CHINACHEM CHARITABLE FOUNDATION LTD v. THE SECRETARY FOR JUSTICE AND OTHERS

CACV 106/2022, [2023] HKCA 648

An appeal from [2022] HKCFI 884

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 106 OF 2022

(ON APPEAL FROM HCMP NO. 2010 OF 2020)

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D E C I S I O N

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Hon Cheung JA (giving the Decision of the Court) :

I.  Security for costs of the appeal

1.  This is the 2^nd defendant’s application for an order that the plaintiff do pay into court $967,600 as security for costs of the appeal lodged by it against the judgment of Wilson Chan J dated 25 March 2022 (‘the Judgment’).

2.  The application is made on the ground that the plaintiff is impecunious. The plaintiff opposes the application.

3.  By the Judgment, the Judge dismissed the plaintiff’s Beddoe application for its legal costs incurred in six sets of proceedings (‘the Proceedings’) to be indemnified by the Estate, on the grounds that 1) the plaintiff does not have locus to make any Beddoe application or to seek costs indemnity from the Estate because it is not currently a trustee or a fiduciary of the Estate and 2) there has been undue delay in the plaintiff’s Beddoe application in that the Proceedings are either at an advanced stage, have already been heard or are otherwise stayed.

4.  Having considered the papers, we are of the view that it is appropriate to deal with this application based on the written submissions only, without an oral hearing, pursuant to Order 59, rule 14A(1) of the Rules of the High Court (‘RHC’) (Cap. 4A).

II.  Principles

5.  Under Order 59, rule 10(5) of RHC, 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. For this purpose, ‘special circumstances’ include cases of insolvency or impecuniosity and difficulty or expense of enforcing an adverse costs order. The burden is on the defendant to demonstrate the plaintiff is impecunious.

6.  The Court, however, has a discretion and 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. But once a case of impecuniosity or some other factor such as 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: Chan Wai Yee v Kwong Wai Piu (administrator of the estate of Wong Chin aka Kwong Wong Chun (or Gine), deceased [2021] HKCA 891, [19].

7.  Whilst the burden of showing that the plaintiff is impecunious rests upon the defendant, Anthony To J in E‑Global Ltd v Trenda Ltd [2012] 2 HKLRD 1211 at [8] adopting the view of Quilliam J in Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516 observed :

‘ .... by the very nature of the application and the relationship between the parties, the defendant cannot be expected to produce conclusive evidence of the plaintiff’s lack of means. It has no access to the plaintiff’s books of account or other evidence. Nor is it desirable to mount a comprehensive discovery process for the purpose of making such an application. It is therefore sufficient for the defendant to point to the surrounding circumstances or adduce some credible evidence in support of his belief that the plaintiff will be unable to pay the defendant’s costs. It is then up to the plaintiff to adduce such evidence as he thinks fit to demonstrate his means or to contradict the defendant’s evidence. The Court shall decide whether a reasonable person with ordinary experience of daily life would consider the plaintiff unable to pay such costs. The threshold is just one of adducing credible evidence for the belief and falls short of proof of lack of means to pay.’

III.  Our view

1)  Impecuniosity of the plaintiff

8.  In our view, the 2^nd defendant has discharged its burden of showing that the plaintiff is impecunious.

9.  In the Affirmation of Gong Zhongxin dated 9 October 2020, which was filed by the plaintiff in support of the Beddoe application below, it was accepted at [24] that there were serious concerns as to its financial standing :

‘…the current financial situation of the Foundation has cast doubt on the Foundation’s ability to continue as a going concern. Therefore, if the Foundation is unable to get reimbursement from the Estate for its legal costs and expenses incurred or to be incurred, it is possible that the Foundation may not be able to carry on in the Legal Proceedings…’

10.  Further, on 12 November 2021, the Court of Appeal (Kwan VP and Cheung JA) found that the plaintiff was impecunious and ordered it to pay security for costs of appeal in the sum of HK$900,000: see [2021] HKCA 1708 (‘2021 Decision’). That application was made in the course of the plaintiff’s appeal against the decision of G Lam J (as he then was) in HCCL 6/2020, being one of the Proceedings.

11.  Mr. Keith Tam, counsel for the plaintiff, submits that the 2021 Decision was handed down more than a year ago and was made without the benefit of the plaintiff’s financial statements for the years 2020 and 2021 (‘2020‑2021 AFS’), which are now available. Reliance is placed on the fact that, according to the 2020‑2021 AFS, there has been notable improvement to the balance sheets of the plaintiff, including a major reduction of the net liabilities from around $50 million in 2019 to around $2.5 million in 2021.

