NG HING YAU AND ANOTHER v. KONG ART LTD

CAMP 236/2022

[2023] HKCA 212

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 236 OF 2022

(ON AN INTENDED APPEAL FROM HCA 1367/2016)

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J U D G M E N T

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Hon Barma JA (giving the Judgment of the Court):

Introduction

1.  By Summons filed on 7 July 2022 (“the Summons”), the third party in these proceedings, Mr Cheung Lin Chuen (“Mr Cheung”), made a renewed application for an extension of time to appeal against the judgment given by Ng J (“the Judge”) on 16 May 2022[1] (“the Judgment”), Mr Cheung’s application to the Judge for such an extension having been dismissed by the Judge on 22 June 2022.

2.  By the Judgment, the Judge found that Mr Cheung, who was the indirect sole shareholder, sole director and controlling mind of the defendant, had funded the defendant’s defence of these proceedings for his own benefit and interest, and should therefore be ordered to pay the plaintiffs’ costs of the action, notwithstanding that he was not originally a party to the proceedings, and had been added as a third party solely for the purpose of considering whether such a costs order should be made against him.

3.  Although he professed to be dissatisfied with the Judgment, Mr Cheung did not file a Notice of Appeal within the 28 days available to him to do so (which would have expired on 13 June 2022).  Instead, on 13 June 2022, Mr Cheung filed a Summons in the court below (“the CFI Summons”), seeking leave to file and serve his Notice of Appeal against the Judgment within 14 days of the order to be made on the CFI Summons.  As the Judge was of the view that leave to appeal was not required, he regarded Mr Cheung’s application as one which sought an extension of time to appeal (given that 13 June 2022 was the last day of the period within which Mr Cheung was permitted to lodge an appeal for which leave was not required).

4.  Mr Cheung failed to lodge a draft Notice of Appeal setting out his proposed grounds of appeal with the court below, and by his decision dated 22 June 2022 (“the Extension of Time Decision”), the Judge held that Mr Cheung did not have any reasonable prospect of success on appeal, and refused to grant him an extension of time to appeal.  As mentioned in [1] above, Mr Cheung’s renewed application before this court seeking an extension of time to appeal was made by the Summons dated 7 July 2022 (which we note was one day outside the 14-day period within which it should have been issued).

5.  Ms Janine Cheung, representing Mr Cheung in this application as she had in the various applications before the Judge, lodged written submissions in support of the application on 7 September 2022 (“Mr Cheung’s submissions”).  Mr Victor Lui, who represented the plaintiffs before this court and before the Judge, lodged written submissions in opposition on 21 September 2022 (“the plaintiffs’ submissions”).  No reply submissions were lodged on behalf of Mr Cheung.

6.  Mr Cheung confirmed that he would not file further evidence for the purposes of the present application but would instead rely on his affirmation filed for the hearing below, this being the 3^rd Affirmation of Cheung Lin Chuen dated 20 June 2022 (“Cheung 3^rd”).  The plaintiffs have filed the 1^st Affirmation of Chan Keung on 4 August 2022 in opposition to the Summons, to which Mr Cheung has not filed any evidence in reply.

7.  The provisional liquidator of the defendant (acting in person) has indicated that he takes a neutral stance in relation to the Summons. 

8.  Having considered the papers and the submissions before us, we are satisfied that it is not necessary to hold an oral hearing and that it would be appropriate for us to exercise our discretion to deal with this application on paper, pursuant to RHC Order 59 rule 2A(5).

Nature and subject of the present application

9.  Before proceedings to determine Mr Cheung’s renewed application by the Summons, we think it worthwhile to clarify certain issues as to the nature and subject of the application before us.

10.  The Summons sought “leave to appeal against [the Extension of Time Decision] refusing leave to extend time to file a Notice of Appeal against [the Judgment] of the Judge”. 

11.  Although section 14(3)(e) of the High Court Ordinance (Cap 4), provides that no appeal shall lie without the leave of the Court of First Instance or the Court of Appeal from an order of the Court of First Instance relating only to costs, this does, not in our view, apply to a costs order made against a non-party – i.e. a person who is not a party to the action or other proceedings and who has not made any application to the court in the proceedings or any relevant part of those proceedings (see [59/0/41], Hong Kong Civil Procedure 2023; In re Land and Property Trust Co. Plc. [1991] 1 WLR 601 (CA)).

