CHAU HUNG WAN v. YICK HING CONSTRUCTION CO LTD AND OTHERS

HCA 1597/2019

[2021] HKCFI 2565

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1597 OF 2019

______________

(by original action)

(by counterclaim)

______________

____________________

DECISION

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The Appeal

1.  On 26 November 2020, the 1^st and 2^nd defendants by original action (“D1”, “D2” and together “Ds”) took out a summons against the plaintiff by original action (“P”) for security for costs (the “Security Summons”).  Ds on 22 April 2021 took out a summons for its withdrawal (the “Withdrawal Summons”).  The Security Summons was ultimately withdrawn by consent.  Agreement however could not be reached on the issue of costs.  That issue was ordered to be dealt with on the papers.  By Order of 18 May 2021 (the “Costs Order”), the Master ordered that Ds should pay P her costs of the Security Summons and the Withdrawal Summons, to be taxed if not agreed.

2.  It is against the Costs Order that Ds are now appealing.  Ds’ position, as stated in their Notice of Appeal filed on 31 May 2021, is that P should bear Ds’ costs of both the Security Summons and the Withdrawal Summons, to be taxed if not agreed.

3.  Mr Michael M H Leung appeared for Ds.  Mr Yip Chi Ho appeared for P.

The Writ, and the cause of action

4.  The Writ herein was issued on 29 August 2019.

5.  On the Writ, P’s address is stated to be one in Hong Kong at Tai Po (the “Tai Po Address”).

6.  According to the indorsed Statement of Claim, P’s claim is based on an investment/financing agreement entered into between P, D1, D2 and the 3^rd defendant by original action (“D3”) on 28 November 2018 (the “Agreement”). P was the lender, D1 the borrower, and D2 and D3 the guarantors.  The loan involved (the “Loan”) was RMB 9 million.  It was made to finance a construction project at Yuen Long being undertaken by D1 (of which D2 was the sole director and shareholder) and the 4^th defendant by original action (“D4”) (the majority of which shares being indirectly held by D3).  Ultimately, D1, D2 and D3 failed to repay the Loan or honor their duties as guarantors.  P further avers that D4 has been unjustly enriched for that sum.  This action was therefore initiated.   

7.  A copy of the Agreement has been produced[1]. Except the following two points, we are not concerned with its details:

(a)  P is stated in the Agreement to be a holder of Hong Kong identity card, with her identity card number stated; and

(b)  Clause 7 of the Agreement governs the manner in which notices under the Agreement are to be served.  For service to P, the “收件地址” is stated to be one at Nanshan District, Shenzhen (the “Nanshan Address”).

The call‑over hearing

8.  The call‑over hearing of the Security Summons took place before Mr Registrar S Kwang on 22 January 2021.  Both sides were legally represented. 

9.  The transcript of that hearing, whilst not before the Master when he made the Costs Order, has been produced by consent before this court as additional evidence[2]. The following exchanges between the learned Registrar and P’s counsel (“P’s Counsel”) are relevant:

“ P’S COUNSEL: Much obliged, The brief grounds of objection of the plaintiff against their application for security for costs mainly is in two limbs. The first one is that although the plaintiff is currently not residing in Hong Kong, she has very strong ties with Hong Kong.

COURT: So your client is not residing in Hong Kong now.

P’S COUNSEL: That is correct, Mr Registrar.

COURT: Is she a Hong Kong citizen or resident?

P’S COUNSEL: She has a Hong Kong permanent ID card and she has lived in the past in both Hong Kong and mainland PRC.

COURT: So she is a permanent resident.

P’S COUNSEL: Yes …

COURT: … So you have tried to say that she has shown her strong tie with Hong Kong. She has sibling in Hong Kong.

P’S COUNSEL: She has siblings in Hong Kong. The Tai Po premises, that Tai Po address appearing on the writ, is actually where her sister and sister‑in‑law — her elder and sister — I mean brother‑in‑law reside and own.

COURT: So she is also one of the co‑owners of the Tai Po premises?

P’S COUNSEL: Her elder sister is, the plaintiff’s elder sister.

COURT: Sorry. Elder — so she is not one of the owners.

P’S COUNSEL: She’s not one of the owners, but she resides there whenever she’s in Hong Kong.

COURT: So she has no permanent address in Hong Kong it means?

   P’S COUNSEL: That is her permanent address in Hong Kong because she stays there whenever she is in Hong Kong.  And also, she actually maintains a local bank account as well, because that is one of the allegations of the defendant.”

