RE UP ENERGY DEVELOPMENT GROUP LTD (In Liquidation)

CAMP 8/2023, [2023] HKCA 536

On appeal from [2022] HKCFI 1917

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 8 OF 2023

(ON AN INTENDED APPEAL FROM HCCW NO 91 OF 2016)

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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.  This is the renewed application for leave to appeal against the costs order made by Linda Chan J in the winding-up proceedings of Up Energy Development Group Limited (“the Company”). The application is brought by the Company’s liquidators who were appointed by the Supreme Court of Bermuda (“the liquidators”).

2.  On 6 May 2022, the judge handed down her judgment (“Judgment”)[1] ordering the Company to be wound up on the petition of an unpaid creditor, pursuant to section 327(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32. In so doing, the judge rejected all the arguments in opposition advanced separately by the liquidators and by one of the opposing creditors, Integrated Capital (Asia) Ltd (“ICA”)[2]. The judge made an order nisi that the costs of two hearings of the petition (14 February 2022 and 1 April 2022) be paid by ICA and the liquidators to the petitioner and the Official Receiver and directed that the liquidators are not entitled to recover their costs from the estate of the Company.

3.  The liquidators applied to vary the costs order nisi and sought an order as follows: (1) there be no order as to costs in respect of the hearing on 14 February 2022; and (2) the liquidators should be permitted to recover all their costs in the proceedings from the estate of the Company. The judge dismissed the liquidators’ application after a hearing on 22 June 2022 and handed down the reasons for her decision on costs the following day (“Costs Decision”)[3]. The costs order nisi was made absolute on 22 June (“Costs Order”).

4.  The liquidators applied to the judge for leave to appeal against the Costs Order. After a hearing on 23 November 2022 with further submissions on 30 November, the judge refused leave on 23 December 2022 (“Leave Decision”)[4].

5.  By a summons issued in the present proceedings on 6 January 2023, the liquidators renewed their application for leave to appeal to the Court of Appeal against the Costs Order.

6.  ICA has lodged an appeal against the Judgment, as of right. No step has been taken by ICA to set down its appeal for hearing[5]. The liquidators have not appealed against the Judgment. The extent of their challenge is limited to the Costs Order.

7.  Having considered the papers, we are satisfied that an oral hearing may properly be dispensed with and exercise our discretion under Order 59 rule 2A(5)(a) to determine this summons on paper. We see no reason why the liquidators’ renewed leave application should be considered with the appeal of ICA.

8.  The approach of the appellate court in an appeal against a costs order is well established. The Court of Appeal will not interfere with the exercise of the trial judge’s discretion in the award of costs unless it was shown that the judge failed to exercise the discretion, or exercised it upon a false principle, or did not exercise it judicially, or that the exercise of discretion was demonstrably flawed[6]. The Court of Appeal must be very careful not to interfere with the judge’s exercise of the discretion which has been entrusted to him and not substitute its discretion for that of the trial judge, unless satisfied he was plainly wrong[7].

9.  Ms Rachel Lam, SC, who appeared for the liquidators[8] in the substantive hearing of the petition, the application to vary the costs order nisi and the application for leave to appeal before the judge, urged this court to have regard to “the full procedural history”. We have carried out this exercise and do not propose to recite the history in our judgment. The relevant events have been summarised in the Judgment at §§2 to 30 and the Costs Decision at §§6(1) to (5). We have read and noted other relevant documents[9].

10.  Nor do we propose to summarise the draft grounds of appeal, which ran to five pages, save to mention that the grounds are the same as those raised in the leave application before the judge with the addition of the matters in §§2(1)(a) to (f), which matters are not new and have been raised by the liquidators in substance in the application to vary the costs order nisi[10].

11.  A renewed application for leave to appeal is not a trial run of the intended appeal. The Court of Appeal is not expected to conduct in-depth analysis into the merits of the proposed grounds of appeal at this stage. The threshold requirements – that the appeal has a reasonable prospect of success, or that there is some other reason in the interests of justice why the intended appeal should be heard – are not onerous. If there are indeed grounds of appeal that merit further consideration, they should be fairly obvious to all concerned. Succinct submissions of no more than five pages are allowed from each party[11].

