XU XIUZHI v. WONG YUK CHOI AND ANOTHER

HCA 1525/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1525 OF 2012

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D E C I S I O N

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The application

1.  The 1^st defendant applies for security for costs against the plaintiff under Order 23 rule 1 (1)(a), namely that the plaintiff is ordinarily residing out of the jurisdiction and that it is just for the Court to make an order that the plaintiff should provide security for costs for the 1^st defendant.  The first issue is a matter of fact to be proved by the 1^st defendant, which is a question of fact and degree.  See §§15 & 36 of Hui Yin Sang & Others v Tsoi Ping Kwan & Others CACV208/2011 by Fok JA, (as he then was) 19 April 2012.  The second issue is a matter of discretion of the Court after the 1^st defendant has successfully established the fact.

2.  The relevant statutory provision is as follows:

“1. Security for costs of action, etc. (O. 23, r. 1)

(1) Where, on the application of a defendant to an action or other proceeding in the Court of First Instance, it appears to the Court- (25 of 1998 s. 2)

(a) that 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.”

3.  The plaintiff opposes this application and the parties are legally represented.[1]

The factual background

4.  The plaintiff and the 1^st defendant are related.  The 1^st defendant is the cousin of the plaintiff’s mother.  The plaintiff’s claim against the 1^st defendant is for a declaration of being the beneficial owner of the shares in the 2^nd defendant, which the plaintiff had transferred to the 1^st defendant for the purpose of gaining tax advantage for the 2^nd defendant.  The plaintiff alleged that he remained the controller and decision-maker of the 2^nd defendant.  However, the 1^st defendant had refused to carry out the plaintiff’s instructions and declined to return the shares to the plaintiff.  The plaintiff took out this Action against the 1^st defendant, joining the 2^nd defendant as the nominal defendant for the transfer of the shares.

5.  The 1^st defendant disputes the plaintiff’s allegations, arguing that the shares in the 2^nd defendant were transferred by the plaintiff to him as a result of oral agreement and for valuable consideration.[2]  The 1^st defendant therefore counterclaims against the plaintiff for declaration of the beneficial ownership of the shares in the 2^nd defendant.

6.  Before I set out the applicable legal principles, it will be convenient to set out the factual background of the plaintiff.  As the burden is on the 1^st defendant to prove the case against the plaintiff, I should refer to the 1^st defendant’s submissions.  However, the 1^st defendant has not set out the factual background in the written submissions.  I have to refer to the plaintiff’s written submissions for the factual background relating to the plaintiff.  I shall, however, deal with the 1^st defendant’s argument on the facts below.  From paragraph 5 of the written submissions, Mr. Nip says:

“5. In or about 2008, Xu [the plaintiff] applied for residency in Hong Kong under the Government’s Capital Investment Entrant Scheme which he eventually obtained in 2010 (Xu §3 [D/49]). He is the holder of HKID card (number provided).

6. Before applying for residency, Xu had started conducting his scrap metal recycling business in Hong Kong through various entities, such as Kailai Toyosawa and the 2nd Defendant (“Nishi Mori”) (albeit disputed by Wong) (Xu §5 [1/49]; Xu Witness Statement §§11-15 [P1/21-22]).

7. Xu has also purchased real properties in Hong Kong (Xu §§4 and 6 [D/49]):

7.1. On 18 March 2005, he purchased Workshops 9 and 10, 7th Floor, Block C, (address provided) (amount provided) (“Workshops”) [D/242-251].

7.2. On 1 September 2008, he purchased a unit, Wing On Plaza at (address provided) for (amount provided) (“Wing On Plaza Unit”) [D/252-259].

7.3. On 7 January 2008, he purchased a unit in The Harbourside, (address provided) (Harbourside”) as his place of residence for (amount provided) [D/224-229].

8. Since the incorporation of Nishi Mori until 18 February 2009, Xu held 4,750,000 ordinary shares (“Shares”) in Nishi Mori and Wong held 250,000 ordinary shares in Nishi Mori [P2/84-134].”

The relevant legal principles

7.  The following legal principles are applicable:

a. The onus is on the 1^st defendant to prove that the plaintiff is ordinarily resident out of jurisdiction and the question is one of fact and degree not depending on the duration of the residence, but upon the way in which a man’s life is usually ordered in contrast with temporary residence [HKCP 2014, §23/3/4];

b. ‘the phrase “ordinarily resident” should be construed according to its ordinary and natural meaning, and that a person is ordinarily resident in a place if he habitually and normally resides lawfully in such place from choice and for a settled purpose, apart from temporary or occasional absences, even if his permanent residence or “real home” is elsewhere’ (Emphasis added): HKCP 2014, §23/3/4;

