SAFE CASTLE LTD v. CHINA SILVER ASSET MANAGEMENT (HONG KONG) LTD

CACV 69/2020

[2021] HKCA 376

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 69 OF 2020

(ON APPEAL FROM HCCW NO 69 OF 2019)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  On 11 March 2020, Harris J made a winding-up order against China Silver Asset Management (Hong Kong) Limited (“the Company”) on insolvency grounds. Acting by its former directors in their residual capacity, the Company filed a notice of appeal against the winding-up order on 19 March 2020. The notice of appeal was amended on 11 June 2020.

2.  By a summons issued on 3 July 2020, the petitioner, Safe Castle Limited, seeks security for costs of and occasioned by the appeal in the total sum of $1,093,810.  The petitioner seeks an order that the Company do procure its former directors and/or its parent company incorporated in the Cayman Islands, China Silver Asset Management Limited, to provide security by making a payment into court.

3.  Having considered the evidence filed by the parties and the submissions they have lodged, we will deal with this application on paper.

4.  We do not propose to mention the background facts leading to the presentation of the petition, the Company’s grounds of opposition to the petition, the reasons for the making of the winding-up order and the grounds of appeal advanced in the amended notice of appeal.

5.  Although the Company filed an affidavit by one of its former directors on 17 July 2020 opposing the application for security for costs on the grounds that the parent company has sufficient financial resources to assist the Company to pay any adverse costs order and that the appeal has strong merits, when the Company came to serve the submission of its counsel Mr M C Law on 21 August 2020, it would appear that the liability to provide security for costs is no longer in contention. Mr Law’s submission only addressed the proper amount of security that should be ordered by the court.

6.  For the avoidance of doubt, we should say that this is a clear case for security to be ordered. The Company has been adjudged insolvent. The appeal is pursued on its behalf by former directors and/or the parent company, who are not parties in the appeal.  There is a real risk that should the appeal fail and an adverse costs order is made, the Company will be laden with an additional debt which prejudices not only the petitioner but its creditors as a whole.  It is established that a limited company which appeals alone from a winding-up order, without joining any one personally responsible for costs, will be ordered to give security. (Hong Kong Civil Procedure 2021, vol 1, §59/10/30; cited with approval in Re Wah Nam Group Limited, CACV 310/2000, 1 November 2000, at §§5 to 13)

7.  The letter of support from the parent company is of no assistance.  Nor is it necessary to consider the merits of the appeal.  This has been argued before Harris J in the application of the parent company (as the opposing contributory) to stay the winding-up order pending appeal and the judge has dismissed the application on 5 June 2020^[1] as he is not persuaded that the appeal would have good prospects of success.

8.  We turn to the amount of security that should be ordered to be provided by those who are behind the prosecution of this appeal.

9.  The amount sought by the petitioner is to cover (1) the anticipated application by the parent company for a stay of the winding-up order pending appeal before the Court of Appeal; (2) the present application for security for costs; and (3) the substantive appeal.  As Mr Law has stated in his submission that the anticipated application in (1) will not be pursued by the parent company, we are looking at the costs of (2) and (3) in the total sum of $806,140 ($298,720 + $507,420).

10.  In this particular situation, the amount would be estimated on the indemnity scale, as indemnity costs are appropriate where a company unsuccessfully appeals from a winding-up order.  The reason is that it is not just that any costs occasioned by an unsuccessful appeal from a winding-up order should be thrown upon the assets to the prejudice of the creditors. (Re SY Engineering Co Ltd, CACV 1896/2001, 20 February 2002, §§19 to 21)

11.  We do not understand Mr Law to have argued to the contrary.

12.  In assessing estimated costs on the indemnity basis, the statutory formula is provided in Order 62 rule 28(4A), namely, that all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred.  This does not mean giving a blank cheque to the receiving party to recover all his costs incurred without proper scrutiny by the court.  The unreasonable items or unreasonable amounts should be readily identifiable; it is only where there is a doubt as to whether it is unreasonable that the benefit of the doubt should be given to the receiving party. (Re Wing Fai Construction Co Ltd (Costs: Taxation) (2012) 15 HKCFAR 657 at §§21 to 25)

13.  The court normally takes a broad brush approach in assessing the proper amount for security for costs, and does not conduct a taxation of the respondent’s costs in fixing the quantum of security. (Allied Ever Holdings Ltd v Li Shu Chung & Ors [2019] HKCA 752 at §8(1)).

14.  The Company has objected to the hourly rates of the fee earners of the petitioner’s solicitors in that they are above the rates in the Law Society circular of December 2017.  Mr Law also submitted there should be a reduction for the excessive time spent for certain items of work and the engagement of Senior Counsel in the present application which is disposed of on paper.

15.  As this is not a taxation exercise, we do not propose to go into specific items or amounts.  We will adjust the amount claimed by reducing the estimated costs for the substantive appeal to $445,000 and the estimated costs for the present application to $160,000.  We will order security to be provided in the total amount of $605,000.

16.  We make an order in the following terms:

(1)  the respondent do procure Mr Patrick Maloney, Mr Frank Dominick and/or China Silver Asset Management Limited to give security within 28 days from the date of this order by making payment into court of $605,000 for the costs of and occasioned by its appeal under the amended notice of appeal filed on 11 June 2020;

(2)  until compliance with paragraph (1) hereof, all proceedings in the appeal be stayed;

(3)  in default of security being given within the time as ordered in paragraph (1) hereof, the appeal do stand dismissed without further order, with costs to be taxed and paid by the respondent to the petitioner; and

(4)  costs of this application be to the petitioner in any event, to be taxed if not agreed.

[1]  [2020] HKCFI 1028