfrey, J as he then was. None of these special or unusual features existed in this case. The plaintiff was justified in launching her interlocutory application for a Mareva injunction, and her consent to its discharge was given later for a reason which she regarded as compelling. Woo, J's order for costs on an indemnity basis cannot be supported for the reasons he gave.

36. I pass on then to the next issue: can the decision of the judge be otherwise supported? There is no substance in any of the matters raised in the Supplementary Respondents' Notice. Unless the defendants are prepared to give the same undertaking at the conclusion of the action, there are good prospects for the plaintiff's prayer of permanent injunction to succeed. The claim for damages for harassment and intimidation as specified in paragraphs 6 & 7 of the Statement of Claim is a claim sustainable in Tort. There was evidence of risk of dissipation of assets. It cannot be said that the plaintiff's interlocutory application was launched without any pretence of justification or that it was misconceived or oppressive. There was no special or unusual feature for visiting the plaintiff with a stringent order of costs. Nothing warrants an invitation to be extended to the respondents for amending their Supplementary Notice so as to enable new grounds to be properly debated. The award of indemnity costs cannot be otherwise supported. I would allow the appeal with costs and set aside the order of the judge. An open offer was made by letter through the plaintiff's solicitors to the defendants' solicitors for payment of the defendants' cost on a party and party basis up to, by necessary implication, 11 August 1994. I would order that the plaintiff do pay the defendants' costs of the plaintiff's application for "Mareva relief" up to and including the 11 August 1994 on a party and party basis. I would make a further order that the defendants do pay the plaintiff's costs thereafter including those of the plaintiff's applications for leave to appeal. All orders for costs be orders nisi. The respondents' Supplementary Notice is to stand dismissed.

Ryan, J.:

37. I have had the opportunity of considering both judgments in draft. These judgments set out the history of the litigation between the parties which I will not repeat.

38. It is not challenged that the Court has jurisdiction to grant a Mareva injunction in respect of costs in the action but it must be noted that the occasions when such an order will be made are rare.

39. Woo J was wrong to make a finding on the motives of the Plaintiff based solely on the affidavit evidence but he was right to hold that there had been material non-disclosure by the Plaintiff at the hearing of the ex parte application for the injunction before Wong J.

40. The order made in the District Court as to the charging order was a very relevant matter for the consideration of the judge hearing an ex parte application for draconian relief freezing funds to cover legal costs.

41. I am also in agreement with the other reasoning of Mortimer JA and with his conclusion that the Plaintiff's application for an injunction was oppressive and misconceived.

42. I too would dismiss the appeal and make an order nisi that the costs of the appeal should follow the event and be taxed and paid forthwith.