12.  We do not accept Mr. Tam’s submission. Notwithstanding the apparent improvement in the plaintiff’s balance sheets, the bottom line is that according to the latest financial statement available the plaintiff still remained insolvent to the tune of over $2.5 million. Also, in the 2021 AFS, the plaintiff’s auditors expressed the view that there existed ‘a material uncertainty that may cast significant doubt about the Foundation’s ability to continue as a going concern’. These are strong indications of the plaintiff’s impecuniosity.

13.  Moreover, we note that in a recent judgment handed down on 21 October 2022, Barma JA (sitting as an additional judge of the Court of First Instance) had considered the 2020‑2021 AFS in the context of determining whether the plaintiff’s solvency should be a pre‑requisite to its appointment as the trustee of the trusts created by the will of the late Madam Nina Kung: [2022] HKCFI 3255. At [84], the learned judge answered the question in the positive, concluding that ‘there have been and remain real concerns as to the financial position and solvency of the Foundation’.

14.  Mr. Tam further submits that the plaintiff has received substantial donations in recent months, including 1) a $3 million donation from one of its governors on 29 August 2022; 2) a $2.5 million donation from Madam Gong Zhongxin on 27 September 2022; and 3) a $2 million donation from Madam Kung Yan Sum on 6 October 2022.

15.  In our view, this submission carries little weight in circumstances where no contemporaneous documentary evidence has been adduced to substantiate these alleged donations. In relation to the alleged $3 million donation made in August 2022, all that the plaintiff has produced is a letter dated 29 August 2022 addressed to Barma JA in which its solicitors (Jones Day) asserted that such donation has been made (without mentioning or attaching any supporting evidence). In relation to the other two alleged donations, no document whatsoever has been adduced.

16.  In any event, we agree with the submission of Ms Sara Tong SC, counsel for the 2^nd defendant, that based on the evidence before us, these ad hoc donations are unlikely to cure the plaintiff’s impecuniosity, since the amount ($7.5 million) does not appear to be sufficient to even cover the plaintiff’s administrative expenses in 2022 (assuming the amount of such expenses are similar to those for 2020 and 2021, which was around $12‑13 million).

17.  Lastly, Mr. Tam submits that since one of the Proceedings involved the plaintiff’s application to remove the 2^nd defendant as administrators of the Estate (‘Removal Application’), and that such application was heard in October 2020, judgment could be handed down at any time. Should the Court find in favour of the plaintiff in the Removal Application, this could affect the 2^nd defendant’s standing to continue opposing the Beddoe application. It is said that the new administrator could very well adopt a different view of the Beddoe proceedings.

18.  We do not accept this argument. This Court is not in the position to assess the merits of the Removal Application and it would be speculative for us to proceed on the basis that the plaintiff will prevail (and that the new administrator will take a different view in relation to the Beddoe application). What matters is that, as things now stand, the 2^nd defendant is the incumbent administrator of the Estate and will continue to take part in the present appeal.

2)  Merits of the appeal

19.  Although the plaintiff is impecunious, we have to consider whether the plaintiff has such a meritorious appeal that we should exercise our discretion against an order of security so as not to stifle a genuine appeal.

20.  The plaintiff contends that the Judge erred in dismissing the Beddoe application on the grounds of lack of standing and undue delay. Meanwhile, the 2^nd defendant has filed a Respondent’s Notice to contend that the Judgment should be affirmed on the additional ground that the plaintiff’s costs in the Proceedings are not properly incurred for the benefit of the Estate so as to justify an indemnity from the Estate.

21.  It is not necessary to go into the details of these contentions which have been canvassed in the Notice of Appeal, the Respondent’s Notice and the submissions of counsel in the present application. All that we need to say is that the merits of the appeal are not such that it will cause us to exercise the discretion against the granting of security.

3)  Quantum

22.  As to the amount of security, according to the 2^nd defendant’s skeleton bill of costs, the estimated costs of the appeal (excluding the present security for costs application) are $967,600, comprising $379,600 in solicitors’ fees and $588,000 in counsel’s fees. The costs of the present application are estimated at $337,940 which include counsel’s fee of $245,000. Mr. Tam submits that the appeal is confined to determining legal issues and the appropriate amount of security should be $181,360.

23.  We consider the appropriate amount of security of the appeal (excluding the present application) on a party to party basis is $470,000.

IV.  Conclusion

24.  Accordingly, we make the following orders :

1)  The plaintiff is to pay into court within 28 days the sum of $470,000 as security for the costs of its appeal;

2)  The appeal is stayed until the sum is paid;

3)  In default of payment, the appeal is dismissed without further order together with costs to the 2^nd defendant; and

4)  The 2^nd defendant is to have the costs of this application, summarily assessed at $180,000.