Parties’ positions on appeal

10.  Mr Leung summarizes Ds’ case at §3 of his submissions.  He submits that this is a clear case where the Court should deviate from the usual principle that costs follow the event.  The Withdrawal Summons was necessitated by P’s disclosures in her affirmation of 8 April 2021 of her assets in Hong Kong. The disclosure was effected late, made only three weeks before the scheduled hearing of the Security Summons on 28 April 2021.  Ds’ application for security for costs was tenable at the time the Security Summons was filed, and the prima facie evidence (before the late disclosures) suggested that P was not ordinarily resident within the jurisdiction.  In the post‑CJR era, P had a duty to the Court’s underlying objectives to respond to Ds’ pre‑action letter and to disclose her local assets expeditiously to avoid the Security Summons.  P failed to do so on multiple occasions.  On the contrary, Ds met their duties to the underlying objectives and the Order 23 regime by conducting a property ownership search (the “Property Ownership Search”). Whilst the Property Ownership Search was deficient, in that it failed to discover the property which P owns in Hong Kong, it was P’s duty to immediately notify Ds of their mistaken belief and to disclose her Hong Kong assets to minimize the wastage of court resources and litigation costs.  P chose not to disclose her Hong Kong assets to “ambush Ds” at the substantive hearing.  P and her solicitors “chose to shirk their duty to the Court and the underlying objectives and to flout civil procedure rules”.  In particular, in a letter dated 16 April 2021, P’s solicitors wrote that “we have no obligation to respond to your pre‑action letter or disclose her assets in Hong Kong at the call‑over hearing”[3].

11.  Mr Yip on the other hand submits that Ds’ premise (that the Security Summons was at the time when it was taken out tenable) is a flawed one.  Mr Yip relies on the Writ stating the Tai Po Address, the Agreement stating that P is a holder of Hong Kong identity card, the absence of any statement by P in any disclosed or court document that she was not residing in Hong Kong, and the exchange between the learned Registrar and P’s Counsel during the call‑over hearing.  He submits that the Security Summons was not tenable to start with, and that Ds had mistakenly been relying on their own unfounded beliefs that P was not a Hong Kong resident.  The Property Ownership Search undertaken by Ds was deficient.  The serious allegations made by Ds against P and her legal representatives are not supported by cogent evidence.  In all, Ds should bear the consequence of their wrong beliefs and their reliance upon the deficient Property Ownership Search.

The law

12.  Mr Leung accepts that in general, a judge in chambers will not allow an appeal from a master’s order unless it is unreasonable, or the Master erred in law.  He refers to Hong Kong Civil Procedure 2021 at §58/1/6.

13.  At section D.3. of my judgment in Chen Ningning v King & Wood (a firm) [2020] HKCFI 602, I have discussed a number of authorities in support of that approach.  I refer to those discussions.

14.  Parties have made submissions on the discretionary nature of the Court’s power on costs, and that post‑CJR, costs following the event is only one option as opposed to the prescribed usual order[4]. Mr Yip has also referred to In re Elgindata Ltd (No.2) [1992] 1 WLR 1207.

15.  At section D.2. of my judgment in Chen Ningning, I have also discussed some of those issues.  I refer to those discussions.  In Chen Ningning, I discussed Order 62, rule 3(2), whereas in the present case, the Security Summons being an interlocutory application, the relevant rule is Order 62, rule 3(2A).  However, in both cases, Order 62, rule 5 is equally applicable.  In so far as Elgindata Ltd (No.2) is concerned, I emphasize, and as has been explained by Lam V‑P (as the Permanent Judge then was) in Chan Shun Kei v Hong Kong Construction (Hong Kong) Ltd, CACV 192/2014 (unrep, 7 March 2016), at §36, that there is a distinction between depriving a successful party of his costs on the one hand, and ordering him to pay the costs of the losing parties on the other.  For the latter, impropriety or unreasonableness on the part of the successful party has to be demonstrated.

16.  Mr Leung has also cited Cheung Kong Property (Business Development) Ltd v Gold Brilliant Investment Ltd [2021] HKCFI 2330 at §§20‑25, which I have noted. 

