HOOGLAND HENDRICUS ANTONIUS v. GINO L. LIN AND ANOTHER

HCA 657/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 657 OF 2007

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REASONS  FOR  DECISION

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Introduction

1.  There were two appeals of the plaintiff against the master’s orders.

2.  The first appeal (taken out on 3 December 2007) concerned the order dated 20 November 2007 whereby the master (among other things) ordered the plaintiff to give security for costs up to and including discovery in this action.  This will be called “the security for costs appeal” below.

3.  The other appeal (taken out on 3 January 2008) concerned the order dated 11 December 2007 whereby judgment was entered against the plaintiff for his default in giving the said security.  As a result, the plaintiff’s claim herein against the 2^nd defendant (“D2”) was dismissed with costs.  This will be called “the peremptory judgment appeal” below.

4.  At the end of the appeal hearing, I dismissed both appeals with costs to D2.  The reasons are set out below.

Grounds of Appeal

5.  In relation to the security for costs appeal, the plaintiff argued that:-

(a) although he is not a Hong Kong ordinary resident, he is a regular visitor;

(b)    he had assets within the jurisdiction;

(c) there is merit in his claim.

And, in view of the above, the discretion ought to be exercised in refusing to order him to give security.

6.  In relation to the peremptory judgment appeal, while accepting he failed to pay the security into court, the plaintiff argued that:-

(1) the master ought not have entered judgment without giving him an opportunity to be heard;

(2) this is particularly so when he had already applied “in writing informally” to the master to stay the peremptory order, and D2 had indicated it would be “happy with all directions [to be] given by [the master]” thereby indicating no objection thereto.

The Claim and the Defence

7.  The background leading to the appeals was (at least for the purpose of these appeals) largely undisputed and can be summarised as follows.

8.  D2 is and was a licensed bank in Hong Kong.  The plaintiff was one of its customers, maintaining several bank accounts in his personal name or in the names of companies effectively his alter ego.

9.  The plaintiff authorised D2 to operate the plaintiff’s personal savings account upon instructions given through facsimile transmission (“fax instructions”).  The statement of claim herein avers the bank documents provided that:-

(a) “… [D2] would not be obliged to execute any [fax instructions]”;

(b)    “… save and except in cases of gross negligence or wilful misconduct, [D2] would not be liable … for acting in good faith upon any [fax instructions] emanating from unauthorised individuals”;

(c) “… as a precondition for acting upon [fax transmissions], [D2] would be entitled to demand delivery up for inspection the original document”.

(para. 4(a) to 4(c) thereof)

This Action

10.  But the plaintiff also claimed that the terms of the above bank documents were varied by subsequent practice and conduct so that D2 would be obliged to check the contents of the fax instructions, and to seek confirmation thereof over the telephone.  It is also alleged the original instructions would be sent to D2 after the transaction.

11.  The plaintiff’s main complaint stemmed from two forged fax instructions given in July 2005 for the transfer of US$70,000 and US$660,000 out of his personal savings account (“the allegedly forged faxes”).  He alleged that those instructions were not procured by him but unlawfully by the first defendant.

12.  The plaintiff claimed that, in complying with the allegedly forged faxes, D2 acted in breach of its contractual and/or common law duty; alternatively, there was gross negligence on D2’s part.  The particulars given in support of the claim were:-

(1) failing to check the contents of the allegedly forged faxes.  In particular, failing to discover the mis-spelling of the plaintiff’s name (“Hongland” instead of “Hoogland”) thereon;

(2) failing to discover that the plaintiff’s signature on the allegedly forged faxes were in fact “cut-and paste” from another document;

(3) failing to seek confirmation of the authenticity of the allegedly forged faxes before complying with the same;

(4) failing to obtain the original instructions before complying with the same.

13.  D2 denies the claim.  Reliance is placed on the terms in a document called  “Letter of Indemnity – Faxed Instruction”:-

“[The plaintiff is] fully aware of the possible risks involved in connection with the giving of any Faxed Instruction including … forged signature … [The plaintiff] understand that [D2] will not see the original of the Faxed Instruction, and that [D2] will thus have no means of verifying that the signature or the entries … are authentic.  [D2] will not be required to verify the identity and signatures of the person or persons giving any Faxed Instruction purportedly made on [the plaintiff’s] behalf”;

“[D2 is] hereby irrevocably and unconditionally authorized to act on any Faxed Instruction … and [D2] shall not be liable for acting in good faith on any Faxed Instruction which emanate from unauthorized individuals …”;

“Except in the case of [D2’s] gross negligence or wilful misconduct, [the plaintiff] agree … that [D2] will not be liable to [the plaintiff] … ”.