12.  Although this court has stated in Excellent Investment (Group) Limited (in liquidation) v Sin Yuk Ling (unrep., HCMP 292/2017, 28 March 2017) that leave was required under section 14(3)(e) in appeals against a non-party costs order (see [3] and [7]), we note that that case concerned the making of a costs order against liquidators of an insolvent company, whom we think stand in a different position from directors of a company against whom third party costs orders may be made, by reason of (i) the element of public interest in their roles (in that they should be able to perform their duties without being exposed to personal liability for costs); and (ii) their substantive involvement in the proceedings concerning the company. 

13.  Having regard to the decision of the English Court of Appeal in In re Land and Property Trust Co. Plc., which held that directors of a company were entitled to appeal to the Court of Appeal against personal costs orders made against them as of right and without leave, we think that the Judge was right to treat the application before him as one which sought an extension of time to appeal, rather than as an application for leave to appeal.

14.  Secondly, although according to the Summons, the decision being appealed against is said to be the Extension of Time Decision rather than the Judgment, we think that this application should appropriately be treated as a renewed application by Mr Cheung for an extension of time to appeal against the Judgment. Indeed, both parties written submissions treat the present application as one seeking an extension of time to appeal against the Judgment (see e.g. [1] of Mr Cheung’s submissions).

15.  We shall therefore proceed on the basis that this is Mr Cheung’s renewed application for an extension of time to appeal against the Judgment dated 16 May 2022.

The parties’ cases and the Judge’s findings

16.  The facts and procedural background leading up to the application by the plaintiffs for third party costs against Mr Cheung have been set out at [3] to [8] of the Judgment, and can be summarized as follows.

17.  The underlying proceeding was an action by the plaintiffs against the defendant (a company) for various forms of declaratory and injunctive relief, which had been set down for trial commencing in February 2021.  The dispute between the parties concerned the defendant’s role as manager of Kar Shing Shopping Arcade (“the Arcade”).  The plaintiffs sought a declaration that the defendant had ceased to be manager of the Arcade from 30 April 2016 and an injunction against the defendant directing it to hand over management of the Arcade to a new manager.

18.  One day before the pre-trial review that was to take place on 18 November 2020, counsel for the defendant indicated that the defendant would not contest the plaintiffs’ claims save for the issue of costs.  Thus, at the pre-trial review on 18 November 2020, the Judge entered judgment by consent in favour of the plaintiffs and vacated the trial dates. 

19.  Some three months later, a winding up order was made against the defendant on 17 February 2021 in HCCW 375 of 2019.

20.  On 16 June 2021, the Judge ordered that Mr Cheung be joined as a party to the action for the purpose of determining whether a costs order should be made against him.  Leave was granted to Mr Cheung to file evidence in opposition to the plaintiffs’ application for costs against him, but he failed to do so. 

21.  Before the Judge, the plaintiffs relied on the following facts, which were not disputed by Mr Cheung, in support of their application for a third party costs order (see [18] to [25] of the Judgment):

(1)  since the commencement of the main action in May 2016, Mr Cheung had owned and controlled the defendant;

(2)  since March 2014, Mr Cheung had been the sole shareholder and director of a company known as Mega Well Construction Engineering Limited (“Mega Well”), which was the sole shareholder of the defendant;

(3)  Mr Cheung had been the sole director of the defendant since August 2016 until provisional liquidators were appointed in February 2021;

(4)  Mr Cheung was the controlling mind and decision-maker of the defendant;

(5)  Mr Cheung actively participated in and had control and management of this action – for instance, he had made an affirmation in opposition to the plaintiffs’ application for interlocutory injunctive relief and made a witness statement for the defendant; 

(6)  Mr Cheung had arranged for funds from Mega Well to be used to fund the defendant’s defence in these proceedings. 

22.  The plaintiffs contended that Mr Cheung should be regarded as the real party to the action as he (as sole ultimate shareholder) was the person who stood to benefit should the defendant successfully defend the action.  Ms Cheung (acting for Mr Cheung) argued that the interests being defended were those of the defendant, and that there had been no bad faith or impropriety on the part of Mr Cheung (see [27] of the Judgment).

23.  After reminding himself (at [9] to [17] of the Judgement) of the principles and authorities governing the court’s exercise of discretion in ordering costs against a non-party, the Judge found that although on the face of it Mr Cheung was conducting and funding the litigation to defend the defendant, it could not be denied that he stood to gain personally if the defendant succeeded in defending the action, as he would be the ultimate beneficiary of management fees earned from the operation of the Arcade, qua ultimate owner of the defendant as manager (see [29] of the Judgment).  Having regard to this, bad faith or improper conduct on the part of Mr Cheung was not required in order for costs to be ordered against him (see the Judgment at [30]).  Lastly, the Judge held that as the defendant was wound up only a few months after the pre-trial review (being the date on which it consented to judgment being entered against it), it was in the interests of justice to allow the plaintiffs to recover their costs from Mr Cheung personally (see the Judgment at [31]). 

