IP PUI LAM ARTHUR AND ANOTHER v. HO YUK WAH DAVID (a bankrupt) AND OTHERS

HCA 2587/2017

[2018] HKCFI 1528

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2587 OF 2017

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D E C I S I O N

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Introduction

1.  Grassmere Services Limited (“Grassmere”) took out two summonses both dated 3 May 2018 in light of a decision handed down by this court dated 20 April 2018 (“the Decision”). In this document, I shall adopt the abbreviations defined in the Decision and shall refer to the Decision for the background facts which I do not intend to repeat here. References to paragraph numbers are references to the paragraphs in the Decision unless otherwise stated.

2.  First, Grassmere applies for leave to appeal against the Decision. Second, Grassmere applies for a variation of the costs order nisi such that the Trustees should pay Grassmere its costs of and occasioned by the Discharge Summons forthwith, to be taxed if not agreed, with certificate for two counsel. The Trustees oppose both applications.

3.  To recap, in the Decision, I discharged the Ex-parte Order on the ground of material non-disclosure, lack of proper notice and delay. I, nevertheless, exercised my discretion to regrant the injunction. Mr Chen, for the Trustees for the first time, confirms that there is no cross-appeal on their part.

Legal principles

4.  The relevant principles are not in dispute. Section 14 AA of the High Court Ordinance, Cap.4 provides that leave will not be granted unless the court is satisfied that (a) the appeal has a reasonable prospect of success; or (b) there is some other reason in the interests of justice why the appeal should be heard.

5.  Leave to appeal should not be lightly granted. Reasonable prospects of success involve the notion that the prospects of succeeding must be “reasonable” and therefore more than “fanciful” without having to be “probable”: SMSE v KL [2009] 4 HKLRD 125 at §17 per Le Pichon JA.

6.  The proposed appeal against my decision to regrant the injunction is a challenge to my exercise of discretion. The principles in Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 at 220 apply and it would only be on the well-established grounds that the appellate court would interfere with my exercise of discretion: China Art Bank Company Limited v Xu Zhiqiang, unreported,CAMP12/2017, 7.2.2018 [2018] HKCA 63 per Kwan JA at §8.

Application for leave to appeal

7.  Attached to the summons for leave to appeal is a draft Notice of Appeal containing 8 major grounds. In his oral submissions, Mr Wong SC (with Mr Kok) appearing for Grassmere again, with respect, merely rehashes all the arguments previously advanced to this court. In the main, he argues that there is no serious issue to be tried in respect of the DFIL Shares despite the Joint Announcement.

8.  Indeed, from §§62 to 69, I believe I have sufficiently explained why I accept that the Joint Announcement alone gives rise to the existence of a serious question to be tried despite those many challenges mounted by Mr Wong. I need not repeat my reasons here. Nor should I add to them any other grounds. I do not accept Mr Wong’s submission that the relevant statement in the Joint Announcement only contained a bare allegation for the reasons given in the Decision.

9.  At the hearing, Mr Wong relies on certain letters which were not placed before this court. They were not covered by any evidence filed in support of the present application. The letters were exchanged before SH, LWLC and Campbell.

10.  Upon the objection raised by Mr Chen, this court indicates that these letters would be considered on a de bene esse basis. After the hearing, on 26 June 2018, KYC filed an affirmation exhibiting the 4^th Affirmation of Sun Li Hua. In that affirmation, it is explained that those letters were only made available to KYC on 8 June 2018, i.e. subsequent to the last hearing. LWLC wrote to this court on 27 June 2018 to raise objection to the affirmation filed.

11.  For the purpose of the leave application, I do not think that this court has the jurisdiction to receive further evidence.  Grassmere has to apply to the Court of Appeal under O.59 r.10(2), Rules of the High Court, in due course and fulfil the Ladd v Marshall conditions. This court, however, has to consider whether there is a reasonable prospect that such letters would be accepted to be adduced by the Court of Appeal.

12.  I am of the view that these letters should have been disclosed to Grassmere and their failure to do so caused the inability of Grassmere to produce the same to this court.

13.  Mr Wong submits that these letters can shed light on the correctness of the statement in the Joint Announcement. They show the basis and understanding of Mr Dai and SH and SH’s proposed interpleader proceedings. He argues that should these letters have been properly drawn to the attention of this court, this court would have concluded that the Joint Announcement could not possibly suggest that there is a serious question to be tried as to the beneficial ownership of the DFIL Shares.

14.  I am unable to agree with Mr Wong. My reliance on the Joint Announcement is not really dependant on the view of Mr Dai and SH. For the reasons given in the Decision, I believe that the Joint Announcement demonstrates that the dispute over the beneficial interest of the DFIL Shares is a bone fide one warranting serious investigation. I cannot conclude that these letters would have a very important effect on the mind of the appellate court. Thus, I believe that there is not a reasonable chance that the Court of Appeal would accept these letters to be adduced. For the purpose of this application, I should ignore these letters.

15.  It is complained that this court has failed to consider the contrary evidence adduced by Grassmere. Indeed, such evidence was cogently presented to this court by Mr Wong at the last hearing. Having reached the conclusion about the strength of the Joint Announcement, this court did not find it necessary to set them out in the Decision and it does not follow that such evidence had not been taken into account. Mr Chen fairly accepts that Grassmere has an arguable defence to the claim of the Trustees but, that said, it does not mean that there is not even a serious question to be tried. I agree with him.

16.  I also believe that I have explained sufficiently why the Sum would be amenable to tracing if the proprietary claim of the Trustees over the DFIL Shares is allowed. I am unable to accept Mr Wong’s submission that there is no serious question to be tried as to the proprietary claim over the Sum.

