MART TREASURE INVESTMENT LTD v. DAI SHU SING AND OTHERS

CACV 212/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 212 OF 2003

(ON APPEAL FROM HCA NO. 905 OF 2001)

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J U D G M E N T

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Hon Woo JA:

Introduction

1. This is an application by summons dated 1 August 2003 made by Mr Chiu Kwok Wing Benedict ("Mr Chiu"), a former partner of the 3rd defendant, a firm of solicitors, for security for costs of the appeal brought by the plaintiff from the judgment of Deputy High Court Judge Muttrie dated 30 June 2003.

2. The plaintiff brought this action against the three defendants, claiming sums of money from them, namely, sums totalling $890,000 that the 1st defendant had obtained from it by misrepresentation, and sums totalling $4,100,000 that the 2nd and 3rd defendants had paid out from monies belonging to it on the instructions of the 1st defendant but without its knowledge, approval or authority. At all material times, the 1st defendant was a de facto director and shareholder of the plaintiff while the 2nd defendant was a beneficial shareholder of the plaintiff. These money transactions all arose out of a project to develop "Ting" houses on plots of land in Tsam Chuk Wan, Sai Kung ("the project") in which the plaintiff was engaged.

3. On 12 December 2002 the plaintiff obtained judgment against the 2nd and 3rd defendants for $4,100,000 with interests and costs on the indemnity basis. Prior to that, the plaintiff had obtained judgment in default against the 1st defendant for $890,000. Mr Chiu was at the time when the cause of action arose against the 3rd defendant, a partner of the 3rd defendant firm, but he retired from the 3rd defendant on 31 October 2000.

4. The writ in this action was issued on 26 February 2001. It was served on all the three defendants but was not served on Mr Chiu as a partner of the 3rd defendant. Mr Chiu had taken no part in the trial, although he has admitted that when he learned of the issue of the writ in March 2001 from a newspaper report, he notified his professional indemnity insurers accordingly.

5. The plaintiff sought leave, pursuant to Order 81, rule 4 of the RHC, to enforce the judgment (ie, the $4,100,000 judgment against the 3rd defendant) against Mr Chiu, as a partner of the 3rd defendant at the relevant time. That application was dismissed by Master Cheung, and on appeal, also dismissed by Deputy Judge Muttrie on 30 June 2003. By a notice of appeal dated 25 July 2003, the plaintiff now appeals from the order of the judge.

6. The application before me is made by Mr Chiu for security for costs of the appeal.

Impecuniosity

7. Under Order 59, rule 10(5) of the RHC, 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.

8. It is settled practice to require security 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. See the notes in the Hong Kong Civil Procedure 2002, under the heading of "Security for Costs", para 59/10/28 et seq.

9. In the two affidavits sworn by Mr Chiu, he states his belief why the plaintiff is impecunious. The paid up capital of the plaintiff in 2002 amounted to $347,003. The plaintiff was acquired by its shareholders for the sole purpose of carrying out the project. The plaintiff has never been in any other business and the project has been suspended since September 1997. The plaintiff has apparently remained dormant since 1999 or 2000, save for taking part in litigations. Other than the present action, the plaintiff has been involved in two High Court actions, but in both of which it is a co-defendant. The following statement is contained in a letter dated 4 October 2000 from the plaintiff to the 3rd defendant:

"We have already utilised the minimal liquid assets in hiring a lawyer, so we anticipate that to raise capital from the shareholders within a short time will be difficult."

10. The plaintiff has so far not attempted to execute the judgment that it had obtained in this action against the 1st and the 2nd defendants. Further, the costs ordered by Master Cheung and the judge to be paid by the plaintiff to Mr Chiu are said to amount to $637,995. Such costs have not yet been taxed. The costs of the pending appeal are estimated to be $522,094.

11. In the affirmation of Ho Pui Sing, a director of the plaintiff, filed on behalf of the plaintiff, it is pointed out that the plaintiff's paid up capital is $347,003. Mr Ho also explains that the two actions against the plaintiff as a co-defendant arose out of the project, but that either the plaintiff has a good defence to the claims in the two actions or those claims are unmeritorious. Mr Ho also states that the liquidity problem referred to in the letter of 4 October 2000 was expressly qualified by the phrase "within a short time".