14.  D2 accepted that on most occasions the plaintiff or a Ms Zheng would telephone D2 to notify and confirm that faxed instructions had been (or would be) sent to D2, but this did not vary the terms of the said letter of indemnity.

15.  D2 denies any breach, gross negligence or wilful misconduct on its part.  Its defence also referred to the numerous faxed instructions from the plaintiff from May to July 2005.  In view of those transmissions, the allegedly forged faxes appeared to be in order because:-

(a) they appeared to have been sent from an office closely related to, or controlled by, the plaintiff;

(b)    the plaintiff’s signature thereon appeared genuine compared to the specimen signature;

(c) the transfer was to the account of a company closely related to, or controlled by, the plaintiff;

(d)    the mis-spelling also appeared in other earlier faxed instructions from the plaintiff for which no complaint had been made by the plaintiff;

(e) telephone confirmation of the allegedly forged faxes had been obtained from the said Ms Zheng.

The Security for Costs Appeal

16.  RHC Ord. 23 r 1(a) provides:-

“Where, on the application of a defendant to an action or other proceeding in the Court of First Instance, it appears to the Court … the plaintiff is ordinarily resident out of the jurisdiction … , then if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give such security for the defendant's costs of the action or other proceeding as it thinks just”.

17.  The plaintiff deposed that:-

(1) he had been earning a living in Guangdong for over 20 years;

(2) he is now living in the factory dormitory in Dongguan, which is only about an hours’ drive from Hong Kong;

(3) he travels between Holland and Dongguan about twice a month via Hong Kong;

(4) he had purchased a house in Dongguan recently;

(5) he (which more accurately should mean his companies) operates two offices in Hong Kong;

(6) his life insurance policy was taken out in Hong Kong.

18.  I do not consider the above should bear much (if any) weight.  Hong Kong is a special administrative region of China under the “one country-two systems” arrangement.  The plaintiff has chosen to operate the manufacturing part of his business in the Mainland (probably to take advantage of the cheaper costs there) while operating offices here (probably to take advantage of Hong Kong’s role as a financial centre).  He has also chosen to take up residence in the Mainland.

19.  The plaintiff can so choose.  But having made such a deliberate decision, it does not lie in his mouth to argue that D2 has suffered no juridical disadvantage because the plaintiff “considered [himself] part of [Hong Kong]” (a phrase used in his 2^nd affidavit) (whatever that phrase may mean).  The fact remains Hong Kong and the Mainland have different political and legal systems.  Any attempt to enforce a costs order of the Hong Kong courts in the Mainland may be no less difficult than attempting to enforce it in a foreign jurisdiction.

20.  Counsel made clear that the main plank of the plaintiff’s case is he has assets within the jurisdiction:-

(a) two residential properties (total purchase price of $1.6 million but subject to a mortgage debt of $800,000 (it should also be noted the mortgage may well be for “all moneys” but the hearing bundles do not contain details about this)) purchased through one of the plaintiff’s companies (the properties have been rented out);

(b)    shareholdings in a number of Hong Kong companies;

(c) deposits in Hong Kong bank accounts.

The plaintiff’s life insurance policy was no longer relied upon except for the purpose of showing his “close connection” with Hong Kong (see para. 17(6) above).

21.  I agree with D2 that none of the above can be regarded as assets of a “fixed and permanent” nature: see Ebrard v. Gassier (1885) 28 Ch D 232, 234; In re The Appollinaris Company’s Trade-Marks [1891] Ch D 1.  The burden rests with the plaintiff to show that the assets “can certainly be available for costs”, judged from a common sense point of view: Hong Kong Civil Procedure 2008, Vol. 1, para. 23/3/6.  He has failed to discharge that burden.

22.  The two residential properties are clearly purchased for investment purposes (they have never been occupied by the plaintiff and have been rented out all along).  Residential properties in Hong Kong, despite being described as real properties, are relatively easy to be sold off.  The conveyance process is relatively simple and short.  It is also possible the amount of the secured debts equals to or exceeds the value of the properties (see para. 20(a) above).

23.  It is unnecessary to go into details of what can be fairly called the web of companies belonging to (or at least controlled by) the plaintiff.  There is cross-shareholding among some of them.  Even the plaintiff made a mistake about his shareholding in one of his affidavits.  There is no direct evidence whether this resulted from the complicated corporate structure; but this is likely to be the cause.  There is evidence of new corporate vehicle being used to take up the business of an old one.  Lastly, he also admitted in his affidavit two of his companies were “for purposes of tax planning for 2006”.

24.  There is therefore basis for inferring that the plaintiff is used to taking advantage of corporate vehicles to serve his own purposes.  The global picture is thus the plaintiff’s shareholdings in various companies are far from being “fixed and permanent” assets.

