張鵬舉 v. 原翠美

CACV 257/2022, [2023] HKCA 1200

On appeal from [2022] HKCFI 1630

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 257 OF 2022

(ON APPEAL FROM HCA NO. 2005 OF 2019)

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JUDGMENT

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Hon Chu VP (giving the judgment of the Court):

Introduction

1.  This is the plaintiff’s application that the defendant provides security for his costs in this appeal. The defendant opposes the application. Both parties have lodged written submissions.

2.  Having considered the papers, we are of the view that it is appropriate to deal with the 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, Cap. 4A.

HCA 2005/2019

3.  In this appeal, the defendant seeks to appeal against the decision of Deputy High Court Judge Leung (“the Judge”) dated 31 May 2022[1] dismissing her appeal from Master Man’s order made on 4 August 2021 entering summary judgment for the plaintiff on the claim with cost.

4.  The plaintiff and the defendant are fellow traders in jewellery and gemstones. The plaintiff traded in expensive gemstones in his name or the trade name of 佰德珠寶 (Pak Tak), while the defendant traded in less expensive opals and she has a business by the name of 天原珠寶 (Tin Yuen). Both of them have shops in Shenzhen.

5.  The plaintiff’s claim in the action below is for the return of 10 items (12 pieces) of jewellery items loaned to the defendant pursuant to an arrangement agreed orally, or alternatively their value as damages in the sum of RMB4,783,000 after giving credit for RMB200,000 paid by the defendant.

6.  The background and the facts underlying the claim were set out in [2] to [13] of the Judge’s judgment. It is only necessary to highlight the following for the purpose of the present application:

(1)  There is no dispute that in mid-September 2019, the defendant had received, by way of loan, 12 items (totalling 14 pieces) of jewellery from the plaintiff. Such borrowing or loan of gemstones or jewellery items is common practice in the trade.

(2)  The items were detailed in a借貨單(note) dated 30 September 2019 signed by the plaintiff as 出借人 (lender) and the defendant as 借貨人 (borrower): see also [7] of the Judge’s decision.

(3)  At one point, the parties orally agreed to the sale to the defendant of four items (totalling five pieces) of the loaned jewellery items at the price of RMB1,995,000. A first payment of RMB200,000 was made by the defendant on 21 September 2019. It is common ground that the balance was not paid. It is the plaintiff’s case that he terminated the sale and purchase and requested the return of all the loaned jewellery items.

(4)  On 10 October 2019, the plaintiff made out a保証書(guarantee) setting out a timetable for the return of the items. The defendant signed on the document as 保証書保証人 (guarantor). Subsequently, two of the items (i.e., items 8 and 10 of the note) were returned by the defendant. The remaining 10 items (totalling 12 pieces) have not been returned.

7.  Through her pleading, affirmation and counsel’s submissions, the defendant has raised the following defences:

(1)  The defendant acted on behalf of her company and is not personally liable.

(2)  Three of the items (i.e., items 2, 9 and 11) had been loaned to a third party, 深圳壹石供應鏈管理有限公司.

(3)  The defendant or her company had sold item 6 to another third party and the other items have been wrongfully detained in the Mainland.

(4)  The note and the guarantee were signed under duress or undue influence.

(5)  The note and the guarantee are unenforceable as they are unclear, ambiguous and lack the essential elements.

(6)  The plaintiff’s pleading is defective in failing to plead bailment or conversion as the basis of the claim.

The Judge’s decision

8.  The Judge noted at the outset that the defendant had adopted a completely different numbering for the jewellery items in question and had also referred to items extraneous to the subject matter of the claim. The Judge also pointed out that the defendant has failed to answer the plaintiff’s case on the items that form the subject matter of the claim and further failed to plead to what has happened to each and every of these items.

9.  The Judge rejected the defence that the defendant was not personally liable, holding (at [30] to [37] of the decision) that: (1) there was nothing in the documentary evidence or the WeChat messages adduced in evidence to support the defence or to contradict the plaintiff’s case; (2) the note and the guarantee were signed by the plaintiff and the defendant personally as lender and borrower respectively without any reference to the defendant’s company or any qualification to the defendant’s capacity; and (3) despite contending that the transaction is between the parties’ respective companies, the defendant never concedes that her company is accordingly the party liable or that her company has returned or will return to the plaintiff the items claimed.

10.  The Judge also rejected the defence that three items were loaned to a third party as being irrelevant, holding (at [38] and [39] of the decision) that: (1) this is a matter entirely between the defendant and the third party; and (2) there was in any event no cogent evidence to support the defendant’s assertion.

11.  The Judge found (at [39] to [41] of the decision) that the defendant’s assertion that the payment of RMB200,000 was for the purchase of item 6 to be incredible, and the claim that the other items had been wrongfully detained to be no more than bare assertion.

