MYERS MANAGEMENT CONSULTING LTD v. TOPMIX (INTERNATONAL) CO LTD

CACV 194, 195, 196 & 197/2015
(heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 194 OF 2015

(ON APPEAL FROM DCCJ NO. 3051 OF 2014)

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 195 OF 2015

(ON APPEAL FROM DCCJ NO. 3052 OF 2014)

________________________

________________________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 196 OF 2015

(ON APPEAL FROM DCCJ NO. 3053 OF 2014)

________________________

________________________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 197 OF 2015

(ON APPEAL FROM DCCJ NO. 3054 OF 2013)

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REASONS FOR DECISION
AND
DECISION ON SUMMARY
ASSESSMENT OF COSTS

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Hon Chu JA (giving the Reasons for Decision and Decision on Summary Assessment of Costs of the Court):

Introduction

1. By summonses issued on 10 September 2015, the 1^st and 2^nd Interveners applied for security for costs in these four appeals brought by the plaintiff against the order of Deputy District Judge Ludwig Ng (“the Judge”) on 23 June 2015 granting leave to the 1^st and 2^nd Interveners to intervene in four actions in the District Court for the purpose of conducting the defence on behalf of the respective defendant companies. 

2. At the hearing, we granted the applications with costs to the 1^st and 2^nd Interveners and gave direction for summary assessment of the costs of the applications.  We set out below our reasons for the decision on the application and our decision on summary assessment of costs.  

DCCJ 3051 to 3054 of 2014

3. The plaintiff brought four actions in the District Court, two of which are against Topmix (International) Company Limited (DCCJ 3051/2014 and DCCJ3052/2014) and another two against Topmix Industrial Limited (DCCJ3053/2014 and DCCJ3054/2014). The plaintiff claims that each of the defendant companies had entered into an agreement for business and management consulting services and another agreement for accounting services, and each of them has owed the plaintiff service fees in the total sum of $480,000.  

4. Both defendants failed to give notice of intention to defend.  Consequently, on 10 November 2014, the plaintiff entered default judgment against them in all the four actions.

5. Based on the default judgments, the plaintiff presented winding-up petitions to wind up the defendant companies (HCCW1/2015 and HCCW2/2015).

6. The 1^st and 2^nd Interveners are shareholders in the two defendant companies, holding together 50% of the shares.  The remaining 50% of the shares in the two companies are held by two brothers named Chan Yuk Lung and Chan Yuk Wai.  The 2^nd Intervener was a director of the defendant companies until 25 March 2006 when, as a result of disputes with the Chan brothers, he was removed from the board. The Chan brothers have since been the only directors and have assumed control of the companies.

7. It is the Interveners’ case that they were not aware of the plaintiff’s actions against the defendant companies until mid-January 2015 after winding-up proceedings were brought against them. The Interveners say that the agreements sued upon are shams, and the four actions and default judgments are the results of collusion between the Chan brothers and the plaintiff to stripe the companies of their assets and to bring about their demise.   

8. The Interveners applied in each of the four actions for leave to intervene and to apply, on behalf of the defendant companies, to set aside the defaults judgments.  The applications were brought under the common law. On 23 June 2015, the Judge granted the applications, gave leave to the Interveners to intervene for the purpose of conducting the defence on behalf of the defendant companies and set aside the default judgments. 

9. With leave of the Judge, the plaintiff is appealing against the order of the Judge. 

The Interveners’ applications

10. By letter dated 25 August 2015, the Interveners’ solicitors requested the plaintiff to provide security for costs of the appeal and enclosed a skeleton bill of costs.  The plaintiff has not replied to it.

11. On 10 September 2015, the Interveners issued the present summonses, applying for security for their costs in the four appeals in the total sum of HK$816,500.  Although each of the summonses sought the sum of HK$816,500, it is apparent from the skeleton bill that this is the total amount of security sought for the four appeals.  

12. The Interveners’ applications are made on the basis that the plaintiff is a foreign company with no asset in Hong Kong so that there will be delay or undue difficulty in enforcing any costs order against the plaintiff.  The plaintiff resists the applications principally on the ground that the appeal has strong merits, which may have to be abandoned if security was ordered, and that the amount of security sought is exorbitant.   

