ZHOU FENLI v. WU KWAI YUNG

   HCMP569/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 569 OF 2009

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BETWEEN

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J U D G M E N T

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1.  This is an application for security for costs. In fact it is an appeal from Master Levy who has dismissed the defendant’s application for security for costs.

2.  The plaintiff, Mr Zhou, is not a resident of Hong Kong. The plaintiff is seeking a specific performance, in the words of Mr Ronald Tang for the defendant, on an allegedly binding agreement for the sale and purchase of some 67.5% shares in a listed company called Sanyuan Group Limited as well as certain convertible notes issued by the listed company. There was a memorandum signed by the plaintiff and the defendant at pages 190 to 192 of the Bundle. The plaintiff said that was a binding agreement whereas the defendant said that was only a letter of intent.

3.  Apart from this first point there are other factual disputes between the parties. The defendant, Mr Wu, was described as the chairman of the listed company. In fact one company called Hong Jin Limited was the shareholder. Further, the documents before the court showed that the shares was charged to one Kwan Wai Development Company Limited and that was dated 24 September 2005. The borrower was one Welling Rich Limited.

4.  Be that as it may, clause 4 of the memorandum stipulated that Mr Zhou, the plaintiff, would have to pay $2 million within five days of the signing of the memorandum. It is common ground that he had done so but he paid into the account of the listed company as stipulated by the same clause. However he had appointed the secretary, one Mr Xu, to be an additional signatory to this account under the name of Sanyuan Group Limited.

5.  I accept Mr Tang’s submission that at this stage unless the plaintiff can show that they had a genuine case of high degree of probability that the plaintiff would succeed or, on the other hand, the defendant has a high degree of probability that the defence would fail, it is not proper for the court to assess the strength and merit of the case. Putting the merit of the case aside, it is quite clear that there are two points I must take into consideration.

6.  The first thing is that some time in the past, on 23 March this year the plaintiff asked for a Mareva injunction against the defendant and at the same time had voluntarily given an undertaking to deposit $500,000 into a bank account of Bank of China for the purpose of fortifying their undertaking as to damages. This, I was told by Miss Winnie Chan for the plaintiff, that they can transfer the money into court in an interest bearing account instead of holding the money in their own account. Secondly, there is a dispute as to why the $2 million paid into the account has not been used. There was even an additional allegation from the defendant that the plaintiff required the defendant to sign an IOU for the $2 million and therefore they alleged that the $2 million was not a payment under the agreement but was a loan given to the defendant.

7.  In any event Miss Chan submitted that the defendant’s case is that the memorandum was not a legally binding contract and in the counterclaim they only asked for a declaration that the memorandum did not constitute a legally binding contract but was merely a letter of intent. Consequently, even if the defendant succeeded in its defence the memorandum would have no legal effect and the $2 million would remain as the money of the plaintiff. Therefore, within this jurisdiction there is basically $2 million belonging to the plaintiff that can meet the defendant’s costs should the defendant succeed in his defence. The $2 million could not be used by the plaintiff because Mr Xu was only an addition signatory to the account of the listed company. I therefore consider that the defendant’s position in respect of the costs, should the defendant succeed in his defence, is quite secure. Thus in the circumstances of this case, I do not consider that I should exercise my discretion to order the plaintiff to furnish any security for costs.

8.  Accordingly the appeal is dismissed.

[Submission for Costs]

9.  I consider that the plaintiff is entitled to the costs of the appeal. It is quite clear from the defendant’s case they are just asking for a declaration that the memorandum is not enforceable should they succeed then the $2 million would belong to the plaintiff, and this should be taken into account as the plaintiff’s assets within the jurisdiction on which the defendant can execute on a costs order against the plaintiff. Therefore I order costs to the plaintiff in any event.

10.  There is a further direction that the plaintiff is directed to transfer $500,000 in the said account of Bank of China to court on an interest bearing account within 14 days hereof.