17.  In advancing his case, Mr Leung relies heavily on Huie Lai Shan Koko v Yang Fu Yen [2015] 3 HKLRD 621:

(a)  Mr Leung cites Huie Lai Shan in support of a number of propositions he makes, that:

“ … in Security for Costs applications, when there is prima facie evidence that P was not an ordinarily resident within the jurisdiction, P has a positive duty to be forthcoming and to disclose to the Ds particulars of the Plaintiff’s background concerning her connections to Hong Kong before the affirmation stage. The failure of such non‑disclosure is unreasonable conduct entitling the Court to depart from the presumption that costs should follow the event …”[5]

“ P has a positive duty to disclose the particulars of her background, assets, and other connection to Hong Kong if she wished to show she was an ordinarily resident within the jurisdiction …”[6]

“ … P had a duty to correct Ds’ mistaken belief that she was a resident out of jurisdiction. P’s act of seeking time extensions to take more instruction without disclosing to the other side her Hong Kong property amounted to unreasonable behaviour …”[7]

“ Where Ds have a reasonable belief that P is a resident out‑of‑jurisdiction and the application for security for costs is tenable, there is no duty on Ds to conduct a property search of any kind. [It] is unreasonable for defendants to ensure the completeness of their property searches since a plaintiff can register a property under different aliases and defendants may not have full knowledge of such aliases and/or lack information required for a complete search …”[8]

(b)  In my view, the reasonableness of a party’s conduct, or whether a party has misconducted oneself, is to be considered in the light of the facts in a particular case;

(c)  The facts in Huie Lai Shan have to be noted.  As recorded by Master Michael Wong at §16 of his judgment:

“ All along, in all contemporaneous documents disclosed by the plaintiff in this action and all court documents prior to the issue of the Security Summons on 15 December 2014, without exception, the plaintiff had represented herself to be residing in the United States of America. This included the address she stated in her Writ of Summons, her first affidavit in support of her application for a Mareva injunction, contemporaneous emails and bank records.”

(d)  The importance of those facts are highlighted in Hong Kong Civil Procedure 2021 at §23/3/4 at page 632, that:

“ If a plaintiff initially represents that he is resident outside Hong Kong, but later resists an application for security for costs by adducing evidence of factors suggesting residence in Hong Kong leading to the withdrawal of the application, he would normally be expected to pay the costs of the withdrawal application for his unreasonable conduct (Huie Lai Shan Koko v Yang Fu Yen …”

(e)  In my view, Huie Lai Shan does not establish any invariable rules on the parties’ duties, as Mr Leung is seeking to argue.

Discussion

18.  Ds took out the Security Summons for security for costs against P.

19.  Ds took out the Withdrawal Summons to withdraw the Security Summons. The Security Summons was withdrawn.

20.  The end result is that Ds have failed to get what they originally set out to get.  In that sense, Ds were the unsuccessful parties.

21.  That Ds are the unsuccessful parties is a relevant consideration.

22.  Mr Leung submits that despite the “event”, costs following the event is only one option.  The matters set out at Order 62, rule 5 remain relevant.

23.  This Court, when exercising its discretion on costs, is mandated by Order 62, rule 5 to take into account those specific matters set out therein.  To that extent, Mr Leung is correct.  But this is not controversial.

24.  Mr Leung put forward 4 broad matters in support of his contention that despite the “event”, Ds should nonetheless be awarded costs of both the Security Summons and the Withdrawal summons:

(a)  that it was reasonable for Ds to take out the Security Summons;

(b)  that P’s conduct was unreasonable;

(c)  that Ds’ conduct was good; and

(d)  that P’s disclosure of a Hong Kong bank account by her counsel during the call‑over hearing was without particulars.

25.  Reasonableness (or otherwise) of Ds taking out the Security Summons, and Ds’ alleged good conduct:

(a)  These two matters overlap, and may be considered together;

(b)  For the following reasons, I find that on the materials known at the material time, Ds’ decision to take out the Security Summons is not a reasonable one;

(c)  The contemporaneous evidence Ds relied upon was tenuous;

(d)  As pointed out by Mr Yip, P gave the Tai Po Address in the Writ, and stated in the Agreement that she is a Hong Kong identity card holder (with number stated);

(e)  In stark contrast with the plaintiff in Huie Lai Shan, P has never in any disclosed or court documents declared that she was ordinarily resident out of Hong Kong.  During the hearing before this Court, Mr Leung confirmed that that is the case;

(f)  Mr Leung argues that P “did not plead herself as a Hong Kong permanent resident in the Statement of Claim”[9];