12.  It is pertinent to note that the application before us is the second filtering exercise, the first having been conducted by the trial judge. It is not a mechanical exercise, to be pursued automatically having failed to obtain leave in the court below. The applicant is expected to demonstrate to the Court of Appeal that leave should be granted notwithstanding the reasons given by the court below in refusing leave. The starting point for the Court of Appeal is the leave decision below and it is incumbent on the applicant to point to palpable errors in that decision to justify a renewed application. The burden of showing that the threshold requirements are met is not discharged by repeating the arguments in the leave application below, without demonstrating in what way the judge went wrong in rejecting the arguments.

13.  The arguments made by Ms Lam in the renewed application have been made in substance before the judge in the application to vary the costs order nisi and repeated in the application for leave to appeal. They were rejected for detailed reasons given in the Costs Decision and the Leave Decision, which we do not find necessary to set out. She has not sought to engage the judge’s reasoning or show in what respects the judge had erred in rejecting her submissions in the exercise of the discretion on costs, other than repeating her own arguments. It is not a proper use of the appellate process to repeat arguments for a third time in the hope that the Court of Appeal might be persuaded to a different view.

14.  We wish to make three additional points.

15.  First, the advantage of the trial judge over the Court of Appeal in the exercise of the discretion on costs cannot be over-emphasised[12]. The judge was seized with the winding-up proceedings since January 2022, in the course of which she had given written directions and verbal indications to all parties, apart from presiding over the proceedings. She is obviously in the best position to decide whether the liquidators had acted unreasonably in adopting an excessive role or to contest the petition which ought not to have been contested. She had given clear indication to all parties on 14 February 2022 in this manner:

“But at the moment, I have to tell everybody that it may not be that if the company is wound up, it may not necessarily be that the company will have to bear all the costs of the petition. It may well be that it needs to be borne by whoever caused the company to oppose the petition, including the costs incurred in filing the extensive expert evidence on such issue.”[13]

“I’m already concerned that whoever in control of the company caused the company to incur significant costs in filing expert evidence. So I -- just at the moment I don’t see why the company should file another round of expert evidence …”[14]

16.  Second, notwithstanding these clear indications, the liquidators persisted in opposing the petition on, inter alia, the ground that a finding had been made in the Harris J Decision that the second “core requirement” or “threshold requirement” (ie a reasonable prospect that the petitioner will derive a sufficient benefit from the making of a winding-up order against the company) was not satisfied. This contention, which was rejected by the judge in the Judgment[15], is maintained in the liquidators’ statement in support of the renewed leave application[16]. The liquidators have not appealed against the Judgment. As rightly submitted by Mr Toby Brown for the petitioner[17], it is inappropriate for the liquidators to bring the intended appeal on the basis that a different costs order should have been made as the judge was wrong to rule there was no finding in the Harris J Decision that the second “core requirement” was not met. This is tantamount to being willing to wound and yet afraid to strike.

17.  Third, it is not apparent from the liquidators’ submissions that any of the requirements for interfering with the trial judge’s discretion on costs are satisfied. There are plainly materials before the judge on which she could properly exercise her discretion as to costs in the way she did. That the liquidators could point to other matters and complain that the judge should have given more weight or less weight to them is beside the point. The fact is that those matters relied on by the liquidators have been brought to the judge’s attention. It could not be said that she did not exercise her discretion judicially or did so on a false principle. And unless we are satisfied that the judge is plainly wrong, we must not substitute our decision on costs for the judge’s decision.

18.  For all the above reasons, we are satisfied there is no reasonable prospect of success in the intended appeal, nor is there any other reason in the interests of justice the intended appeal should be heard. The liquidators’ summons is dismissed.

19.  As this application is wholly without merits, we make a further order under Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be reconsidered at an oral hearing inter partes.

20.  Costs of this application should follow the event. We order the liquidators to pay the petitioner’s costs and direct that the liquidators are not entitled to have their costs of this application paid out of the Company’s estate.

21.  Having considered the statement of costs submitted by the petitioner’s solicitors, we assess the petitioner’s costs summarily at $95,000.

22.  The costs order and gross sum assessment are orders nisi. If there is no application for variation within 14 days of the handing down of this judgment, the orders nisi will be made absolute.