12.  On the contention that the note and the guarantee were signed by the defendant under duress or undue influence, the Judge held (at [44] to [48] and [61] to [63] of the decision) that it was misplaced for the reasons that: (1) the note served merely as a record of the items of jewellery received by the defendant from the plaintiff by way of loan, and is not a contractual document setting out the defendant’s obligations; (2) the guarantee sets out the timetable for the return of the items by the defendant, something that she has always been liable to do; (3) it is not in dispute that the 12 items claimed by the plaintiff have not been returned by the defendant; and (4) the plaintiff’s cause of action is not founded on the note or the guarantee. The Judge additionally held, for the reasons he gave at [49] to [59] of the decision that the defendant failed to establish a case of duress or undue influence on the law and on the evidence.

13.  For the reasons that he gave for finding the duress or undue influence defence to be misplaced, the Judge rejected the argument that the note and the guarantee were unenforceable (see [65] of the decision).

14.  Finally, the Judge also rejected the submission that the plaintiff’s pleaded claim was defective, holding (at [66] and [68] of the decision) that the claim is based on the loan arrangement orally agreed between the parties and the defendant’s failure to return the items claimed upon demand; (2) the factual contentions for the loan and receipt of the jewellery items, the signing of the note and the guarantee, the payment of RMB200,000 and the failure to return the items claimed had been properly pleaded; (3) the defendant did not dispute the above factual contentions; and (4) the basis of the plaintiff’s claim is clear to the defendant.

The application for security for costs

15.  On 28 June 2022, the defendant filed the notice of appeal to appeal the Judge’s decision. The appeal has yet to be listed for hearing.

16.  By letter dated 23 February 2023, the plaintiff through his solicitors requested the defendant to provide security for his costs of the appeal, enclosing an estimate of costs. Other than a holding reply from her solicitors, the defendant did not respond to the request. On 14 March 2023, the plaintiff issued the present summons. The estimated amount of costs was subsequently revised to HK$249,600.

17.  The ground on which the present application is made is that the defendant is impecunious and the plaintiff will encounter undue delay and put to undue expense to enforce a costs order against her if her appeal was unsuccessful. The plaintiff relies on the following matters to support his application:

(1)  Despite service of two statutory demands, the defendant has failed to settle various costs orders in the total sum of HK$246,840, and the judgment sum ordered against her.

(2)  On the defendant ’s evidence, she has no income since early 2020 and her company has suffered huge loss. She has to borrow money to pay her legal fees.

(3)  The defendant does not hold any landed property in Hong Kong. She has also not responded to the plaintiff’s request for disclosure of property ownership.

(4)  There is no evidence of the value of the shares held by the defendant in a Hong Kong private company, Origin Enterprise (H.K.) Limited. Even if these shares were valuable, they are not readily realisable to meet the costs liability.

(5)  The defendant has a history of defaulting on payment, including the balance of the price for the four jewellery items that she initially requested to be sold to her (see [6(3)] above), and she had wrongfully retained the plaintiff’s jewellery without payment.

18.  The defendant’s affirmation has not raised anything to dispute the above. Counsel for the defendant, however, argues that the plaintiff fails to show by specific evidence or facts that the defendant is impecunious.

19.  Counsel also argues that the order for security for costs will amount to a denial of justice to the defendant in that she has no income since early 2020, her company has incurred a great loss and she has to borrow money to defend the action below and this appeal. It is said that as the business of her company has revived, the defendant believes she will be able to meet any order for costs.

20.  It is further submitted that the grounds of appeal “are real and substantial” and enjoy “a sufficiently good chance of success”.

The applicable legal principles

21.  Under Order 59 rule 10(5) of the Rules of the High Court, 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.

22.  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. Security for costs may also be ordered upon proof that the respondent will be likely to encounter undue delay or put to undue expense in enforcing any order for costs in the appeal. 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: See Chung Kau v. Hong Kong Housing Authority & Others [2004] 2 HKLRD 650 and Hong Kong Civil Procedure 2023 Vol.1 paras. 59/10/26 & 59/10/27.

Our reasons for decision

(1)  Impecuniosity of the defendant

23.  On the materials before us, we are satisfied that the plaintiff has made out a case for seeking security for costs from the defendant. Among others, the defendant admittedly has no income since 2020, cannot pay her legal fees and has to resort to loan(s). Her failure to satisfy the costs orders against her and the related statutory demand is also indicative of her unsatisfactory financial position. The defendant is clearly impecunious and the plaintiff may encounter undue delay and have to incur expenses to enforce any costs order made against her.

(2)  Merits of the appeal

24.  What we have to consider next is whether we should exercise our discretion against making an order for security, having regard to the merits of the plaintiff’s appeal. In this regard, a detailed examination of the case and arguments on appeal is neither necessary nor desirable. All that the court needs to do is to form a preliminary view: Chung Kau v. Hong Kong Housing Authority & Others, supra.