12. It is worth noting that throughout Mr Ho's affirmation, although there is an express total denial of the allegation of impecuniosity, there is no mention of any asset or money that belongs to the plaintiff. Mr Ho states that the project is still in the hands of the plaintiff. While there is evidence that the project was agreed to be sold as a going concern for $13,200,000 in 1997, the sale has apparently not been carried through. Mr Kwok, for the plaintiff, draws my attention to the fact that the deposit of $3,500,000 had been forfeited from that sale because of repudiation caused by the failure of the purchaser to pay the balance of the purchase money. The plaintiff must therefore at one time have that amount of money. However, it appears that the sum had been subsumed in the moneys claimed in this action against the three defendants. There is no explanation as to how the plaintiff, a limited company with only a paid-up capital of $347,003, was able to acquire some of the plots of land for the project, nor is there any indication of the present value of the project, or the liabilities incurred by the plaintiff for it. Mr Kwok has drawn my attention to a plot of land, namely, Lot No 476 in DD 256, apparently acquired for a consideration of $100,000, that is still registered in the plaintiff's name, but Mr Cheung shows me that this land is subject to dispute in one of the said two High Court actions where the plaintiffs therein claim that the land belonged to them and the plaintiff herein (as a co-defendant in that action) had not paid the $100,000.

13. Throughout the evidence before me, there is no reliable information, such as audited accounts, to show the plaintiff's present financial position with any clarity. The plaintiff has two judgments, for $890,000 against the 1st defendant and for $4,100,000 against the 2nd defendant. It is in evidence that the 1st defendant is no longer residing in Hong Kong. One of the two actions in which the plaintiff is a co-defendant is in effect brought by the 2nd defendant. However, the plaintiff, for reasons unexplained, has not attempted to execute either of those two judgments. Mr Kwok puts the unavailability of evidence of the plaintiff's present financial position as being caused by the haste with which the present application and its opposition were prepared, although he also submits that Mr Chiu has failed to show a prima facie case of the plaintiff being impecunious. Frankly, I find these submissions difficult to accept.

14. Having examined the material before me, on balance, I am of the view that the plaintiff is impecunious in such a way that if Mr Chiu succeeds on the appeal, he would face obstacles or difficulty in recovering the costs of the appeal.

Merit of the appeal

15. I now turn to examine the merit of the plaintiff's appeal. In order to avoid an order for security for costs of the appeal, the plaintiff has to demonstrate that its appeal has a sufficiently good chance of success to justify exposing Mr Chiu to the injustice of having to bear his own costs, win or lose. However, the security application must not become a dress rehearsal of the appeal. See para 59/10/35 of the Hong Kong Civil Procedure 2002.

16. I have examined the reasons given by the master and the judge for their refusal to grant leave to the plaintiff to execute the judgment against the 3rd defendant as against Mr Chiu as a partner of the 3rd defendant. I have also examined the grounds of appeal and the grounds in support of the judge's judgment set out in the Respondent's Notice filed on behalf of Mr Chiu. I do not propose to set out my reasons for fear of affecting the parties on appeal, but my conclusion is that the appeal does not have a sufficiently good chance of success to justify exposing Mr Chiu to the injustice of having to bear his own costs of the appeal, win or lose. I consider that to order security is a fair and just course to take.

Amount to be secured

17. As mentioned above, Mr Chiu estimates that his costs of the appeal amount to $522,094. This is subject to the challenge raised by Mr Kwok that a sum of over $150,000 is to be incurred for Mr Chiu's own fees for handling the appeal. This arises because Mr Chiu is now a partner of the firm of solicitors acting for him in the appeal. Mr Kwok's argument applies equally to the costs awarded to Mr Chiu in the action because his present firm also acted for him below. Moreover, Mr Kwok asks me to consider the fact that senior counsel for Mr Chiu only charged $ and $ for his respective attendances before the master and the judge but his brief fee for the appeal is estimated at $ . Throughout his affidavits, Mr Chiu has also not mentioned whether the estimated costs are on a party and party or common fund basis. I consider that in all the circumstances a sum of $280,000 should be the proper sum to be secured for Mr Chiu's costs of the appeal.

Conclusion

18. I therefore make the following orders:

(1)	The plaintiff do within 28 days from the date of this Order give security in the sum of $280,000 for the costs of the appeal herein by paying the sum into court;
(2)	Until the security is given, the appeal be stayed;
(3)	In default of the security being given within the time aforesaid, the appeal do stand dismissed without any application and without any further order, with costs of the appeal to be taxed and paid by the plaintiff to Mr Chiu.

19. I also make an order that the costs of this application be costs in the cause of the appeal. Counsel for both parties have conceded this to be the appropriate order.