HWH HOLDINGS LTD AND ANOTHER v. STEPHENSON HARWOOD (A FIRM)

CACV 18 & 19/2024

(Heard together)

[2025] HKCA 193

On Appeal From [2023] HKCFI 3312

CACV 18/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 18 OF 2024

(ON APPEAL FROM HCMP NO 1614 OF 2022)

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CACV 19/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 19 OF 2024

(ON APPEAL FROM HCA NO 191 OF 2023)

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____________

(Heard together)

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DECISION

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Hon G Lam JA (giving the Decision of the Court):

Background

1.  This is the respondent’s application for security for costs in respect of the appellants’ appeals against the judgment of Deputy High Court Judge Phoebe Man dated 20 December 2023 (“Judgment”),[1] who found against the appellants on a preliminary issue tried in HCMP 1614/2022 and HCA 191/2023.

2.  The 2^nd appellant, Mr Fang (“Mr Fang”) owns and controls the 1^st appellant, HWH Holdings Ltd (“HWH”), a BVI company.  The appellants became involved in disputes with their joint venture partner, Delco Participating B.V. (“Delco”), giving rise to 3 actions in Hong Kong: HCA 2943/2015, HCA 3040/2015 and HCA 2939/2016 and 2 actions in the BVI. 

3.  The Hong Kong actions were tried by Coleman J in a 15-day trial in July 2021 and the respondent, Stephenson Harwood (“SH”), were the solicitors on record for both appellants in those actions.

4.  The appellants fell behind in settling their legal fees in about 2022, resulting in SH obtaining leave to cease to act on 21 September 2022.  HWH then commenced HCMP 1614/2022 (and Mr Fang was later joined as an additional plaintiff) against SH to seek leave to tax a total of 94 bills issued by SH and addressed to Mr Fang from 31 December 2015 to 10 August 2022.

5.  In turn, SH commenced HCA 191/2023 on 8 February 2023 against Mr Fang alone for unpaid legal fees in the sum of HK$20,073,503.52.

6.  On 5 May 2023 it was ordered that there should be a trial of preliminary issue for both sets of proceedings as to whether Mr Fang and HWH are jointly and severally liable or if Mr Fang is otherwise personally liable to settle any of SH’s bills, and, if so, which, and on what terms.

7.  In the Judgment, it was held that both Mr Fang and HWH are jointly and severally liable for SH’s bills.

8.  By notices of appeals dated 17 January 2024, the appellants appeal from the Judgment to this court. CACV 18/2024 brought by both appellants is the appeal from HCMP 1614/2022; CACV 19/2024 brought by Mr Fang is the appeal from HCA 191/2023.

9.  On 23 May 2024, SH took out the present summons for an order that the appellants do provide security for SH’s costs of both appeals in the sum of HK$580,000.

10.  It seems to us appropriate to deal with this application based on written submissions only, without an oral hearing, pursuant to Order 59, rule 14A(1) of the Rules of the High Court (Cap. 4A).

Security for costs of the appeals

11.  The approach to an application for security for the costs of an appeal has been stated in Chung Kau v Hong Kong Housing Authority & Others [2004] 2 HKLRD 650 at [14]:

“ The power of the Court of Appeal to order security for costs in an appeal derives from RHC Order 59 rule 10(5). This Rule reads:

‘ 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.’

The relevant principles, in particular the treatment of impecuniosity as a special circumstance are summarized in Hong Kong Civil Procedure 2004 Volume 1 at paragraphs 59/10/28 - 59/10/29. In this context, however, I would emphasize the following:-

(1) The fact that an appellant is impecunious does not lead automatically to an order that security for costs must be provided. The court is entitled to consider other relevant factors such as the strength of the appeal to determine whether or not it would be just to order that security for costs be provided.

(2) That said, as a matter of practice, once an applicant for security can demonstrate that impecuniosity (or some other factor such as difficulty or expense in enforcing a costs order) exists, while the court retains an overall discretion whether or not to make the order, it would then generally be up to the party resisting the application for security to demonstrate countervailing factors which would militate against such an order being made. A common countervailing factor to resist applications for security are the merits of an appeal.

(3) On a consideration of the merits of the appeal, while a detailed examination is not required (or desirable, even if possible on the materials before the court at this stage), the court should form some sort of preliminary, even instinctive, view. Where the merits appear to go strongly one way or the other, this may by itself be a decisive factor. Thus, an appeal which is very strong would often be a very good reason not to order security. The converse of course also applies. A hopeless appeal may even by itself justify an order for security. However, if the court takes the view that the appeal could really go either way, then generally it will look to the existence of any other factors to tilt the balance, in the absence of which security will be ordered. This is of course on the assumption that a factor such as impecuniosity has already been demonstrated.