24.  The hearing of Mr Cheung’s application by the CFI Summons for extension of time to appeal took place on 22 June 2022.  A copy of the transcript of that hearing has been helpfully appended in full to the plaintiffs’ written submissions (a copy provided by Mr Cheung in the hearing bundle having had a missing page). 

25.  Given that the length of delay in this case was (or would be) short (as the application for an extension was made on the last day of the period for appealing), the Judge rightly focused on the merits of the appeal. As to this, Ms Cheung essentially submitted that the focus of the appeal would be against the finding at [29] of the Judgment, where the Judge found that Mr Cheung had a personal interest in the outcome of the action and stood to benefit from it if the defendant was successful in its defence.

26.  As there was no draft Notice of Appeal before the court, and the Judge did not consider that Ms Cheung had demonstrated any basis on which an appellate court might interfere with his exercise of discretion in awarding third party costs to the plaintiffs against Mr Cheung, the Judge concluded that Mr Cheung had no reasonable prospect of success on appeal, and accordingly dismissed the CFI Summons.

Legal principles

27.  The principles applicable to an application to extend time for an appeal are well-established.  In the exercise of its discretion, the court will take into account the length of the delay, the reasons for the delay, the chances of success of the appeal if an extension of time is granted, and the prejudice caused to the other party.  Where the delay is substantial and not wholly excusable, the applicant must show a real prospect of success on the merits, and not merely a reasonable prospect of success.  In other words, he would need to demonstrate a strongly arguable case.  See Lee Chick Choi v Best Spirits Company Limited (unrep., HCMP 371/2015, 21 May 2015) at [19], per Kwan JA (as Kwan VP then was).

28.  The making of a costs order being a matter of discretion, in order to successfully appeal it is necessary to show that the Judge making the order had erred in law, taken irrelevant factors into account (or omitted to have regard to relevant factors) or had made a costs order that went beyond the ambit of reasonable costs orders.  In Waddington Limited v Chan Chun Hoo Thomas & ors (unrep., HCMP 1326/2017, 18 October 2017), Kwan JA (as Kwan VP then was) stated:

“4. The Court of Appeal will not interfere with the exercise of a judge’s discretion in the award of costs unless it was shown that he failed to exercise the discretion, or exercised it upon a false principle, or did not exercise it judicially (Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at 1337A). Further, it is trite that an appeal against the exercise of discretion will not be entertained unless it is shown that the discretion was not exercised at all, or that the judge made some error of law or facts or was in disregard of principle, or that he took into account irrelevant matters, or that the decision was ‘plainly wrong’ or was ‘outside the generous ambit within which a reasonable disagreement is possible’…”

Discussion

29.  Pursuant to RHC Order 59 rule 4(1)(c), a Notice of Appeal must be served within 28 days from the date of the judgment or order concerned.

30.  As Mr Lui submitted, Mr Cheung’s summons for extension of time in the court below was filed on 13 June 2022, the very last day of the 28-day period, without being accompanied by any supporting affidavit explaining the reasons for the failure to lodge his appeal on time, or why an extension of time should be granted.  In Cheung 3^rd, which was eventually filed on 20 June 2022 (two days before the CFI Summons was to be heard), Mr Cheung merely stated that he had a “medical history of heart disease” and that he needed some time “to arrange [his] finance” and that his counsel needed more time to prepare the Notice of Appeal.  This is also the evidence that Mr Cheung also seeks to rely upon in support of the renewed application by the Summons now before this court, no further evidence explaining the delay having been filed.  It is to be observed that Mr Cheung does not say that he was ill and thereby prevented from giving instructions to appeal (still less provide any documentary or other evidence of illness), or explain or substantiate the reasons why time was needed for him to arrange his finances.

31.  Following the Extension of Time Decision on 22 June 2022, Mr Cheung filed his renewed application before this court late (albeit by only one day), on 7 July 2022.

32.  As pointed out by Mr Lui, Mr Cheung has all along been legally represented, yet no proper explanation has been provided for his inability to adhere to deadlines applicable to the conduct of his appeal.  Notwithstanding that the delay in this case is short, Mr Cheung has proffered no satisfactory or reasonable explanation for the delay.  Thus, his application for an extension of time to appeal is liable to be dismissed on this basis alone.

