News
News //
Submitted by // K Bowers, Partner
13 April 2018

 

Waddington Ltd v Chan Chun Hoo Thomas and Others [2018] HKCU 914

Introduction

In Waddington Ltd v Chan Chun Hoo Thomas and Others [2018] HKCU 914, the Court of First Instance ("CFI") considered the Plaintiff's application for further disclosure by Reed Smith Richards Butler ("RSRB"), the 5th Defendant's solicitors. The Plaintiff's application was in support of its intended application for a non-party costs order (a costs order against an individual who is not a party to the proceedings) against the 5th defendant's funder. This was the Plaintiff's 3rd application for disclosure and on this occasion, the Plaintiff's application was refused because the Court found that the further disclosure would likely lead to more satellite litigation, which is not the purpose behind the Court's general discretion to make non-party costs orders.

Background

The applications for disclosure orders arose from the cost order in a multiple derivative action brought by the Plaintiff. The 1st Defendant was ordered to pay costs to the Plaintiff and the Court further ordered that the 5th Defendant should:

i) indemnify the Plaintiff in respect of its costs incurred, but not recoverable from the 1st Defendant;
ii) further indemnify the Plaintiff in respect of its costs incurred in respect of the appeal; and
iii) pay to the Plaintiff the costs of the interlocutory applications in relation to an interim payment to the Plaintiff.

Since the 5th Defendant had been voluntarily wound up at the start of the proceedings (and was only restored by the Plaintiff to pursue these proceedings against it), the purpose of the Plaintiff's applications for disclosure by RSRB was to obtain information for its intended application for a non-party costs order under s. 52(A)(2) of the High Court Ordinance (Cap. 4) ("HCO") against the 5th Defendant's funder.

Plaintiff's 1st and 2nd applications for disclosure by RSRB

During January 2017, the Plaintiff applied for an order that RSRB disclose information relating to the identity of the 5th Defendant's funder (the Plaintiff's 2nd application was to amend the 1st application). The Court confirmed its jurisdiction to make a non-party costs order against the funder of a party in an action under s. 52(A)(2) of the HCO. It also confirmed its ancillary jurisdiction to order the party being funded and/or the solicitors acting for that party to disclose the identity of the funder as well as information and documents relating to the funding arrangement. The Court noted that it will take the following factors into account when deciding whether to grant such a disclosure order:-

i) the strength of the application as it now appears unassisted by disclosure;
ii) the potential value to the fair determination of the application of the documents of which the claimant seeks disclosure, and whether they are likely to elucidate considerations highly probative of the exercise of the court's discretion, or threaten to drag the application into a side alley of satellite litigation with diminishing returns for the overall issue;
iii) whether on a summary assessment it is obvious that the documents for which disclosure is sought will be the subject of proper legal professional privilege; and
iv) whether the likely effect of any order the court might be minded to make will be proportionate and just in all the circumstances.

In resisting the application, counsel for RSRB submitted that the 5th Defendant had over HK$51m in assets, which would enable it to comply with the costs order in favour of the Plaintiff. The Court confirmed that the financial position of the party liable to pay costs is a relevant condition, but not a pre-condition to the exercise of power to award costs against a non-party. Further, the HK$51m was solely from the award granted in the multiple derivative action, so it was arguable that this amount should be preserved for the 5th Defendant and its shareholders, and not to be spent on legal costs.

The Court found that information relating to the identity of the funder of the 5th Defendant was of "critical importance to the Plaintiff's intended application", and that such information was not protected by any legal professional privilege. Further, the Court was of the view that RSRB would not incur disproportionate costs in order to comply with the disclosure order.

In the end, the Court granted the disclosure order, but limited the scope (thereby refusing parts of the 1st application and the 2nd application in its entirety), such that the only information to be disclosed was "no more than what is reasonably necessary" to enable the Plaintiff to pursue its intended application for a non-party costs order. In particular, the Plaintiff sought the disclosure of details of the funding arrangement and a breakdown of the costs incurred by the 5th Defendant. This was refused as the Court held that there was no basis to order such disclosure at this stage. The Court noted that a further application may be made by the Plaintiff for the disclosure of additional relevant information after the identity of the funder is provided.

Plaintiff's 3rd application for disclosure by RSRB

In compliance with the Court's order, RSRB subsequently disclosed to the Plaintiff that the 3rd Defendant was ultimately the 5th Defendant's funder. The 3rd Defendant funded the 5th Defendant through PIL Finance Ltd. and Belmont Ltd. by procuring the two entities to advance loans to the 5th Defendant. The Plaintiff, however, was dissatisfied with the information obtained as it wanted to identify "the real individuals, against whom an application for non-party costs should properly be made". This gave rise to the Plaintiff's 3rd application made during December 2017 for an order against RSRB to further disclose information regarding the funder.

