DIMITRIOS KOUTSOLIOUTSOS AND ANOTHER v. LAI KAR YAN (DEREK) AND YIP WA MING (BEN), JOINT AND SEVERAL LIQUIDATORS OF FF GROUP SOURCING LTD (IN CREDITORS' VOLUNTARY LIQUIDATION)

HCMP 1083/2023

[2024] HKCFI 1646

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1083 OF 2023

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D E C I S I O N

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1.  Introduction

1.1  This is my decision on the Respondents’ application made by their summons dated 29 November 2023 (“Summons”) for security for costs pursuant to RHC Order 23, rule 1.

1.2  On 8 December 2023, upon the parties’ consent, I gave directions for an evidential timetable with which the 1^st and 2^nd Applicants (the “Applicants”) thereafter did not comply. An unless order was subsequently granted by consent by Master Matthew Leung on 16 January 2024, requiring the Applicants to file their evidence in opposition by 4 pm on 6 February 2024, failing which they would be debarred from doing so. The Applicants did not file any evidence by the prescribed deadline.

1.3  On 21 February 2024, I gave directions for the Summons to be disposed on the papers and lodging of skeleton arguments. The Applicants again did not comply with my directions. Upon an application by the Applicants’ solicitors, I granted an extension of time to 12 April 2024, but in the form of an unless order. Eventually and somewhat surprisingly having asked for an extension of time, by a letter dated 15 April 2024, the Applicants’ solicitors informed the court that they have no instructions from the Applicants in respect of the conduct of the Summons.

2.  Background

2.1  The Respondents are the joint and several liquidators of FF Group Sourcing Limited (in Creditors’ Voluntary Liquidation) (“Company”). The Company is the parent company of 18 companies which together comprise the Asian arm of an international corporate group headquartered in Greece engaged in the business of inter alia the design, processing, wholesale distribution and retail of consumer items under the brands of “Folli Follie” and “Links of London” (“FF Group”). The company was put in liquidation by a shareholders’ resolution dated 5 June 2020.

2.2  As regards the Applicants:

(1)  The 1^st Applicant is a founder of the FF Group and a substantial shareholder in the holding company (“FFSA”) of the FF Group which is listed on the Athens Stock Exchange. He is a director of many entities within the FF Group, and in particular the Company;

(2)  The 2^nd Applicant is the wife of the 1^st Applicant and a director of FFSA;

(3)  Both of them ordinarily reside out of the jurisdiction.

2.3  In these proceedings, commenced by an Originating Summons dated 11 July 2023 (“OS”)[1], the Applicants seek the reversal of the decisions made by the Respondents on 20 June 2023 (“Notices of Rejection”) to reject the Proofs of Debt filed by the Applicants (“Proofs of Debt”). The Proofs of Debt were variously in respect of (1) loans allegedly advanced by the 1^st Applicant to the Company during the period from 5 January 2015 to 9 July 2018 (“Alleged Loans”) and (2) unpaid salaries in respect of the 1^st and 2^nd Applicants for the period from 1 January 2011 to 31 March 2017 (“Alleged Unpaid Salaries”). The aggregate amount of the Proofs of Debt, as stated in the OS, is in excess of US$44 million.

2.4  In the Notices of Rejection issued respectively to the 1^st and 2^nd Applicants on 20 June 2023, the Proofs of Debt were rejected for the following broad reasons:

(1)  In respect of the Alleged Loans, the Respondents’ investigation into the affairs of the Company has revealed that the 1^st Applicant (together with others) committed fraud against the Company and certain of its subsidiaries involving the creation of fictitious sales and profits, costs of goods sold and bank transactions as well as the falsification of bank statements and financial statements of the Company and certain of its subsidiaries (“Alleged Fraud”). The Respondents’ analysis of the Alleged Loans indicates that by virtue of the Alleged Fraud, fictitious obligations had been entered in the Company’s books and records. In the absence of any unequivocal evidence to the contrary (which was requested but not provided by the 1^st Applicant), the Respondents concluded that the Company is not indebted to the 1^st Applicant;

(2)  In respect of the Alleged Unpaid Salaries, as a result of the Alleged Fraud, the 1^st Applicant was in breach of his fiduciary duties and the 2^nd Applicant her contract of employment, and such breaches in each case constituted a total failure of consideration.

2.5  As a result of the Alleged Fraud, the Respondents had commenced HCA 1769 of 2019 against the 1^st Applicant (together with some of the Company’s former auditors). That action has since 17 June 2022 been stayed by consent (terminable by 14 days’ written notice by either side).

2.6  There are also ongoing criminal proceedings against the Applicants (together with others) in Greece for money laundering, forgery, market manipulation and fraud.

