ARROW ECS NORWAY AS v. M YANG TRADING LTD AND OTHERS

CACV 202/2018

[2019] HKCA 176

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 202 OF 2018

(ON APPEAL FROM HCA NO. 239 OF 2016)

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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. Application for security for costs

1.1   On 7 May 2018, Chow J granted summary judgment for the plaintiff against the 5^th, 10^th, 11^th, 13^th, 14^th and 15^th defendants (‘D5, D10, D11, D13, D14 and D15’) (‘the relevant defendants’). 

1.2   The relevant defendants filed their notice of appeal appealing against the summary judgment of Chow J.

1.3   The plaintiff now applies for security for costs of the appeal against them.  We will deal with the application on paper.

II.   Factual background

2.1   The plaintiff was the victim of an email and telephone scam.

2.2   Between 18and 22 January 2016, the plaintiff was induced by fraudsters to transfer nine sums totalling US$23,395,000 to the 2^nd defendant’s (‘D2’) account.

2.3   The plaintiff was able to recall a certain part of its money from instructing its bank.  A total of about US$17,423,000 was unable to be recalled.  Between 20and 22 January 2016, portions of this sum of US$17,423,000 were transferred from the D2’s bank account to various bank accounts of the relevant defendants.  The plaintiff claimed against them on grounds of unjust enrichment, money had and received, and/or restitution.

2.4   The relevant defendants admitted the receipt of funds, but sought to defend the plaintiff’s claims on the grounds of change of position in good faith in the ordinary course of a money exchange business.  The Judge rejected their defence.

III.   Legal principles

3.  It is clear that the Court of Appeal may in special circumstances order an appellant to furnish security for costs of its appeal.  An example is where the appellant is impecunious.  The reason why security is to be ordered in such a situation is to ensure that the respondent to the appeal would not be unable to recover its costs despite being successful in the appeal.  But even where impecuniosity is shown, the Court still has a discretion not to order security where the appellant is able to show countervailing factors such as a high prospect of success in the appeal.

IV.   Grounds of the application

4.1   The plaintiff relied on the following evidence to support its case that the relevant defendants are impecunious :

1)   According to the affirmations of assets of the relevant defendants filed previously pursuant to orders made in injunction proceedings issued by the plaintiff, their only assets in Hong Kong are bank accounts held by each of them in the Hong Kong and Shanghai Bank (‘HSBC’).  The fund in these accounts is not sufficient to meet the costs of the plaintiff. The total fund is US$3,110,773.22 and the judgment against them is US$4,764,132 with a shortfall of about US$1,653,000;

2)   On 21 December 2018 and on 24 December 2018 respectively, three of the relevant defendants, namely, D10, D13 and D14, lodged their 1^st set of written submission and 2^nd set of written submission.  The 1^st set of written submission is about the substantive appeal itself.  The 2^nd set of submission dealt with the financial situation of the relevant defendants.  In it, the defendants attempted to seek leave to adduce a bank statement of D14 which purported to show that it has substantial money in a bank account and it is submitted that the plaintiff should be able to recover costs against the defendants in the event that it is successful in the appeal.     

4.2   On 4 January 2019, the Registrar of Civil Appeals (‘the Registrar’) ordered that only the 1^st set of written submission will be considered and not the 2^nd set of written submission because the 2^nd set of written submission was lodged out of time in breach of an Unless Order of the Registrar dated 7 December 2018.

V.   Our view

5.1   On the evidence the plaintiff clearly has established the impecuniosity of the relevant defendants.  There is no admissible evidence concerning their current financial position other than the one adduced by the plaintiff. 

5.2   The 2^nd set of submission is, of course, ruled inadmissible but we would like to express our disapproval of Jim & Co., Solicitors for D10, D13 and D14 who lodged the 2^nd set of submission.  Notwithstanding the order disallowing the 2^nd set of submission, Jim & Co. still tried to adduce the so‑called new evidence through the back door by means of the 2^nd set of submission without even bothering to lodge a proper application by way of summons and a supporting affidavit.  This is not the proper conduct of a responsible officer of the Court.