(g)  That argument is in my view misconceived, and loses sight entirely of the fact that P’s residence is not an element of P’s pleaded cause of action.  There is no reason why P should plead to that in the Statement of Claim;

(h)  Mr Leung submits[10] that “the sole fact that P possess permanent residency status is not the sole test for 'ordinarily residence within the jurisdiction’ ”.  He cites §23/3/4 of Hong Kong Civil Procedure 2021.  However, considering whether P has a Hong Kong identity card is usually the starting point, as that gives P the right to reside in Hong Kong — see that same paragraph in Hong Kong Civil Procedure 2021;

(i)  Mr Leung then submits[11] that P and her husband are friends of 2 person[12] who are ordinarily residents out of Hong Kong, that the Loan was made with Renminbi, and that the funds involved were not consolidated in a Hong Kong bank account.  Those matters are in my view entirely equivocal, and hardly assist Ds in showing that P was ordinarily resident out of Hong Kong;

(j)  Mr Leung then refers to the Nanshan Address and submits that in the Agreement, “P’s listed address” is in Nanshan District[13], and that she therein gave “her address as a residence in Nanshan District”[14];

(k)  I do not understand why Mr Leung chooses to call the Nanshan Address P’s listed address.  It is positively incorrect to describe it “as a residence”.  I note and repeat that the Nanshan Address was specifically stated to be the “收件地址” for the purpose of serving notices under the Agreement;

(l)  Then Mr Leung refers to the Tai Po Address.  He says that it is at a public housing estate.  He submits that “it would be unreasonable for [P] with significant financial means to ordinarily reside in a public housing flat”[15]. There is in my view no basis for that submission;

(m)  Mr Leung submits that Ds have displayed reasonable conduct;

(n)  Ds issued pre‑application letter.  P filed her affirmation in opposition on 8 April 2021.  Ds filed the Withdrawal Summons on 22 April 2021. I accept that those are reasonable conduct;

(o)  On the other hand, the result of the Property Ownership Search was clearly incorrect.  It was ordered on 11 November 2020.  According to the land search record produced by P[16], P by an Assignment of 30 July 2020 became the registered owner of a property at Greenhill Villa (the “Greenhill Villa Property”).  The Assignment was registered on 20 August 2020.  The Property Ownership Search failed to reveal that;

(p)  Mr Leung submits that it is “unreasonable for [Ds] to ensure the completeness of their property searches since a [P] can register a property under different aliases and [Ds] may not have full knowledge of such aliases and/or lack information required for a complete search”.  He relies on see Huie Lai Shan at §47;

(q)  It is important to note that the Greenhill Villa Property is registered under P’s name, but not any different name, which was the scenario discussed at §47 of Huie Lai Shan.  No explanation has been tendered as to why the Property Ownership Search failed to discover that;

(r)  Mr Leung submits that “the law neither imposes a positive duty on [Ds] to procure [the Property Ownership Search] nor would it be ideal to hold [Ds] accountable to the accuracy of such searches”;

(s)  It is not to the point to talk about positive legal duties.  Nor is one talking about any ideal situation.  Given the tenuous nature of the contemporaneous evidence on residence which I have discussed above, it is at the very least prudent for the Property Ownership Search to be conducted.  The result turned out to be incorrect.  In the course of the hearing before this Court, Mr Leung accepted that the results of the Property Ownership Search was one of the factors relied on by Ds in deciding to take out the Security Summons, and that had the Property Ownership Search been successful in showing P’s ownership of the Greenhill Villa Property, Ds would not have taken out the Security Summons.  In the circumstances, it is not unreasonable to form the view that Ds would have to bear the consequence of the incorrect search.  I agree with the Master in this regard[17].

26.  P’s conduct, and the disclosure of the bank account:

(a)  These two matters again may be considered together;

(b)  The underlying objectives should also be considered in conjunction;

(c)  Mr Leung deals with those matters at Sections C2 and C4 of his written submissions, which I have considered;

(d)  Mr Leung criticizes P and her legal advisers for not responding to Ds’ pre‑application letter of 20 October 2020.  Specifically, he submits that “In the post‑CJR era, P had a duty to the Court’s underlying objectives to respond to Ds’ pre‑action letter and to disclose her local assets expeditiously to avoid the [Security] Summons altogether”[18];

(e)  In that letter[19], Ds’ solicitors stated their observation that P was ordinarily resident outside Hong Kong, stated their instructions that P was “unlikely to possess any assets within the jurisdiction”, and required security in the sum of HK$1,000,000;