17.  Mr Wong submits that there is no basis for ordering a re-grant of the injunction upon discharge given the gravity of the material non-disclosure. This court has already explained in the Decision why, despite the innocent material non-disclosure, a re-grant should be ordered.

18.  This court, in allowing the re-grant, did not lose sight of the delay in the Trustees’ application. It was only one of the relevant factors which should have been taken into account.  Given the proprietary nature of the Trustees’ claim and the lack of any evidence of prejudice caused to Grassmere by the lateness of the application, I do not believe that the re-grant should be refused on the ground of delay.

19.  Mr Wong further highlight to this court the financial condition of the Trustees. Notwithstanding their offer to provide a cross-undertaking as to damages, the predecessor of Mr Chen frankly told this court that they had experienced difficulties in recovering the assets of Mr Ho. Mr Wong submits that Grassmere would invariably stand to suffer significant and irreparable harm if the Ex-parte Order turns out to be wrongly granted and continued. Hence, this court erred in refusing to make an order for fortification of their undertaking as to damages.

20.  As its fall-back position, in the draft Notice of Appeal, Grassmere asks for an order that the Trustees’ undertaking as to damages should be fortified in the amount of HK$19,000,000 or such other sum which the court may see fit.

21.  This court is indeed cognisant of the financial weakness of the Trustees. The court does have power to accept a cross-undertaking in damages notwithstanding that it is not adequately supported by funds but this discretion should be exercised only in exceptional cases: Tan Man Kou and Cheung Yat Ming v Chime Corporation Limited and Ors., unreported, HCMP 4146/2001, 25.6.2003 per Kwan J (as she then was) at §82.

22.  This court has explained its acceptance of the cross-undertaking in damages and refusal to order fortification in the Decision. The financial condition of Grassmere is not made clear to this court and I am unable to give the evidence relating to the alleged loss any credence. On the evidence available, I am not convinced that there is a likelihood of a significant loss to Grassmere if the Sum is kept intact in the escrow account. It is remarkable that it is incumbent on Grassmere to show such a likelihood in its application for fortification: Hui Chi Ming v Koon Wing Yee [2011] 1 HKLRD 260 per Recorder Coleman at §34. Grassmere has failed to discharge this onus.

23.  Moreover, I am unable to accept Mr Wong’s submission that unless an applicant can prove zero loss on the part of a respondent if an injunction is granted, he must inevitably be ordered to provide fortification of his cross-undertaking. This proposition is not supported by any authorities and does not appear to me to be correct. Nor do I see fit that the Court of Appeal should consider its validity as urged upon me by Mr Wong.

24.  I do not intend to go through each and every proposed grounds of appeal. I believe the Decision can provide a complete answer to all such contentions. Mr Wong submits that it appears that the question as to whether a re-grant should be ordered was not an open and shut case to this court, thus this court should grant leave to Grassmere to bring this matter to the Court of Appeal to consider this difficult question afresh.

25.  I agree that the weighing exercise was not an easy one, in particular given the lack of funds of the Trustees. However, leave to appeal applications are governed by established principles and I am not satisfied that there is a reasonable prospect that the appellate court would find my exercise of discretion plainly wrong or erroneous in law.

26.  In the premises, I do not think that Grassmere can meet the threshold. I refuse to grant leave to appeal to Grassmere despite the forceful submissions of Mr Wong.

Application for variation of the costs order nisi

27.  Mr Wong confirms that Grassmere does not insist on summary assessment of its costs recoverable in respect of the Discharge Summons. There is no dispute that there should be certificate for two counsel as well. The remaining controversy is when taxation should take place.

28.  The costs order nisi does not specify the time for taxation. Nor did I specify that Grassmere should have its costs forthwith. O.62, r.9D(1), RHC provides that the costs of any proceedings shall not be taxed until the conclusion of the action, see also Big Boss Investment Ltd v So Lai Kei [2010] 1 HKLRD 793 per Registrar Au Yeung (as she then was) at §§11-12.

29.  Mr Chen submits that the costs of the Discharge Summons and the Continuation Summons should be taxed together at the same time after the conclusion of the action. He argues that these two applications involved an overlapping of preparation and evidence and so it is expedient that the taxation of the costs of these two applications should be done at the same time.

30.  Mr Chen further points out that the Trustees’ cash flow would be seriously affected if they are to make immediate payment of the costs of Grassmere.

31.  On the other hand, Mr Wong urges this court to order that the Trustees should pay the costs of Grassmere forthwith.

32.  I have expressed my view on the appropriateness of the Ex-parte application. I believe that the Trustees should have approached the application in a more responsible manner having due regard to the possible adverse costs consequences in the event of a subsequent of the Ex-parte Order: Re Jessop & Baird (Hong Kong) Ltd (No.2) [2017] 5 HKLRD 314. I see no reason why they should not bear the consequences immediately upon the discharge. This serves as an reminder that ex-parte applications must be handled with extreme care and in a responsible manner.

33.  Hence, I accept the application of Grassmere so that the costs order nisi be varied to allow immediate taxation of such costs recoverable as a result of the Discharge Summons.   

Conclusion and orders

34.  For the reasons given, I dismiss the summons for leave to appeal and allow the summons for a variation of the costs order nisi to the extent that the Trustees should pay Grassmere its costs of and occasioned by the Discharge Summons forthwith, to be taxed if not agreed with certificate for two counsel.

35.  Costs should follow the event. For the former summons, Grassmere should pay the costs of the Trustees forthwith, to be taxed if not agreed.  For the latter summons, the Trustees should pay the costs of Grassmere forthwith, to be taxed if not agreed. Its complexity, however, does not justify the engagement of two counsel and so I refuse to grant certificate for two counsel.

36.  Lastly, I thank Mr Wong, Mr Kok and Mr Chen for their assistance in this matter.