25.  Hong Kong is a major financial centre.  Financial movements can take place swiftly.  Cash deposits in bank accounts can be disposed of literally within minutes.  They cannot ordinarily be regarded as assets of a fixed and permanent nature.

26.  Finally, as regards merits, plaintiff’s counsel indicated during the appeal hearing he would not make submissions on this aspect.  Usually this means he no longer relies on it.  However, because the matter has been raised in his written skeleton argument, I will deal with it for completeness.

27.  Again it is unnecessary to go into details of the plaintiff’s argument suffice it to say the merit of his claim is not such as would tip the discretion in the plaintiff’s favour (see para. 10 to 15 above).

The Pre-emptive Judgment Appeal

28.  Both of the orders referred to in para. 2 and 3 above were made by Master Yuen.  Para. 4, order dated 20 November 2007 provides:-

“In default of such security being given by the Plaintiff within the time aforesaid, the Plaintiff’s claim against [D2] in this action be dismissed without further order … ”.

Despite this, plaintiff’s skeleton argument says this:-

“… Master S. Kwang should not have entered judgment against P … without first giving P an opportunity to deal with Master S. Kwang [sic] view] on the matter.  Suffice it to say that, in writing, P had made an application to stay paragraph 4 of Master M. Yuen’s Order albeit informally … and that there, in response to it, no objection having been raised by D2’a solicitors … ”.

29.  As will be demonstrated in the paragraphs below, there is absolutely no basis for bringing Master Kwang into this matter.  With regret, I have to conclude the only plausible purpose for doing so is to mislead and confuse.

30.  The first relevant order was made on 20 November 2007 (as stated above).  It was made pursuant to D2’s summons taken out on 25 July 2007.

31.  The plaintiff has later taken out a summons on 30 August 2007 seeking further and better particulars and specific discovery (“the plaintiff’s summons”).  In a letter dated 12 December 2007 which expressly refers to the plaintiff’s summons, the plaintiff sought to adjourn that summons sine die with liberty to restore.

32.  Clerk to Master Kwang replied to the above letter on 18 December 2007 stating:-

“Under para. 3 of [Master Yuen’s order dated 20 November 2007], all proceedings against [D2] be stayed.  As a result, [the plaintiff’s summons] against [D2] must be adjourned and hearing be vacated.

Moreover, under paragraph 4 of [Master Yuen’s said order], if the Plaintiff fails to provide such security, Plaintiff’s claims against [D2] be dismissed without further order.  In the present circumstances, I see no basis to restore [the plaintiff’s summons] later.

Parties to address the court on the same”.

The last sentence clearly refers to the parties’ address to the court regarding how the plaintiff’s summons was to be dealt with.

33.  D2’s solicitors wrote on 19 December 2007:-

“We refer to [the above letter] of 18 December 2007 with copy to us.

[D2] is happy with all the directions made by Master Kwang in your said letter”.

Again, there can be no mistake that those remarks were made in relation to how the plaintiff’s summons was to be disposed of.

34.  In a letter also dated 19 December 2007, the plaintiff’s solicitors (among other things) asked Master Kwang to stay para. 4 of Master Yuen’s said order.  To this, Clerk to Master Kwang wrote on the same day:-

“… Master Kwang read [the above letter] and made the following comments,

‘It is not for me to decide whether there should be a stay of para. 4 of [Master Yuen’s said order].

The terms of such order is rather straight forward on face of its wordings’”.

35.  What made the matter worse was counsel’s repeated submission during the appeal hearing that the plaintiff has been misled by D2’s letter dated 19 December 2007 (see para. 33 above).  This is despite counsel having expressly been referred to the above correspondence in detail during the hearing (see para. 28 and 31 to 34 above).

36.  The correspondence from the plaintiff preceding D2’s letter has nothing to do with Master Yuen’s said order.  Moreover, the deadline for complying with it expired after 11 December 2007 (that is, well before the said two letters both dated 19 December 2007).

37.  It was also alleged that para. 3 and 4 of the order dated 20 November 2007 are inconsistent, and the plaintiff was misled as a result.  No reasonable reader would so conclude. As Clerk to Master Kwang pointed out, para. 4 of the order is straight-forward.

38.  Finally, the alleged misunderstanding has not been set out on oath; there is therefore no evidence in support.

39.  In short, there is no merit in the submission.

40.  The plaintiff accepts that the master has power to make an order in terms of para. 4 of the order dated 20 November 2007.  There is no justification to interfere with it, or to interfere with the subsequent order dismissing the claim upon the plaintiff’s default.  In fact, in the circumstances set out above, I would have made the same orders.

Costs Order

41.  The plaintiff does not dispute the applicability of the usual rule that costs should follow the event.  The appropriate costs order would be to order the plaintiff to pay the costs to be taxed if not agreed.