SINO RESOURCES (HONG KONG) LTD v. KAN KWOK YU

CACV 256/2024, [2026] HKCA 884

On appeal from [2024] HKCFI 1469

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 256 OF 2024

(ON APPEAL FROM HCB NO 4229/2023)

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BETWEEN

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J U D G M E N T

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The Court:

Introduction

1.  By Order dated 30 May 2024 (“Bankruptcy Order”), Deputy High Court Judge Le Pichon (“Judge”) adjudged the Judgment Debtor bankrupt after a hearing on 20 May 2024 (“Hearing”) at which counsel for both parties were present. Detailed reasons of the Judge can be found in a Judgment dated 30 May 2024 (“Judgment”).[1] By Notice of Appeal filed on 27 June 2024 and Notice of Appeal (Supplemental) filed on 16 July 2024, the Judgment Debtor appealed against the Bankruptcy Order (“Appeal”).

2.  There is before this court the Judgment Creditor’s application by summons filed on 4 July 2025 (“Summons”) seeking security for its costs of the Appeal including costs of the application[2], estimated in its skeleton bill in the sum of HK$846,423. The Summons is supported by the affirmation of Lam Tam Yuk dated 3 July 2025 (“Lam 1”), a solicitor at KB Chau & Co.

3.  The Judgment Debtor, now acting in person, opposes the application by lodging a skeleton submission in opposition. However, he has not filed any affirmation setting out the evidence he intends to rely upon in opposition to the Summons or to challenge Lam 1 as such.

4.  Having reviewed the documents submitted by the parties, we deem it appropriate to decide the application without a hearing on the basis of written submissions only, pursuant to RHC Order 59 rule 14A(1).

Background

5.  The debt (“Debt”) which was the subject of the Judgment Creditor’s bankruptcy petition (“Petition”) arose from a judgment of Master Matthew Leung in HCA 276/2022 dated 6 July 2022 (“HCA Judgment”). The amount of the Debt was over HK$12 million. The HCA Judgment was in turn based on 2 loans (“Loans”) from the Judgment Creditor, a licenced moneylender, to the Judgment Debtor.

6.  At the Hearing, the Judgment Debtor opposed the Petition and sought to set aside the HCA Judgment on the grounds that (a) the HCA Judgment was irregular and (b) there was a bona fide dispute on substantial grounds as to the amount of the Debt.

7.  At para 45 of the Judgment, the Judge concluded that the HCA Judgment was regular.

8.  For the reasons given at paras 47-79 of the Judgment, the Judge concluded that the Judgment Debtor had not discharged the burden of showing a bona fide dispute on substantial grounds in relation to the Debt and refused to set aside the HCA Judgment. Instead, the Judge made the Bankruptcy Order.

9.  The gist of the Judgment Debtor’s case was summarised at para 48 of the Judgment, ie, the Loans did not represent the true agreement between him and the Petitioner which was of a hybrid nature, part loan and part investment (“Hybrid Agreement”). At para 59 of the Judgment, it set out the Judgment Debtor’s case that the loan was for only HK$4.95 million while the balance was for investment purpose.

The application for security for costs

10.  The principal grounds of the application put forward by the Judgment Creditor in its written submissions are: (1) the Judgment Debtor is ordinarily resident outside Hong Kong viz in Birmingham, United Kingdom; (2) the Judgment Debtor’s impecuniosity is sufficiently established by the fact that the Bankruptcy Order has been made against him; (3) the Appeal has little chances of success; (4) the Judgment Debtor has no traceable assets in Hong Kong or the United Kingdom rendering enforcement of any costs order made in the Appeal difficult.

11.  The Judgment Debtor advanced in his skeleton submission the following grounds which in our view do not really answer the Judgment Creditor’s grounds of the application. Instead of trying to paraphrase those grounds, we shall set out the relevant parts as follows:

“The Judgement Creditor’s (sic) Case of Appeal is by right

4. [Judgment Debtor’s (“JD”)] Appeal is by rights and as such, it would undermine the principle of upholding justice if such process is blocked by merely administrative and technical considerations especially if their validity are not without questions and could well mask attempts to use financial hurdles and administrative and technical issues to prevent the uncovering the whole truth and to perpetuate what could be seen as already an encroachment into the interest and rights of the JD as well as other creditors.

…

The Appeal should help safeguard the Legitimate Rights of other Creditors

6. The Security on Cost issue could materially and adversely affect the interest and rights of other creditors as represented by JD’s trustee Mr Fred Lee and Ms Christine Chow as the amount of HKD846,423 is a material sum which could have been used for helping to settle the debt related to the JD’s other creditors.

7. JD’s appeal is an attempt which should help protect the interest and rights of the other creditors in so far that if the appeal case is allowed to proceed, JD should get at least over HKD2 million (see elaboration on point 9) returned to the trustee for other creditors and on top of that, JD should be granted the right to make legitimate claims for the additional sincereity money already held on the hands of the [Judgment Creditor (“JC”)] as well as compensation for the damages that has been inflicted upon himself and his family…

…

JC is already holding over HKD2m above what it is entitled

9. It is important to note that based on JD’s version of the matter, the nature of the agreement between JD and JC is a loan and investment agreement. More importantly, the debt proportion of the agreement was only HKD4.95m (see appendix ) and was more than settled by the over HKD7 million net proceeds it has received from the Hang Seng Bank from the sale of JD’s property at 45B Tower 6, The Belcher’s, 89 Pokfulam Road, Hong Kong. Indeed, this alone is already over HKD2 million, not to speak the sincerity money from JD which JC has already been holding on its hand…

JC’s Security on Cost estimate

10. In addition, based on voluntary comments and advices made by people in the legal profession to JD, the Security on Costs of HKD846,423 proposed by JC look unreasonably and unnecessarily high and could smack of attempts made by JC to create the highest possible hurdles against the exercise of justice and to perpetuate an unfair encroachment of interest into the rights of JD and other creditors…

…

The Security on Cost factor should become a Non-Issue

12. In addition, once the over HKD2 million now at the hands of JC is returned to the Court, meeting the Security on Costs requirement should become a non-issue as HKD2m should be far more than enough to cover such cost.”