(4)     As I have said above, the overriding consideration for the court is to consider, as the rule requires, whether ‘special’ (not exceptional) circumstances exist making it ‘just’ to order security.”

12.  SH contends that special circumstances exist here which justify an order for security.  It is submitted that Mr Fang is ordinarily resident outside of Hong Kong, and HWH is a BVI company, and that they are impecunious.  SH is likely to encounter difficulty and undue delay and expense in enforcing any order for costs of the appeals. 

13.  The appellants deny they are impecunious and contend, in particular, that HWH has substantial assets within the jurisdiction.  For present purposes, it is sufficient to focus on two sums of money:

(1)  First, there is a sum of HK$64,067,118 payable by a Hong Kong company called USUM Investment Group Hong Kong Limited (“USUM”) to HWH.  By virtue of an Escrow Agreement dated 17 December 2015 between USUM, HWH and SH, the sum (“Escrow Fund”) has been paid by USUM to and held by SH as escrow agent, on terms devised to ensure that Delco’s claims against Chiho-Tiande Group Ltd, a listed company set up jointly by Mr Fang and Delco, will be paid if judgment is obtained.  Since October 2019, the Escrow Fund has in its entirety been subject to Mareva injunctions (HK$57,927,118 in respect of HCA 3040/2015 and HK$6,252,000 in respect of HCA 2939/2016) granted in Hong Kong by Deputy High Court Judge Hall-Jones in favour of Delco. The Escrow Fund is also subject to a worldwide Mareva injunction obtained by Green Elite Ltd (“GEL”), a joint venture entity, in BVI proceedings.

(2)  Secondly, there is a sum of HK$41.9 million paid by USUM to SH, which SH, as solicitors for HWH, in turn paid into court pursuant to the order of Deputy High Court Judge Campbell-Moffat dated 18 December 2015 in HCA 2943/2015.

14.  It is not in dispute that where an appellant has substantial assets in Hong Kong in excess of the potential liability for costs, an order for security for costs will ordinarily not be made.  In the present case it is not disputed that the Escrow Fund (over HK$64 million) and the $41.9 million paid into court, including the interest generated, are assets in Hong Kong belonging to HWH.  SH submits however that they should not be taken into account as the appellants’ assets available to satisfy any order for costs of the appeals because the Escrow Fund is subject to the domestic and worldwide Mareva injunctions against the appellants, and the $41.9 million was paid into court to secure Delco’s claim against HWH.

15.  The difficulty with SH’s position, it seems to us, is that it appears to be contrary to this court’s decisions in Ming Hsieh v Xu Zhe (unrep., CACV 189/2015, 10 December 2015) and Leader Screws Manufacturing Co Ltd v Huang Shunkui [2023] HKCA 1193. 

16.  In Ming Hsieh, proceedings were brought by the plaintiff in Hong Kong under s 21M of the High Court Ordinance (Cap 4) for interim remedies in aid of the plaintiff’s claims brought in California against the 1^st to 4^th defendants for some USD 54 million.  The relevant defendants (being the 1^st, 2^nd and 4^th defendants) had assets in Hong Kong amounting to some USD 21 million consisting of real property, shares and cash in bank accounts, which were frozen by a Mareva injunction obtained by the plaintiff in Hong Kong.  Those defendants appealed against the Mareva injunction and the plaintiff sought security for the costs of that appeal.  The Court of Appeal (Lam VP and Barma JA), applying the decision of the English Court of Appeal in Hitachi Shipbuilding & Engineering Co Ltd v Viafiel Compania Naviera S.A. [1981] 2 Ll. R. 498, refused the plaintiff’s application on the ground that those defendants had assets within the jurisdiction which, despite the Mareva injunction, remained their property.  Barma JA, giving the reasons of the court, said (at §6):

“ A Mareva injunction prevents a defendant from dissipating his assets so as to deprive a plaintiff of the benefit of the judgment he expects to obtain, but does not operate to provide the plaintiff with security over the assets which are subject to the injunction. Those assets remain the property of the defendant until such time as they are taken in execution,whether by the plaintiff or some other claimant, or are otherwise disposed of by the defendant if he is given permission by the court to do so, notwithstanding the injunction – for example, by using some of the assets to fund his defence of the proceedings, or to meet his pre-existing liabilities. Until that happens, the assets remain available to satisfy any order for costs that the plaintiff may obtain, so that it cannot be said that the defendant is unable to meet any such costs order. That this is so was clearly explained by Donaldson LJ (as he then was) in Hitachi v Viafiel [1982] 2 Lloyd’s Rep 498 (at pp 508-509), where he said:

‘ … The Mareva injunction does not have the effect of securing Hitachi’s claims, leaving no assets available to meet a liability for costs. It merely puts Hitachi in the same position as they would have been if they had been sued by a United Kingdom resident or company or by a foreigner had permanent assets in this country to a value which far exceed the amount of any costs which they were likely to incur.  In such a case no order would be made giving Hitachi security for costs.  By a parity of reasoning, no order should, in my judgment, be made in this case.’ ”

17.  Barma JA went on to explain in §§7-8:

“ 7. Here, the 1^st, 2^nd and 4^th defendants have assets amounting to some USD21 million in Hong Kong, consisting of real property, shares and cash in bank accounts. These are more than sufficient to meet any liability for costs that they might incur in this appeal. If the plaintiff is successful in the appeal, and obtains an order for costs in its favour, it will be open to it to execute that costs order against these assets, notwithstanding that they are subject to a Mareva injunction. The fact that this will reduce the amount of assets available to meet any judgment that the plaintiff might ultimately obtain in the substantive proceedings abroad is neither here nor there. …

8. Another way of looking at the matter is this: the situation is similar to that where a plaintiff is respondent to an interlocutory appeal by a defendant, who has assets within the jurisdiction that are less than the amount of the claim against him, which has not yet been determined.  Such a plaintiff could not seek security for the costs of the appeal on the basis that his claim exceeded the defendant’s known assets.  If those assets were sufficient to cover the costs of an unsuccessful appeal, no security would be ordered.  Whether or not there would ultimately be sufficient assets to pay the plaintiff’s claim if it should ultimately be successful would not be a relevant factor.  The existence of a Mareva injunction over those assets makes no difference, as it does not affect the plaintiff’s ownership of the assets.”

18.  In Leader Screws Manufacturing, the plaintiff had brought an action for damages for fraudulent misappropriation of company funds by the defendant, a former senior accounting clerk.  The plaintiff obtained a Mareva injunction to the tune, as subsequently increased, of HK$14.6 million and also judgment in default of intention to defend.  When the defendant appealed, the plaintiff sought security for costs of the appeal.  The Court of Appeal (Barma and Au JJA) refused to order security, because, inter alia, the defendant had assets within the jurisdiction albeit caught by the Mareva injunction.  Giving the court’s decision, Barma JA, after referring to what was stated in Ming Hsieh, said (at §42):

“ 42. As can be seen from these passages, whether the known assets of the defendant are sufficient to satisfy the judgment debt owed to the plaintiff (in the event that the defendant ultimately fails in his defence against the plaintiff’s claim) after the deduction of costs of the appeal (i.e. whether there would ultimately be enough assets to pay the plaintiff’s claim) is not a relevant factor to be considered in the plaintiff’s application for security for costs of the appeal. The plaintiff will not be able to obtain security for costs if the known assets of the defendant are sufficient to cover the plaintiff’s costs of the appeal. A Mareva injunction does not affect the defendant’s ownership of the assets, and provides the plaintiff with no security for his claim, as they may still be used to meet debts and other liabilities pending the resolution of the claim.

43. In this case, the defendant’s known assets still in her ownership comprise the landed properties in Hong Kong and on the Mainland, which although subject to the Mareva injunction, remain her property until such time as the plaintiff takes them in execution. Although there is a charging order over those properties, this gives the plaintiff no proprietary interest in them, and they remain the property of the defendant (see Sino Billion Ltd v Lam Chok Wai [2003] 2 HKC 167 at [12]). On the evidence, the value of the properties is equal to approximately ten times the amount of security for costs currently sought by the plaintiff. Even if that value may have fallen since the valuation was obtained, it is still many times that of the amount of security sought.

…

46. The plaintiff is also protected in respect of the costs of the appeal as the amount frozen by the Mareva injunction is more than enough to meet the plaintiff’s estimated costs of the appeal and the injunction will remain in force for a reasonable period of time after the determination of the appeal, thus allowing time for the plaintiff to take steps to recover such costs (if the plaintiff is successful in the appeal).

   47.    We are therefore of the view that having regard to the known assets of the defendant which remain under her ownership, the plaintiff has failed to demonstrate impecuniosity on the part of the defendant.”

19.  On behalf of SH, Ms Lok does not seek to impugn these two decisions but has sought to distinguish them on the ground that there was a Mareva injunction in each case in favour of the party seeking security for costs, and the money frozen was not subject to other competing claims.  In such circumstances, she submits, the applicant for security was already sufficiently protected against the risk of costs. Here, in contrast, the Escrow Fund and the sum of HK$41.9 million are subject to competing claims of other entities.  Further, the Mareva injunctions covering the Escrow Fund were obtained by Delco and GEL respectively and the payment into court of the HK$41.9 million was obtained by Delco for their own protection.