The Court eventually refused the Plaintiff's application and held that the purpose of a non-party costs order is primarily for "costs recovery". Therefore, the source of the funds should generally not matter, as long as they are recovered. An application for disclosure is not designed to be used as a means to enable a party to gather evidence of, or pursue other claims against non-parties. The Court stated that if it allowed applications to be made for these collateral purposes, it could become the source of satellite litigation, which is contrary to the objectives of the Civil Justice Reform. The Court found no reason to justify the Plaintiff's attempt to go beyond the identity of the actual funder of the 5th Defendant. In any event, the Court noted that the individuals who control a company should not be personally liable for costs liabilities of the company.

Comment

This decision is a reminder to litigants that an application for disclosure of information in support of an application for a non-party costs order should only be sought to assist with the applicant's recovery of costs. The Court is likely to refuse an application for the disclosure of information if it is found that the information is being sought for collateral purposes (such as obtaining information in order to commence proceedings against another party). The scope of the disclosure order will also be confined to information that is considered to be crucial to the applicant, based on information available at the time the application is made.


About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; and financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.

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Press //
Submitted by // B Ho, Partner; A Yung, Partner
09 April 2018

 

Howse Williams Bowers ("HWB"), a leading Hong Kong independent law firm, advised the issuer, Dafeng Port Heshun Technology Company Limited ("Dafeng Port Heshun") (stock code: 8310), whose shares are listed on the GEM of the Hong Kong Stock Exchange, as the Hong Kong legal counsel in relation to the issuance of the aggregate principal amount of US$50 million of 7.5% senior secured bonds due 2021. Industrial Bank Co., Ltd., Hong Kong branch is the placing agent.

Dafeng Port Heshun is principally engaged in trading business, the provision of integrated logistics freight services in Hong Kong, the Pearl River Delta and the Yangtze River Delta regions and the relevant supporting services and petrochemical products storage business.

The HWB team was led by partners, Brian Ho and Antony Yung. The team had the responsibility on legal documentation, advising on commercial issues and undertaking general transaction management.

 

About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; intellectual property; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.

 
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Publications //
Submitted by // K Bowers, Partner/Solicitor Advocate; M Withington, Partner
03 April 2018

 

ILO Complaint channels for insurance policyholders

Click here to see the International Law Office Article

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News //
Submitted by // J Wong, Partner
22 March 2018


Black Day for ICOs in Hong Kong?

The Hong Kong Securities and Futures Commission ("SFC") has blocked ICO issuer Black Cell Technology Limited ("Black Cell") from continuing its initial coin offering ("ICO") to the Hong Kong public earlier this week. Black Cell has agreed to unwind ICO transactions for Hong Kong investors and has undertaken not to devise, set up or market any scheme that constitutes a Collective Investment Scheme ("CIS") unless in compliance with the relevant requirements under the Securities and Futures Ordinance ("SFO"). This follows the SFC's concerns that Black Cell may have been engaged in unlicensed activities[1] and unauthorised promotional activities [2].

That firm regulatory action against ICOs would occur sooner or later is not unexpected, as the SFC signalled its reservations regarding cryptocurrencies and ICOs in circulars in September 2017 and again in February 2018. The SFC also revealed that it had questioned several cryptocurrency exchanges and ICO issuers about their activities.

The SFC found that Black Cell had promoted an ICO to sell digital tokens to investors through its website accessible by the Hong Kong public, with the pitch that the ICO proceeds would be used to fund the development of a mobile application and holders of the tokens would be eligible to redeem equity shares of Black Cell.

The SFC has stated that it considers such arrangement may constitute a CIS under the circumstances. An interest in a CIS is regarded as a form of "securities" as defined in the SFO, so where an ICO involves an offer to the Hong Kong public to acquire an interest or participate in a CIS, prior authorisation and licensing requirements under the SFO are triggered unless an exemption applies.

Although the SFC's announcement focussed on CIS, we believe there was another feature that arguably makes the tokens "securities" (that is, falling into the wider meaning of "securities" in the SFO and not just the narrower category of CIS) : the promise that token holders would get equity shares.

This is not the first time that the SFC has taken action to shut down arrangements which they think constitute a CIS. In 2013, the SFC formed the view that an offer to sell 360 hotel room units at a development called The Apex Horizon appeared to be an invitation to participate in a CIS. Following this, essentially, the transactions were unwound; purchasers of the units were reimbursed their deposits, any part payments made together with interest and offered an amount of $10,000 as reimbursement of any reasonable legal and other expenses.

Just as in The Apex Horizon case, the SFC's announcement with regard to Black Cell Technology illustrates that the SFC does not hesitate to step in early and take robust positions regarding arrangements with which they are not comfortable, and in both cases these companies were forced to back down (even though they may have disagreed with the SFC's views). This reinforces our advice to clients who are keen to enter into activities involving cryptocurrencies and ICOs in Hong Kong : obtain legal advice on what you can and cannot do, be realistic about what you can achieve with an ICO or your fintech business, understand the risks associated with operating in an environment where the laws are complex and occasionally unclear and be prepared to engage with the Hong Kong regulators.


[1] Certain activities regarding the creation and sale of financial products require an SFC license under section 114 of the SFO.
[2] Offers to the public must be authorised by the SFC under section 103 of the SFO.


About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.

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