The applicable legal principles

13. Under Order 59 rule 10(5) of The Rules of the High Court, Cap. 4A, the Court of Appeal may, in special circumstances, order that such security shall be given for the costs of an appeal as may be just. 

14. The Court will order security for costs if satisfied that the respondent will be likely to encounter undue delay or put to undue expense in enforcing any order for costs in the appeal.  It has long been the practice of the Court to require security where the appellant is resident abroad.  The presumption is that enforcement is difficult and security should be ordered unless the appellant can demonstrate that this is not the case, such as there are assets available within Hong Kong for enforcement: see Hong Kong Civil Procedure 2016 Vol.1 §§ 59/10/27 & 59/10/28. Once a case of difficulty or expense in enforcing a costs order is demonstrated, it is generally up to the appellant to demonstrate countervailing factors militating against an order being made: Chung Kau v. Hong Kong Housing Authority & Others [2004] 2 HKLRD 650, and Hong Kong Civil Procedure 2016 Vol.1 §§ 59/10/28.

Undue delay and expenses in enforcing costs order against the plaintiff

15. It is common ground that the plaintiff is a BVI Company incorporated in December 2011. The Interveners contend, and the plaintiff does not dispute, that it is not registered under the Companies Ordinance and does not have a place of business in Hong Kong.  Admittedly, the plaintiff is a corporate vehicle set up for the purpose of providing business and management and accounting services to the defendant companies.  It has no other client and its only asset in Hong Kong is the amount of receivable due from the defendants, the subject matter of the claims in the four actions.  

16. On the materials before the court, we are satisfied that the 1^st and 2^nd Interveners will likely be put to undue difficulty and delay in enforcing costs order against the plaintiff, and that there exist special circumstances for ordering security for costs against the plaintiff.

The merits of the plaintiff’s appeal

17. We next turn to the merits of the plaintiff’s appeal with a view to considering whether this may amount to countervailing factor militating against making an order for security for costs.  In this regard, it is neither necessary nor desirable for us to embark upon a detailed examination of the arguments in the appeal: see Chung Kau v. Hong Kong Housing Authority & Ors at 656D-G.  We need only make a preliminary assessment of the strength of the grounds of appeal.  

18. The sole ground of the plaintiff’s appeal, as appeared by the Notice of Appeal, is that the Judge erred in law in holding there was common law right for the Interveners to intervene for the purpose of defending the actions on behalf of the defendants.

19. Section 732(3) of the new Companies Ordinance, Cap. 622 (section 168BC(3) of old Companies Ordinance, Cap. 32) provides, inter alia, that if, because of misconduct committed against the company, a company fails to defend proceedings, a member of the company may, with the court’s leave, intervene in the proceedings for the purpose of defending the proceedings on behalf of the company.  Section 732(6) (formerly section 168BC(4)) further provides that any common law right of a member to intervene in proceedings in which the company is a party shall not be affected. 

20. At the heart of the plaintiff’s argument in these appeals is that notwithstanding section 732(6), the common law in fact does not recognize any right in a member to intervene in proceedings for the purpose of conducting a defence on behalf of the company.  In essence, the plaintiff contends that the Interveners are unable to find any reported precedent that recognizes such a right in common law, and that section 732(6) cannot have the effect of creating a common law right. 

21. Drawing assistance from the reasoning in the first instance and appellate decisions in Waddington Ltd v. Chan Chun Hoo & Others (unreported) HCA 3291/2003, 29 April 2005; [2006] 2 HKLRD 896; and (2008) 11 HKCFAR 370, Mr Tang who appeared for the Interveners argues, firstly, that the mere absence of precedents does not mean that a member has no right under common law to intervene and defend proceedings on behalf of the company. Secondly, it is submitted that on the well established rationale underlying a minority shareholder’s right to bring derivative claim on behalf of the company, there is no objection in principle to allowing a minority shareholder to intervene to defend proceedings on behalf of the company when, due to wrongdoings of the person in control, the company has failed to defend the proceedings.  Thirdly, Mr Tang contends that it is for the plaintiff to demonstrate that there is no common law right to intervene to defend on behalf of the company.   