5.3   On the merits of the appeal, the defendants submitted that they have a strong ground of appeal because of the recent UK Supreme Court judgment of UK Supreme Court case of Patel v Mirza [2017] AC 467 which they claimed effectively overruled the earlier decision of Tinsley v Milligan [1994] 1 AC 340.  They submitted that the Judge was wrong in holding that the defence of change of position was not available to them.  Further, the Judge was wrong to hold that the relevant defendants did not produce sufficient evidence to show a causal link between the receipt and the change in position.  Chow J held that although he was aware that the UK judgment may have an effect on how the Hong Kong Court of Final Appeal will later decide on issues involving illegality, he being a judge of the Court of First Instance must at this stage follow the principles of Tinsley. He held that :

‘ 28. I accept that the correctness of the decision in Tinsley v Milligan may well be open to review in view of Patel v Mirza, but such review cannot be undertaken by the Court of First Instance. This is because in Kan Wai Chung v Hau Wun Fai [2016] 5 HKC 585, Cheung JA (with whom Yeung VP and Kwan JAagreed) said at paragraph 8.7 that “this Court [ie, the Court of Appeal] is bound by the decision of the Court of Appeal which adopted the majority view of Tinsley”, and referred to the observation of Tang VP (as he then was) in Loyal Luck Trading Ltd v Tam Chun Wah [2008] 4 HKLRD 681, at paragraph 48, that the potential conflict between Tinsley v Milligan and Nelson v Nelson could only be resolved by the Court of Final Appeal. If the Court of Appeal is bound to apply Tinsley v Milligan, so must the Court of First Instance.

29. In the circumstances, I consider that I am bound to accept Tinsley v Milligan as correctly stating the law in Hong Kong......’

5.4   In our view the defendants have to show that this Court was plainly wrong in its previous decision and therefore that decision should no longer be followed before they could make any headway with the Patel argument.  At best the defendants’ argument on Patel is only a reasonably arguable point for the purpose of the appeal but we are not convinced that it is such a strong point that we should exercise the discretion in favour of the defendants.  Our view applies likewise to the other grounds of appeal and the proposed new grounds identified in the 1^st set of submission.

5.5   The defendants stated that the plaintiff is a foreign corporation and the defendants are entitled to apply for security for costs against the plaintiff.  But no application was taken out by the defendants for that purpose.  In the circumstances the Court will order security for costs of the appeal.

5.6   The plaintiff seeks HK$1,524,000 as security.  The Skeleton Bill of Costs is in breach of Practice Direction 14.3in that it does not state that the amount claimed does not exceed the plaintiff’s liability for costs to its own solicitors. We will require the plaintiff’s solicitor to submit a properly endorsed Skeleton Bill within two days.  We are of the view that the amount claimed is excessive.  We do not see why the preparation of the present application and the appeal should require two solicitors and a litigation clerk.  A total of 39 hours of work (HK$156,200) is said to be needed for the present application which included an assumed hearing which is no longer required. 105 hours (HK$382,000) are said to be required for the preparation of the hearing.  55 hours (HK$151,000) are said to be needed for documentary preparation of the appeal.  Another 48 hours (HK$190,400) are said to be needed for ‘correspondence, general care and research’.  In our view the hours are excessive.  Counsel fee (two counsel) for the one day hearing is said to be HK$570,000.  With the argument on law, attendance by senior counsel may be arguably needed but we do not see why two counsel can be justified on a party to party taxation.  We are of the view that HK$700,000 is appropriate for security which will include the costs of the present application at HK$70,000.

5.7   We will make the following order :

1) The 5^th, 10^th, 11^th, 13^th, 14^th and 15^th defendants are jointly and severally required to pay into Court HK$700,000 as security for the costs of their appeal within 21 days from the date of this order;

2) Pending payment into Court, the appeal is stayed;

3) In default of payment, the appeal will be dismissed without further order together with the costs of the appeal to the plaintiff; and

4) The plaintiff is to have the costs of the application for security.