33.  However, given the short delay in this case, we shall focus on the merits of his appeal.

34.  The Summons sets out two proposed grounds of appeal.  First, it is said that the Judge erred in concluding that Mr Cheung was to be regarded as the “real party” to the litigation and that the benefits to the defendant are to be equated with the personal benefits to Mr Cheung (“Ground 1”).  Second, it is said that the Judge failed to take into account that there was no finding of impropriety or bad faith on the part of Mr Cheung (“Ground 2”).

35.  In respect of Ground 1, no challenge was mounted as to the legal tests and principles applied by the Judge set out at [14] to [17] of the Judgment.  The complaint is essentially against the Judge’s factual finding (on the undisputed evidence before him) that, essentially, Mr Cheung is to be regarded as the alter ego of the defendant.  In this regard, we think it is significant that Ms Cheung at [7] of Mr Cheung’s submissions accepted that Mr Cheung was the controlling mind and decision-maker of the defendant, in terms of its management, operation and the conduct of these proceedings.

36.  Ms Cheung submitted at [12] of Mr Cheung’s submissions that the main factor to be considered by the court should be whether the director or shareholder (such as Mr Cheung) can fairly be described as a “real party to the litigation”, whether he can be said to benefit personally from the litigation and whether the company’s stance was dictated by the real or perceived benefit to the individual director.

37.  We are of the view that the Judge had clearly considered these factors and come to the conclusions which he did against Mr Cheung for the reasons explained in the Judgment.  While a sole shareholder and director will not necessarily be liable for costs incurred by an opposing party in litigation in every case, in our view, the Judge was entitled to come to the conclusions that he reached in this case, particularly having regard to the failure of Mr Cheung to put forward any explanation, supported by evidence, as to how it might be said that he would not be the only beneficiary of the company’s defence of the proceedings.  We also agree with Mr Lui’s contention (at [11(2)] of the plaintiffs’ submissions) that the Judge had carefully considered a range of relevant facts in the Judgment and properly made an assessment of whether it would be in the interests of justice to make the costs order against Mr Cheung.

38.  It is clear to us that the Judge came to his decision in the Judgment on the basis of two main factors.  First, the undisputed fact that Mr Cheung owned the defendant and controlled everything the defendant did.  Second, the defendant, and hence Mr Cheung as its sole ultimate owner, stood to benefit from management fees as manager of the Arcade should its defence have succeeded.  As such, we consider that the Judge was justified in reaching the conclusion that Mr Cheung was pursuing his own financial interests in causing the defendant to defend the action. 

39.  Moreover, Mr Cheung did not put forward any evidence before the Judge (or before this court) to dispute the plaintiffs’ contention that he stood to benefit from a successful defence of the action by the defendant.  It seems to us that if Mr Cheung were seriously to suggest that, notwithstanding that he was the sole owner of the defendant, he was not pursuing his own financial interest, it was incumbent on him to provide evidence as to who it was, other than himself, whom he sought to benefit.  This he has simply failed to do.

40.  In the circumstances, we consider Ground 1 to be wholly unmeritorious and not reasonably arguable.

41.  As regards Ground 2, the Judge had explained at [30] of the Judgment, with reference to the established authorities, that bad faith or impropriety is not required to support a non-party costs order if it can be shown that the third party would stand to personally benefit from the litigation (as the Judge had found in relation to Mr Cheung).  We therefore do not consider Ground 2 to be reasonably arguable.

42.  For the above reasons, we are of the view that Mr Cheung has wholly failed to demonstrate that the Judge, in his exercise of discretion in awarding non-party costs to the plaintiffs, erred in principle or took into account irrelevant considerations, or otherwise reached a decision which was outside the range of reasonable decisions, so as to render his decision plainly wrong.

Disposition and costs

43.  For the above reasons, we are firmly of the view that Mr Cheung does not enjoy reasonable prospects of success on appeal, let alone real prospects of success.  We therefore decline to exercise our discretion to extend time to appeal against the Judgment of 16 May 2022, and dismiss the Summons.

44.  Costs should follow the event.  Having considered the statement of costs of the plaintiffs filed on 21 September 2022, we are of the view that the costs claimed are on the high side, and we note an element of duplication of work (namely the preparation of the plaintiffs’ affirmation in opposition) by the plaintiffs’ solicitor and counsel.  Having regard to this, we assess the plaintiffs’ costs of this application on a gross sum basis in the amount of HK$112,920.

45.  We therefore also make an order nisi that Mr Cheung, the third party, is to pay the plaintiffs their costs of this application, summarily assessed on a gross sum basis at HK$112,920.

46.  Any party seeking to vary the costs order nisi shall lodge written submissions within 7 days of the handing down of this judgment, failing which the order shall become absolute.