c. ‘When determining whether a plaintiff is “ordinarily resident” outside the jurisdiction it does not necessarily matter that the plaintiff has spent significant amounts of time abroad.  One has to consider the reasons for the absence from the jurisdiction and whether the plaintiff has “up-rooted” and relocated him or herself abroad’ (Emphasis added): HKCP 2014, §23/3/4;

d. “A holder of a Hong Kong identity card is not necessarily ordinarily resident within Hong Kong.”  HKCP 2014, §23/3/4

e. In the recent CFA case of Vallejos Evangeline Banao, aka Vallejos Evangeline B. v Commissioner of Registration and Another [2013] 2 HKLRD 533, the CFA ruled that the interpretation of “ordinary resident” is highly dependent on context of the statutory framework in which the phrase is found.  (per Ma CJ, at §27, §28, §30, §47-49, §79)

f. The statutory context of O.23 RHC has been so stated by the Court of Appeal in Hui Yin Sang & others v Tsoi Ping Kwan & Others [2012] 2 HKLRD 1085, at §46:-

‘It is important to bear in mind, in the context of O.23, that:

“The purpose of ordering security for costs against a plaintiff ordinarily resident outside the jurisdiction is to ensure that a successful defendant will have a fund available within the jurisdiction of this court against which it can enforce the judgment for costs. It is not, in the ordinary case, in any sense designed to provide a defendant with security for costs against a plaintiff who lacks funds. The risk of defending a case brought by a penurious plaintiff is as applicable to plaintiffs coming from outside the jurisdiction as it is to plaintiffs resident within the jurisdiction.”

(Per Sir Nicholas Browne-Wilkinson VC (as he then was) in Porzelack KC v Porzelack (UK) Ltd [1987] 1 WLR 420 at p. 422H – cited in Akai Holdings Ltd v Ernst & Young (2009) 12 HKCFAR 376 at §14).’

g. “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 HKCP 2014, §23/3/4.”

8.  It will be clear from Hui Yin Sang’s case that O.23 r.1 only applies to a plaintiff ordinarily resident outside the jurisdiction as confirmed by Recorder Horace Wong SC in Lim Yi Shenn v Wong Yuen Yee [2012] 3 HKLRD 505 at §11.  It can also be seen from the Court of Appeal case that when considering the factual issue of ordinarily residency within or outside the jurisdiction, the Court has to make reference to the purpose of providing security for costs against the plaintiff if the 1^st defendant is successful.

Discussion – approach on finding of facts

9.  I shall now apply the above legal principles to the facts of this matter to determine whether the plaintiff is ordinarily resident out of the jurisdiction.  Only after I have determine that the plaintiff is ordinarily resident out of the jurisdiction, then I have to determine whether he should provide security for costs under the relevant circumstances.

10.  It is clear that the burden is on the 1^st defendant to prove, on evidence, that the plaintiff is ordinarily resident out of the jurisdiction.

11.  In my view, the starting point is the right of residing in Hong Kong although a holder of the Hong Kong Identity Card is not necessarily resident within Hong Kong. HKCP 2014, §23/3/4  Without the right of residence in Hong Kong, the issue of residence in Hong Kong simply does not arise.

12.  The next consideration will be the plaintiff’s intention of residency, which will be tested by the facts of his residence in the past and his connections with Hong Kong by reference to, among other things, the physical residence of himself and his family, his place of work, his associations with the society in Hong Kong, and his assets in Hong Kong etc.  It will be strong evidence if the plaintiff had expressed his preference of residence such as in the case of Eric Edward Hotung & Anr v Ho Yuen Ki & Ors (unrep, HCA 857/2011, 13 December 2013) at §9 where the son had deposed that his father had told him from time to time that he had preference of living in the US, which the father did not dispute.  This has formed a strong indicator of the father’s intention.

13.  As the issue of residence is a fact to be found by the court, the quality of the evidence will be important, especially for interlocutory proceedings where the deponents will not be attending court for cross-examination.  As will be elaborated below, rules concerning the admissibility and weight of evidence on affidavit should be strictly adhered to.

14.  The 1^st defendant has no objection that the plaintiff has obtained the Hong Kong Identity Card before the commencement of these proceedings.  He argues that the plaintiff seldom lived in Hong Kong and spent most of his time in Shanghai and Taizhou [36 §4][3].  He relies upon what he was told by his relatives and the business counterparts. [36-37; §§4-5]  He has also said in his affirmation that he had visited the plaintiff’s residence at the Harbourside Property and was told by the security guard that the management office was unable to contact the plaintiff in the past two years. [37, §6].  Furthermore, he had also said in his affirmation that he had visited the plaintiff’s office at Wing On Plaza where he was told by a security guard that except for once in January 2014, the plaintiff had not attended his office in the past two years. [37, §7]

15.  The 1^st defendant therefore submits that upon the facts above, he has established a prima facie case that the plaintiff is ordinarily resident out of the jurisdiction under O.23, r.1.  No doubt, the 1^st defendant expects objections from the plaintiff on the above facts.

