RESONA BANK LTD v. LAM OI CHING AND ANOTHER

CACV 93/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 93 OF 2006

(ON APPEAL FROM HCMP NO. 4368 oF 1999)

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CACV 94/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 94 OF 2006

(ON APPEAL FROM HCMP NO. 4374 oF 1999)

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CACV 95/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 95 OF 2006

(ON APPEAL FROM HCMP NO 4376 oF 1999)

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(HEARD TOGETHER)

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J U D G M E N T

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Introduction

1. In each of the three Miscellaneous Proceedings actions from which appeal is brought, the plaintiff sought an order for the payment of money owed and an order for possession of the property mortgaged by the various defendants to it.  After hearing the plaintiff’s application under Order 88 of the Rules of the High Court, Deputy Judge Muttrie gave judgment in favour of the plaintiff on 16 January 2006.  The total amount of the judgment sums under the three actions, including principal and interest, came to $53,362.282.38.

2. Certain of the defendants have launched appeals against the judgment.  The plaintiff now seeks an order for security for costs of the appeals against those defendants.

The Mortgages and the appellants

3. The transactions that gave rise to the mortgages in favour of the plaintiff bank (“the Bank”) involved members of the Lam family consisting of Mr Lam Sie (“Mr Lam”), his wife Lam Oi Ching (“Mrs Lam”) and their daughter Lam Hin Ching Fion (“Ms Lam”) and companies owned and controlled by or closely connected with them (or one or more of them).  The judge described the family members and the companies at the beginning of his judgment:

‘2.       …  In brief, the mortgages arise out of the dealings between the Bank and one Lam Sie, and the companies which he operated, directly or indirectly, between 1989 and 1996.  …  The companies concerned in these actions are L.E. Garment Ltd (“L.E.”) and Apace Knitting Factory (“Apace”), the 2^nd defendant in all three actions.  Mr. Lam was a director and substantial shareholder of L.E., which was wound up in 1999.  He also owned or controlled a company named Koonhon Garment Ltd (“Koonhon”).  The wife and daughter were and still are directors and shareholders, in the wife’s case a major shareholder, of Apace.  They were and still are the directors and shareholders of Wealthy Harvest Industries Ltd (“Wealthy Harvest”).’

4. HCMP 4368/1999 relates to two properties, namely, a flat in Capital Building and a flat in Braga Circuit, which the judge abbreviated as “Capital” and “Braga” respectively.  Mrs Lam is the registered owner of both properties, and Braga was bought mainly with funds provided by the Bank under a real estate loan.  Both properties were mortgaged to secure the due payment of all monies payable by Mrs Lam, Apace and/or L.E.  CACV 93/2006 is the appeal brought from this action by Mrs Lam.  Apace, the 2^nd defendant in the action, has not appealed.

5. HCMP 4374/1999 relates to a flat in La Salle Road, which the judge abbreviated as “La Salle”.  It was bought with funds provided by the Bank and was registered in the names of Mrs Lam and Ms Lam.  It was mortgaged to secure due payment of all monies payable by the two ladies, Apace and/or L.E.  CACV 94/2006 is the appeal brought from this action by Ms Lam, the first named of the 1^st defendants, but not by the second named of the 1^st defendants (ie Mrs Lam) or Apace (the 2^nd defendant in the action). 

6. HCMP 4376/1999 relates to a flat at No. 77 Price Edward Road, which the judge abbreviated as “No. 77”.  No. 77 was originally the subject of a 1984 mortgage between the Bank and the daughter, but Wealthy Harvest, the present registered owner, was brought in as mortgagor by a deed of variation dated 17 September 1996.  It was mortgaged to secure due payment of all monies payable by Ms Lam, Apace and/or L.E.  CACV 95/2006 is the appeal brought from this action by Wealthy Harvest, but not by Apace (the 2^nd defendant in the action). 

Representation of parties before me

7. The Bank is represented by Mr Chan Chi Hung SC.  Mrs Lam and Ms Lam act in person.  Mrs Lam proposes to act for Wealthy Harvest as its director, but no leave pursuant to Order 5, rule 6 of the Rules of the High Court has been obtained from the Registrar for her to do so.  Based on the Court of Appeal’s decision in Kone Elevator (HK) Ltd v Senfield Limited, CACV 216/2002 (24 February 2003, unreported), I have refused to allow Mrs Lam to represent Wealthy Harvest, but I have taken into account her submission and Ms Lam’s submission insofar as they are relevant to Wealthy Harvest’s case.