2.7  Shortly after the commencement of the present proceedings, on 17 July 2023, the Respondents’ solicitors wrote to the Applicants’ solicitors to seek confirmation on whether the Applicants would agree in principle to provide security for costs. As no confirmation was forthcoming in correspondence, the Summons was issued on 29 November 2023.

3.  Applicable principles

3.1  RHC Order 23, rule 1(1) 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 –

(a) that the plaintiff is ordinarily resident out of the jurisdiction, or

…

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.”

3.2  The applicable principles are established (Hong Kong Civil Procedure 2024 Notes 23/3/3, 23/3/4 and 23/3/32). As pointed out by Ms Natalie So, counsel for the Respondents:

(1)  There is no inflexible rule or practice that a plaintiff resident abroad will be ordered to give security for costs; the power to make such order is entirely discretionary;

(2)  As a matter of discretion, it is the usual ordinary or general rule of practice of the court to require a foreign plaintiff to give security for costs, because it is ordinarily just to do so;

(3)  Although the merits of the plaintiff’s claim may be a relevant consideration, it is not the function of the court to make a preliminary run at deciding the ultimate success or failure of the claim, and the parties should not attempt to go into the merits of the case unless it can be clearly demonstrated that the plaintiff has a high degree of probability of success;

(4)  As regards quantum, the court has an unfettered discretion to order such amount as it thinks just, taking into account all the circumstances of the case.

4.  Analysis

4.1  I agree with Ms So that there are the following factors in favour of granting security for costs:

(1)  There is no dispute that the Applicants are ordinarily resident out of the jurisdiction;

(2)  The Applicants do not appear to have any assets in Hong Kong;

(3)  There is no convention for enforcement of judgments between Hong Kong and Greece.

4.2  In relation to the merits of the Applicants’ underlying claim, despite given ample opportunities (as set out at section 1 above), no evidence has been filed (in the context of these proceedings) and no submissions have been lodged to persuade the court that the merits of their underlying claims have a high degree of probability of success.

4.3  For the above reasons, an order for security for costs should be made.

5.  Quantum

5.1  The Skeleton Bill of Costs sets out the quantum claimed up to trial. Unlike a writ action, the trial which is envisaged in the present case is a substantive hearing for 3 hours (Item 26). The amount claimed is slightly over HK$1.3 million (which includes the costs of the Summons). Ms So is content to omit the costs associated with the Summons (around HK$280,000), leaving quantum at just over HK$1 million.

5.2  At the hearing of the OS, the issue to be decided is whether the Applicants are capable of proving their debts by credible evidence: Primlaks (HK) Ltd (in Liquidation) [2024] HKCFI 752 §§1 and 24. The evidence filed by the Applicants in the OS is voluminous in terms of exhibits. But it seems to me that a view may provisionally be formed (and one has already been formed in the supporting affidavit of the Summons) that the Applicants’ evidence lacks particulars and the exhibits are insufficient to substantiate the Applicants’ case.

5.3  I bear the foregoing in mind in my assessment of quantum of security. In my view, an appropriate amount is HK$700,000.

6.  Conclusion

6.1  The Summons seeks a stay of these proceedings pending provision of security (§2) and a dismissal in the event of the Applicants failing to provide security (§3). The Applicants’ conduct demonstrates that the present proceedings are not being pursued with diligence. I accede to Summons §§2 and 3. It is also appropriate to make an order that the Respondents be at liberty to apply for further security for costs, no doubt on the basis that such an application will only be made were it justified by future development.

6.2  For the above reasons, I make the following orders:

(1)  The Applicants do give security for the Respondents’ costs of these proceedings by making payment into court in the sum of HK$700,000 as estimate costs up to and including the trial within 28 days;

(2)  Pending the provision of such security, all further proceedings in this action be stayed;

(3)  Unless paragraph (1) is complied with:

(a)  these proceedings be dismissed without further order;

(b)  upon dismissal, the Applicants do pay to the Respondents the costs of the action to be taxed if not agreed.

6.3  In relation to costs of the Summons, in view of the Applicants’ conduct set out at section 1 above, I order the Applicants to pay to the Respondents the costs of and incidental to the Summons on an indemnity basis. The Respondents have provided a Statement of Costs for the purpose of summary assessment, which I have assessed on a broad-brush basis at HK$140,000 (adjusted downward from HK$241,887.25). Even on an indemnity basis, the voluminous evidence is accounted largely by a reference made to the Applicants’ evidence filed in the underlying proceedings, the relevance of which in the present application is limited. The foregoing costs order and summary assessment are on a nisi basis and shall become absolute within 14 days absent any application for their variation.