20.  With respect, we do not think those decisions can be distinguished on this basis.  Their rationale is that where the party from whom security is sought has assets in Hong Kong substantially in excess of any liability for the costs in question, then there are assets within the jurisdiction prima facie available from which the party seeking security may recover its costs upon obtaining an award, even if those assets are subject to a Mareva injunction.  The reason is that a Mareva injunction operates in personam and not as a charge giving security over specific assets for the claims of the applicant for the injunction.  It follows that it does not matter for present purposes whether the injunction has been obtained by the party seeking security for costs or by a third party with a competing claim.  In fact, in Ming Hsieh at §6, Barma JA specifically explained that the assets frozen by the Mareva injunction “remain the property of the defendant until such time as they are taken in execution,whether by the plaintiff or some other claimant”.  The fact that there may be other creditors who will look to those assets for satisfaction of their debts is for present purposes no different from the fact that the plaintiff himself may be looking to those assets for satisfaction of debts other than the award of costs. 

21.  In this case SH does not appear to dispute that if it obtains an order for costs in its favour in these appeals, it would in principle be open to it to execute the costs order against the Escrow Fund, notwithstanding that they are subject to Mareva injunctions obtained by Delco and GEL.

22.  The HK$41.9 million was apparently paid pursuant to an undertaking to pay the sum into court “as security” for Delco’s claim against HWH in HCA 2943/2015. It is not clear whether this simply operates in personam like a Mareva injunction or has actually created a charge or some other security interest over the money (see e.g. Herbert Smith Freehills (a firm) v Chris Au [2018] 5 HKLRD 207).  It is unnecessary to go into this question because even if this sum will not be available to SH, it is clear that the Escrow Fund is many times in excess of the amount of costs in question.

23.  SH suggests that it will be put to inconvenience and expense in enforcing any costs order against the assets frozen by the Mareva injunctions.  This may perhaps include steps for applying to vary the Mareva injunctions but these costs are, in our view, unlikely to be so significant as to be regarded as special circumstances that justify the making of an order for security where one would not otherwise be made: see Ming Hsieh at §10.

24.  To the extent that the appellants’ liabilities to pay costs if their appeals fail are joint and several, the fact that HWH has more than sufficient assets within the jurisdiction would suffice to defeat the application for security for costs against Mr Fang as well, and vice versa. 

25.  We should mention that, in addition, there is evidence that Mr Fang owns a real property in Singapore valued at HK$23,000,000 as at January 2022.  SH says there is no up-to-date evidence concerning the status of that property and that in any event it would take extra time and costs to execute a costs order against a property abroad.

26.  On the first point, the Singapore property has been mentioned in the evidence that SH helped Mr Fang prepare for the BVI litigation in January 2022.  Mr Fang has further confirmed in his affirmation dated 12 July 2024 made in the present application that the Singapore property “is unencumbered and free of any liabilities or charges.  It will be available to meet any costs order in favour of SH in respect of the Appeals”.  SH has not put forward any evidence to the contrary, which would presumably be readily obtainable if the Singapore Property had in fact been sold or encumbered.

27.  As to the second point raised by SH, it is not in dispute that under reciprocal arrangements for the mutual enforcement of judgments, a costs order made by this court may by registration with the High Court of Singapore, have, for the purposes of execution, the same force and effect as a Singapore court judgment.  In Atal Technologies Ltd v Stratech Systems Ltd [2011] 6 HKC 139 at §10, where the appellant also had assets in Singapore, Kwan JA observed that while additional time and costs would no doubt be involved in enforcing a Hong Kong costs order in Singapore, the question is whether there would be such undue delay or expense as to make out a case of special circumstances for security to be ordered.  In the absence of evidence as to the amount of extra time and costs involved, her Ladyship was not satisfied that they could be characterised as undue delay or expense.  

28.  Similarly, in Tronic International Pte Ltd v Topco Scientific Co Ltd (unreported, CACV 235/2013, 20 June 2014), which concerned a Singaporean appellant company, Barma JA said (in §§9-11) that in the absence of information as to the additional time and costs involved, he was not satisfied that having to enforce a Hong Kong costs order in Singapore is likely to involve undue expense or delay, such as to amount to special circumstances warranting the making of an order for security.

29.  Likewise, SH has not given specific information as to the amount of extra time and costs estimated to be involved, and on the available evidence, we are not satisfied that the burden could be characterized as undue delay or expense so as to justify ordering security.

Conclusion

30.  For the above reasons, SH’s application for security is dismissed. 

31.  We make an order nisi on costs as follows.  We do not find any sufficient special feature warrants an order for costs on an indemnity basis, which Mr Lam seeks on behalf of the appellants.  Having considered the appellants’ statement of costs and taking a broad-brush approach, we summarily assess their costs at HK$150,000, to be split between the two appeals on an equal basis.