(f)  In reply, Mr Yip submitted during the hearing that Ds in that letter did not specifically request P to provide details of her assets in Hong Kong.  He submits further that the point is in any event and at best just one factor to be taken into account;

(g)  I accept those submissions;

(h)  Further, one of the underlying objectives is to ensure fairness between the parties;

(i)  If P had made a previous representation that she was ordinarily resident out of Hong Kong, as the plaintiff in Huie Lai Shan had, it could be fair to impose a duty on her to correct it, failing which she be visited with an adverse costs order.  P however had not;

(j)  In fact, given the tenuous nature of the contemporaneous evidence which I have considered above, imposing a positive duty on P to reveal her domestic assets on correspondence could be unfair to P, in that Ds would be afforded a procedural and tactical advantage on disclosure which Ds otherwise do not enjoy;

(k)  Then Mr Leung complains about P’s Counsel not telling the learned Registrar P’s ownership of the Greenhill Villa Property, or particulars about the local bank account.  He submits that when the learned Registrar asked whether P co‑owned the Tai Po Address, it was the opportune time for the disclosure of the Greenhill Villa Property;

(l)  I accept Mr Yip’s submissions that the call‑over hearing was not a hearing for specific discovery.  P’s Counsel was not asked as to whether P owned any property in Hong Kong.  I do not accept that the evidence shows that P’s Counsel has misled the Court;

(m)  Mr Leung then complains that P exacerbated the position by asking for an extension of time to file her affirmation in opposition.  He submits that P’s affirmation subsequently filed was “undesirable”, as it was unnecessary to deal with the substantive merits of the case;

(n)  Ds in the affirmation in support deal with the factual background of the underlying claim.  In the present context, I do not find it unreasonable for P to deal with the underlying facts;

(o)  In so far as P’s local bank account is concerned, P’s Counsel disclosed the existence of one during the call‑over hearing.  That is the most important fact.  Details like bank name etc are of lesser significance at that stage;

(p)  In all, I am of the view that whilst P and her solicitors could have gone further to effect additional disclosure of P’s local assets at an earlier stage, what they had actually done may not on the facts and in the circumstances of the present case be described as unreasonable.

27.  During the hearing, Mr Leung criticized the Costs Order as being unreasonable and mistaken in law.  He argued that the learned Master had adopted a wrong approach by commenting that the “burden lies on [Ds] to get their application in order”, that the learned Master was wrong in considering D2’s failure in his 2^nd affirmation to deal with the disclosure about P’s local bank account, that he had failed to consider P’s conduct, failed to consider the underlying objectives, and had further erred in considering the deficiency in the Property Ownership Search.

28.  I reject those submissions.  The learned Master was clearly correct in observing that the burden lies on Ds to put their application in order and that they had failed to.  As recorded in the Costs Order, the learned Master had before making the Order considered all the relevant affirmations.  He had also considered the written submissions filed before him, which covered the matters which Mr Leung has been seeking to rely on.  There are no merits in Mr Leung’s arguments.  I reject them.

29.  On the other hand, on the facts before me, I find the Costs Order reasonable.  In my view, this is a case of Ds taking out the Security Summons on the primary bases of their at best overly optimistic interpretation of the facts and the incorrect result of the Property Ownership Search.  They have failed to put the application in order, but subsequently sought to shift the blame onto P by putting her litigation conduct under close scrutiny in the hope of getting her to bear or share in the costs.  The learned Master is in my view correct on the facts of the case in making the Costs Order.

30.  I have also considered whether the costs should be apportioned.  On the facts and evidence as discussed above, I see no basis to deprive P of any part of her costs, and a fortiori, no basis to order P to bear any part of Ds’ costs.

Disposition 

31.  I dismiss the appeal.

Costs

32.  I make a costs order nisi that Ds shall bear the costs of and occasioned by the appeal (including for the avoidance of doubt the costs for the production of the transcript of the call-over hearing, which has been agreed to be costs in the cause of the appeal), to be summarily assessed, with certificate for counsel.  Should Ds seek to vary the same, submissions (limited to 3 pages) should be filed within 7 days from the date hereof.  P shall file her response within 7 days thereafter (also confined to 3 pages), together with her statement of costs.  Ds shall file their reply within 5 days, together with any statement of objections (limited also to 3 pages in total).  P is to file within 5 days her response to the statement of objections (also limited to 3 pages).  Any application will then be dealt with on the papers