The law

8. Under Order 59 Rule 10(5) of the Rules of the High Court, 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.

9. It is settled practice to require security for costs to be given by an appellant who would be unable through impecuniosity to pay the costs of the appeal, if unsuccessful, without proof of any other special circumstances.  See the notes in Hong Kong Civil Procedure 2006, Vol 1 under the heading of “Security for Costs”, para 59/10/28 et seq.   

10. Where, however, an appellant contends that security should not be awarded because it would prevent him pursuing his appeal, he has to satisfy the Court not only that he is unable to furnish the security for costs from his own resources, but also (and the onus of proof is on him on this issue) that he is unable to raise the money elsewhere; and in addition he has to demonstrate that his appeal has a sufficiently good chance of success to justify exposing the respondent to the injustice of having to bear his own costs win or lose.  However, the security application must not become a dress rehearsal of the appeal.  See para 59/10/35 of Hong Kong Civil Procedure 2006, Vol 1.  

Impecuniosity

11. From the affirmation evidence before me, it is clear that whilst the judgment sum of over $53 million has been due from Mrs Lam, Ms Lam and Wealthy Harvest (“the appellants”), the four properties were valued in December 2005 at $16.1 million, far from being sufficient to satisfy the judgment sum. 

12. Regarding Mrs Lam, she has failed to pay the rates and Government rents of Capital and Braga since 2001 and also fire insurance premium for the two properties since 1998.  The Incorporated Owners of the building at which Braga is situate has a memorandum of charge dated 17 November 2003 registered against Mrs Lam’s interest in Braga, stating that a sum of $124,691.31 was due and payable in respect of her share on renovation costs.  Generale Belgian Bank has also registered charging orders against Capital and Braga for the judgment sum of about $17 million in HCA 3136/1998.  Mrs Lam had made mortgages of Capital and Braga in favour of Freeway Finance Company Limited (“Freeway Finance”) subsequent to the mortgages referred to in HCMP 4368/1999, without the consent or knowledge of the Bank.  Mrs Lam has made applications for legal aid on five occasions in these proceedings. 

13. Regarding Ms Lam, she and Mrs Lam, as registered owners of La Salle, have failed to pay the rates and Government rents since 1997 and fire insurance premium since 1998 in respect of La Salle.  The Hongkong and Shanghai Banking Corporation Ltd has registered charging orders of the judgment debt in HCA 9398/1999 against Ms Lam’s interest in La Salle in the sum of $88,798.99 with interest.  La Salle was further mortgaged to Freeway Finance without the consent or knowledge of the Bank.  Ms Lam has also applied for legal aid five times.

14. The fifth application for legal aid by Mrs Lam and Ms Lam was made on 15 May 2006, just two days before today.  Having heard the parties, I have uplifted the stay pursuant to my discretion under section 15(4) of the Legal Aid Ordinance, Cap 91.

15. Wealthy Harvest has only a paid up capital of $2.  It was struck off from the Companies Register and dissolved on 20 May 2005.  It was the Bank which caused it to be restored to the Register for the purpose of HCMP 4376/1999.  It has failed to pay rates and Government rents in respect of No. 77 since 2001 and fire insurance premium since 1998.  There were subsequent second and third legal charges of No. 77 in favour of Freeway Finance without the consent or knowledge of the Bank.

16. By a letter dated 17 March 2006 written by the Bank’s solicitors and addressed to Mrs Lam, her financial position was alluded to and security for costs of her appeal was requested, but she has not replied to the request.  A letter of the same day of similar purport was sent to Ms Lam and Wealthy Harvest respectively, but no reply has ever been received.

17. In the circumstances, I am convinced that Mrs Lam, Ms Lam and Wealthy Harvest are quite impecunious and it is a near certainty that there would be undue delay or expense in the Bank enforcing any costs order that it may obtain in the appeals. 

Chances of success

18. Now I turn to the merits of the appeals, and I remind myself not to enter into a dress rehearsal of them. 

19. The appellants originally raised several defences.  One of the defences was that the Bank had caused unauthorised withdrawals (alleged to total over $100 million) to be made from the companies’ accounts kept with the Bank, which defence was dismissed by Tang J (as he then was) in Resona Bank Ltd v Lam Sie & Ors [2004] 4 HKC 601 as incredible, and Tang J’s judgment was affirmed by the Court of Appeal in CACV 383/2004 (10 June 2005, unreported).  The judge below rejected this defence as being subject to issue estoppel as against Mrs Lam, who was a party to the said proceedings before Tang J and the Court of Appeal.  The judge also considered this defence as incredible.  Mrs Lam and Ms Lam no longer rely on this defence in their appeals, but Wealthy Harvest relies on this defence as its sole ground of appeal in CACV 95/2006, which contends that the judge erred to have rejected it.