22. We are inclined to think that the issue of whether a member has a common law right to intervene for the purpose of conducting the defence on behalf of the company must be approached as a matter of principle.  The absence of reported precedents is not determinative of the issue.  The important considerations should be the purpose of derivative proceedings, and whether there is any objection in principle to allowing a member to intervene and defend, on behalf of the company, proceedings brought against the company when the controlling member has wrongfully precluded the company from acting. 

23. The plaintiff has made reference to a derivative action (HCA1265/2015) commenced by the Interveners in the Court of First Instance against the Chan brothers, Mr Ng Chun Kai, the sole shareholder and director of the plaintiff, and others raising complaints similar to those raised in the four actions.  We do not consider this has a material bearing on the determination of the issue in these appeals because, other than intervening in the four actions, which were commenced in the District Court, there is no other alternative to set aside the default judgments.   

24. Having considered counsel’s arguments on the issue involved in the four appeals, we are not convinced that the merits of the appeal are such as would amount to countervailing factor that militates against the making of an order for security for costs against the plaintiff. 

Quantum of the security

25. We turn finally to the amount of security to be ordered. The Interveners asked for HK$816,500 as security for the costs of the appeal, and had provided a Statement of Costs showing a breakdown.  Evidently, item A3 is irrelevant and should be excluded since no Respondent’s Notices have been filed.  Item A2 should also be taken out since the costs of the applications for security for costs are to be separately dealt with.  As to the remaining items on the Statement of Costs, it is relevant to note that the appeal turns on a point of law, and both the Interveners’ solicitors and counsel were involved in the hearing before the Judge and should be familiar with the case.  The amount of time estimated to be incurred by the solicitors is therefore excessive on a party and party basis. We are further of the view that counsel brief fee is too high.  Taking a broad brush approach, we consider HK$400,000 will be a sufficient security for the Interveners’ costs in the four appeals.  The plaintiff will have 28 days to provide the security by making payment into court.

Costs of the applications

26. Although we accepted the plaintiff’s argument that the amount of security sought by the Interveners is too high, the Interveners had succeeded in their applications and the normal rule of costs follow event should apply.  We did not accept Mr Man’s submission that the costs of the applications should be in the cause of the appeals.  We ordered the plaintiff to pay the 1^st and 2^nd Interveners the costs of the applications for security for costs in any event.

27. Pursuant to our directions, the Interveners had provided a statement of costs for summary assessment in the total sum of HK$276,187, of which $51,937 is solicitors’ fee. The plaintiff had also put in a statement of objections. 

28. In relation to photocopy charges and attendances by litigation clerk, we accept the Plaintiff’s objections.  As for the rest of the solicitors’ costs, we bear in mind the security for costs applications are not complex. There are only two short affirmations with no factual dispute.  The core contention is the merits of the plaintiff’s appeal, which turns on a point of law.  In these circumstances, the amount of time spent by the primary fee earner, who has some 17 years’ post-admission experience, on attendance with client and the other side, and preparation of documents (which were revised and settled by counsel) is excessive on party and party basis.  As for counsel fee, the proper measure is the fee demanded by a hypothetical counsel having regard to the complexity or otherwise of the application.  On this basis, and considering that counsel had separately charged for paper work and conference, the amount of brief fee on a party and party basis should be substantially adjusted downwards.  

29. Adopting a broad brush approach, we assess the costs of the security for costs applications at HK$120,000.  

Dispositions

30. In summary, we made the following orders:

(1)   The plaintiff shall within 28 days from the date of the order give security for the 1^st and 2^nd Interveners’ costs of the four appeals in the sum of HK$400,000, by making payment into court of the said sum;

(2)   Until the plaintiff has given the security ordered in (1) above and notice thereof is given to the solicitors for the 1^st and 2^nd Interveners (such notice to be given on the same day as the lodgement is made), all proceedings in the four appeals are to be stayed;

(3)   In default of the plaintiff giving security as ordered in (1) above, the four appeals do (upon the solicitors for the 1^st and 2^nd Interveners certifying such default to the Registrar of High Court) stand dismissed out of this court without further order; and

(4)   In the event that the four appeals are dismissed in the circumstances provided for in (3) above, the plaintiff shall pay the 1^st and 2^nd Interveners the costs of the four appeals, such costs to be taxed if not agreed.

31. We further order that the plaintiff pays the 1^st and 2^nd Interveners their costs of the applications for security for costs in any event, summarily assessed at HK$120,000.