25.  The Defendant puts forward five grounds of appeal in the notice of appeal. As elaborated by her counsel in the written submission, they are that:

(1)  The Judge failed to consider there is a serious factual dispute in respect of (a) the unreturned items of jewellery and consequently the value or amount that the plaintiff is entitled to; and (b) the circumstances in which the note and the guarantee were signed by the defendant.

(2)  The capacity in which the defendant transacted with the plaintiff is a substantial triable issue. The Judge failed to have any or sufficient regard to the reference to the defendant’s company or business in the WeChat messages and in the note.

(3)  The Judge erred in ruling that (a) whether or not the parties’ respective companies are involved, the parties could be personally interested and liable in the deal in question; and (b) the defendant’s defence is not bona fide in that she never concedes that her company is liable or that it has returned or will return to the plaintiff or his company the items of jewellery claimed.

(4)  A comparison of the list of the items of jewellery stated by the plaintiff and that summarized in the defendant’s affirmation will show there are serious material factual disputes on the particulars of the items, the date of consignment and their return. The note is vague, unclear and lacks the essential elements to constitute a valid contract. Likewise, the guarantee fails in form; it is unclear in terms and lacks the essential elements to be a valid guarantee. Both documents were signed by the defendant involuntarily and under duress with no intention to create a legal relationship.

(5)  The defects in the plaintiff’s pleading are not a technical issue but a substantial triable issue.

26.  It would seem that the defendant is essentially seeking to re-run the bulk of the arguments that had been argued below but refused by the Judge. Having considered the papers and the Judge’s decision and the detailed reasons he gave for rejecting the various grounds of defence and the defendant’s arguments, we are not persuaded that the defendant has demonstrated that her appeal has strong merits that justify exercising our discretion against ordering security for costs to be provided.

(3)  Denial of justice

27.  The defendant argues that it will be a denial of justice to order her to provide security for costs in that her company suffers great loss since the lockdown in the Mainland due to Covid-19 and she has not received any income since 2020. We note however that there is no evidence to show that the defendant will not be able to raise funds from other sources to meet the security for costs if ordered. It is in fact the defendant’s own evidence that she has able to borrow from friends to meet her legal fees.

28.  It is also of relevance to consider that the defendant has already had the issues in the case determined against her in the court below, and it is prima facie an injustice to the plaintiff to allow an appeal to the Court of Appeal to proceed without security for costs being furnished in circumstances where he would encounter difficulty in enforcing costs order against the defendant: Laerdal Medical Limited v Hong Kong Haocheng International Trading Limited [2017] HKCA 605 at [25].

29.  For the above reasons, we conclude that the defendant should be ordered to provide security for the costs of the appeal.

(4)  Quantum of the security

30.  On the quantum of the security to be ordered, it does not appear to us, from reading the Judge’s decision and the notice of appeal that the appeal is complex or involves difficult questions of law. We believe the papers involved in the appeal would have all been considered in the hearing below and most, if not all, the arguments in the appeal would also have been canvassed. We are of the view that, on party-and-party basis, the time incurred or to be incurred by the solicitor and also the counsel fee is excessive. Adopting a broad-brush approach, we consider HK$160,000 is an appropriate estimate of the costs of the appeal.

(5)  Costs of the application for security for costs

31.  As the defendant did not respond to the plaintiff’s request for security for costs, which necessitates the application to court, and applying the usual rule of costs follow the event, the defendant should pay the plaintiff the costs of the present application.

32.  Having considered the plaintiff’s statement of costs, we are of the view that, on a party-and-party basis, the time for attending and communication with the plaintiff and counsel (items B(i), C(i) and C(iii)), and for considering documents drafted by counsel and written submissions (items D(i) and D(iv)) should be reduced. We assess the plaintiff’s costs at $80,000. It will be included in the amount of the security to be provided by the plaintiff.

Disposition

34.  The orders we make are as follows:

(1)  The defendant shall within 30 days from the date of handing down of this judgment give security for the plaintiff’s costs of this appeal (inclusive of the costs of the application for security for costs) in the sum of HK$240,000, by making payment into court of the said sum;

(2)  Until the defendant has given the security ordered in (1) above and notice thereof is given to the solicitors for the plaintiff (such notice to be given on the same day as the lodgement is made), all proceedings in this appeal are to be stayed;

(3)  In default of the defendant giving security as ordered in (1) above, this appeal do (upon the solicitors for the plaintiff certifying such default to the Registrar of High Court) stand dismissed out of this court without further order;

(4)  In the event that the appeal is dismissed in the circumstances provided for in (3) above, the defendant shall pay the plaintiff the costs of this appeal, such costs to be summarily assessed or taxed if not agreed; and

(5)  The plaintiff’s costs of the application for security for costs summarily assessed at HK$80,000 be paid by the defendant in any event.