Deliberation

12.  Pursuant to RHC Order 59, rule 10(5), the Court of Appeal may, in special circumstances, order that security be given for the costs of an appeal as may be just.

13.  In Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650 at para 14, Ma CJHC (as he then was) summarized the relevant principles, especially the treatment of impecuniosity as a special circumstance, for considering whether special circumstances exist that make it just to order security for costs.

“(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 is 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…

(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.”

14.  Established categories of “special circumstances” include, inter alia, impecuniosity, difficulty or expense in enforcing costs order, and the appellant being a resident out of jurisdiction: Hong Kong Civil Procedure 2026 Vol.1 paras 59/10/26-28:

(1) It is settled practice to require security for costs to be given by an appellant who would be unable through impecuniosity to pay the costs of the appeal, if unsuccessful, without proof of any other special circumstances.

(2) The Court of Appeal will order security for costs upon proof that the respondent will be likely to encounter undue delay or be put to undue expense in enforcing any order for costs in respect of the appeal.

(3) It has long been the practice of the Court of Appeal to order provision of security where the appellant is resident out of jurisdiction. The presumption is that enforcement is difficult, and security can be ordered unless the appellant proves ease of enforcement.

Impecuniosity

15.  We agree the fact that the Judgment Debtor was adjudged bankrupt is a strong indication of his impecuniosity. It does not appear from the Judgment Debtor’s written submission that this is seriously challenged.

Residence out of jurisdiction and Difficulty or expense in enforcing costs order

16.  In Lam 1 at paragraph 4, he referred to an affirmation of the Judgment Debtor filed on 1 December 2023 in HCA 276 (“Kan 1”) in which he stated he had left Hong Kong on 31 March 2022 and had since resided in the United Kingdom. The address provided in Kan 1, inter alia, was Birmingham, United Kingdom. There is no evidence filed by the Judgment Debtor to dispute Lam 1.

17.  Consequently, any attempt by the Judgment Creditor to recover its costs of the Appeal from the Judgment Debtor in the United Kingdom would likely be difficult and would involve considerable delay and additional expenses.

Merits of the Appeal – the Hybrid Agreement

18.  The Judgment Debtor’s defence on the merits has been summarised at para 48 of the Judgment and is repeated in his skeleton submission at para 9 quoted above, ie, the nature of the agreement between the parties was the Hybrid Agreement ie partly loan and partly investment and the loan proportion was only HK$4.95 million.

19.  Suffice to say that this argument was rejected by the Master in HCA 276 (who granted the HCA Judgment in the sums of the Loans) and by the Judge (who refused to set aside the HCA Judgment). We have carefully considered the Judgment and find the Judge’s reasons for rejecting this argument convincing. At the very least, we do not see the Judgment Debtor’s appeal to be very strong so as to provide a sufficient countervailing factor to defeat the application for security for costs.

20.  The Judgment Debtor attempts to challenge the necessity of providing security for costs on the basis that the loan element of the Hybrid Agreement amounted to only HK$4.95 million, which should have been more than fully discharged by the net proceeds exceeding HK$7 million that the Judgment Creditor received from the sale of one of the Judgment Debtor’s properties. The Judgment Debtor further contends that the excess of over HK$2 million received by the Judgment Creditor should be paid into court as a stakeholder pending the results of his appeal so as to negate the necessity of providing security for costs.

21.  Given that we do not see the contention of the existence of the Hybrid Agreement to be strong, this challenge to the necessity of providing security for costs does not even get off the ground. In any event, security for costs of an appeal is to be provided by an appellant who has lost in the court below, rather than out of the funds held by a respondent who has succeeded below.

Quantum of Security

22.  The amount of security sought by the Judgment Creditor is HK$846,423. We have considered its skeleton bill of costs and consider the amount to be excessive, even after taking into account of the seniority of the handling solicitor (year of admission 1994) and the seniority of counsel (12 years of experience) it intends to retain. In particular, we consider the sums charged at section C of the bill “Communications including Conferences, Telephone Calls and Letters” ie HK$185,660 and section E3(1) Brief to Counsel in respect of the Summons ie HK$150,000 to be unjustified.

23.  In the Judgment Debtor’s Skeleton Submission, he submits that a reasonable amount of security would be HK$500,000 or below.

24.  In our view, the Summons is fairly straightforward and the Appeal should not be complicated either. Taking a broad brush approach, we accept that security to be provided should be HK$500,000.

Disposition and costs

25.  The Judgment Creditor’s Summons is allowed.

26.  We hereby order that:

(1) The Judgment Debtor do give security within 28 days from the date of this Order by paying into court a sum of HK$500,000 for the costs of and occasioned by the Appeal.

(2) Until compliance with paragraph 1 hereof, all proceedings in the Appeal be stayed.

(3) In default of compliance with paragraph 1 within the time specified, the Appeal shall stand dismissed without further order, with costs to be taxed if not agreed and paid by the Judgment Debtor to the Judgment Creditor forthwith.

(4) Costs of the Summons be to the Judgment Creditor, to be taxed if not agreed and paid by the Judgment Debtor to the Judgment Creditor forthwith.