16.  The plaintiff in his affirmation in opposition to this application disputed the facts stated by the 1^st defendant.  He complained that the 1^st defendant had not disclosed the identity of the relatives, the business counterparts or the security guards for verification.

17.  O.41, r.5(2) provides that an affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof.  This requirement should be strictly complied with where objection is likely to be taken, and especially where it is an objection of substance and not a mere technical frivolous objection.  See 41/5/3 of HKCP 2014 referring to Leung Kin Fook & Others v Eastern Worldwide Co Ltd [1991]1 HKC 55.  In this case, the 1^st defendant applied for leave to amend the Defence by withdrawing its prior admission.  The application was supported by an affidavit made by the solicitor, who explained that it was due to further investigation by the defendant and upon taking further instructions, the true fact was revealed and the application was made.  The Court of Appeal held:

“The defendant was well aware that this application would be strictly contested and that the onus was on him to place before the Court in accordance with the rules an explanation as to how the mistake had come to be made. There could have been no misapprehension that, as often occurs, strict compliance with tire rules would be overlooked. It was incumbent upon Miss Mills in such circumstances to comply with O.41 r.5(2) by indicating with reasonable particularity the sources of her information.” (emphasis added)

18.  The 1^st defendant may argue that he had disclosed the source of the information, which being the relatives, the business counterparts, and the security guards of the residential property and the office.  However, since the objection goes to the substance of the information, which is significant for the court’s consideration as to whether the plaintiff should be liable to pay the security of costs into court, it is only fair that the plaintiff should be given reasonable particularity of the information as to the identity of the relatives, the business counterparts and the security guards so that the plaintiff may be given the chance to verify the information.  Without the identification information of the witnesses, the information is simply not possible for verification.  There is no information as to under what circumstances the relatives and the security guards gave the information to the 1^st defendant.  If they had given answers to the questions asked of them, the questions will be important for the Court’s consideration.

19.  As the Court of Appeal in Leung Kin Fook’s case said at page 6:

“It is not necessary to determine whether the explanation was convincing and credible as, without the affidavit, there is no explanation.”

I shall therefore attach no weight to the 1^st defendant’s affirmation in relation to the hearsay evidence without sufficient particularity of the source of the information.

20.  Where no weight has been given to the hearsay evidence, I find that the 1^st defendant is unable to establish a prima facie case that the plaintiff is ordinarily resident out of the jurisdiction.  The plaintiff therefore has no obligation to adduce evidence to prove the negative.  He cannot be blamed for failing to supply information as to his whereabouts of himself and his family.  Nor is he obligated to show the records of his movement as suggested by the 1^st defendant.  The plaintiff simply has no obligation to assist the 1^st defendant in this application. See §16 of the Decision in Glory Success Transportation Ltd v Secretary for Justice (unreported, HCAL 93/2006, Chu J (as she then was) 31 March 2008).

21.  The fact that the plaintiff might have given different residential addresses in his witness statement and supplemental witness statement and he might have had the documents signed in China, is not relevant if the 1^st defendant has failed to establish a prima facie case against the plaintiff.  Mr. Lo submits that the plaintiff has been evasive in not giving evidence to the Court to explain his residency in the past few years and there might be doubts over his ordinary residence.  These are circumstances that the Court should consider only if the 1^st defendant has established a prima facie case against the plaintiff.

22.  However, the fact that the plaintiff is ordinarily resident within the jurisdiction is fortified by the fact that the plaintiff had made investments in the properties in Hong Kong before the present Action.  The 1^st defendant does not dispute the fact that the Harbourside Property is the property belonging to the plaintiff and the property has never been leased out, which supports that the plaintiff and his family have been residing at the property since 2008.  Nor has the 1^st defendant disputed that the plaintiff had commenced his scrap metal recycling business in Hong Kong through various entities, such as Kailai Toyosawa and the 2nd Defendant (“Nishi Mori”) long before this Action.

23.  The Court has no jurisdiction to order the plaintiff to provide any security for costs under O.23, r.1.  Hui Yin Sang’s case.  The 1^st defendant’s application must be dismissed on this basis alone.  See paragraph 8 supra.

24.  As to the costs of this application, including the costs reserved and of today’s hearing, the costs should follow the event with counsel’s certificate for the plaintiff for today.  The costs are to be assessed under O.62, r.9A at $115,000 to be paid by the 1^st defendant to the plaintiff within 30 days from the date hereof.

Order

25.  I shall now make an order in terms as follows:

a. The 1^st defendant’s summons is dismissed;

b. The costs of this application are as per paragraph 24, supra.