20. On the other hand, Mrs Lam relies on the defence of undue influence to ground her appeal in CACV 93/2006, whereas Ms Lam’s sole ground of appeal in CACV 94/2006 is also based on undue influence.  The undue influence in both cases was that allegedly exerted by Mr Lam over his wife and daughter.  It is further contended that the Bank and its solicitors handling the mortgages had not advised them to take independent legal advice.  Wealthy Harvest does not rely on these defences, obviously personal to the two ladies, as it is a company.

21. As far as undue influence is concerned, the judge had examined the relevant law and the relationship and circumstances of the two ladies vis-à-vis the companies and the mortgages and come to the conclusion that while they might have some evidence to support the defence, it would not be effective against the Bank.  He held that there is no real or bona fide defence in the three actions.

22. As I said before, I should not enter into a dress rehearsal of the appeals.  Looking at the grounds of appeal in all the three appeals and the materials before me, I am not inclined to the view that the grounds in support of each appeal are so strong to justify exposing the Bank to the injustice of having to bear its own costs even if it successfully resists the appeal.  I consider that the justice of the case is for security for costs to be ordered.

Amount to be secured

23. I have examined the three skeleton bills of costs prepared by the plaintiff’s solicitors, a copy of which was sent under the cover of the letter of 17 March 2006 to the relevant appellant with a request for security for costs.  No response was received from any of the appellants, which resulted in the Bank taking out the present application.

24. The skeleton bills are almost identical in terms.  Each sets out the costs of the relevant appeal assessed at $225,908.33 on a party and party basis.  The bills seem to me to contain items that reasonably had been and would be incurred, save for one item, which is item 7 “Liaising and negotiating with D1 re security for costs; taking client’s instructions and advising thereof” for a sum of $5,250.  It seems clear to me in the circumstances of this application that this piece of work or a substantial portion of it has not been done and should thus be excluded.  I have enquired with Mr Chan whether the bills may have contained a certain amount of duplication of fees because the three appeals, similar to the situation of this application and that before the judge, will obviously be heard together.  I am, however, satisfied with the explanation proffered that the time spent by solicitors on each case was separately charged by the total amount for the three cases being split three ways, and counsel’s fees for work done and to be done for each appeal were similarly divided and thus appeared lower than normal, and there was therefore no duplication. 

25. In all the circumstances, especially to avoid any possible duplication or any semblance of it, I consider that $200,000 as a reasonable sum to be imposed for security in respect of each of the three appeals.    

Orders

26. For the above reasons, I make the following orders.  In the orders, I have put in provisions to take into account that the refusal of legal aid as applied by Mrs Lam and Ms Lam for the prosecution of their appeals is fixed to be reviewed on 14 July 2006.   

In CACV 93/2006

(1) Mrs Lam do on or before 21 July 2006 give security for costs of the appeal in the sum of $200,000 by paying such sum into court. 

(2) Until such security is provided, the appeal be stayed.

(3) In default of compliance with (1) above, the appeal do stand dismissed without further application or order, with costs of the appeal to be taxed and paid by Mrs Lam to the Bank.

(4) In the event of legal aid being granted to Mrs Lam upon the review on 14 July 2006, orders (1), (2) and (3) above shall have no effect.

(5) The costs of this application be to the plaintiff in any event.    

In CACV 94/2006

(1) Ms Lam do on or before 21 July 2006 give security for costs of the appeal in the sum of $200,000 by paying such sum into court. 

(2) Until such security is provided, the appeal be stayed.

(3) In default of compliance with (1) above, the appeal do stand dismissed without further application or order, with costs of the appeal to be taxed and paid by Ms Lam to the Bank.

(4) In the event of legal aid being granted to Ms Lam upon the review on 14 July 2006, orders (1), (2) and (3) above shall have no effect.

(5) The costs of this application be to the plaintiff in any event.    

In CACV 95/2006

(1) Wealthy Harvest do on or before 21 July 2006 give security for costs of the appeal in the sum of $200,000 by paying such sum into court. 

(2) Until such security is provided, the appeal be stayed.

(3) In default of compliance with (1) above, the appeal do stand dismissed without further application or order, with costs of the appeal to be taxed and paid by Wealthy Harvest to the Bank.

(4) The costs of this application be to the plaintiff in any event.