QUEST INVESTMENTS LTD v. LEE WAI TUNG

CACV 303/2020

[2021] HKCA 926

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 303 OF 2020

(ON APPEAL FROM HCMP 538/2019)

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DECISION

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Hon Chow JA (giving the decision of the Court):

1.  This is the Defendant’s application for security of costs in respect of the Plaintiff’s appeal against the judgment of Deputy High Court Judge Maurellet SC dated 23 June 2020 (“the Judgment”) dismissing the Plaintiff’s application for an injunction (“the Injunction”) to restrain the Defendant from presenting a winding up petition against it based on a statutory demand dated 18 March 2019 (“the Statutory Demand”).

2.  Having read the evidence and submissions filed by the parties, we consider that it is appropriate to determine the Defendant’s application on paper without an oral hearing pursuant to Order 59 rule 14A(1) of the Rules of the High Court, Cap 4A.

THE PLAINTIFF’S APPEAL

3.  The Plaintiff is a company registered in Australia, and its shares are listed on the Australian Securities Exchange.

4.  The Defendant, a Hong Kong resident, claims to be the creditor of the Plaintiff under a loan agreement dated 15 January 2016 (as subsequently supplemented) (“the Loan Agreement”) entered into between a company called CLC Finance Limited (“CLC”) as the lender and the Plaintiff as borrower.  The benefit of the loan was, apparently, assigned by CLC to the Defendant on 28 June 2018.

5.  On 18 March 2019, the Defendant through her solicitors served on the Plaintiff the Statutory Demand for the repayment of the principal amount of HK$8.4 million plus interest thereon, totalling some HK$14 million, under the Loan Agreement.

6.  On 12 April 2019, the Plaintiff commenced the proceedings below by way of originating summons seeking the Injunction.  The application came before the Judge on 23 June 2020.  The Plaintiff advanced two grounds in support of the application.  First, it was said that there was a bona fide dispute debt of the debt on substantial grounds, the contention being that although the Plaintiff appeared to be the borrower under the Loan Agreement, the real borrowers were some other persons (namely, Lok Wai-ming and/or Raymond Chiu) who were responsible for the repayment of the loan, and it was never agreed or intended that the Plaintiff would have to repay the loan (“the Disputed Debt Ground”).  Second, the Plaintiff argued that the court should not exercise its jurisdiction to wind up the Plaintiff, a foreign company, given the lack of sufficient connection between the Plaintiff and Hong Kong (“the Jurisdictional Ground”).  The Judge dismissed the application.  In respect of the Disputed Debt Ground, the Judge concluded, after analyzing the evidence before him, that he was not satisfied that the Plaintiff had demonstrated a bona fide dispute of the debt on substantial grounds.  In respect of the Jurisdictional Ground, the Judge considered that the evidence filed by the parties failed to substantively or fully deal with matters relevant to the court’s exercise of its jurisdiction to wind up the Plaintiff, and the issue should be dealt with in the petition should the Defendant decide to proceed to present a winding up petition against the Plaintiff.  The Judge also ordered the Plaintiff to pay the Defendant’s costs of the proceedings, which were summarily assessed at HK$300,000.

7.  By a notice of appeal dated 21 July 2020 (“the Notice of Appeal”), the Plaintiff appeal the Judgment to the Court of Appeal.  The notice of appeal contained two principal grounds of appeal in respect of the Judge’s ruling on the Disputed Debt Ground, and an additional ground in relation to the matter of costs.

THE DEFENDANT’S APPLICATION FOR SECURITY FOR COSTS

8.  On 11 September 2020, the Defendant took out the present application for security for costs.  Two principal grounds are relied upon in support of the application:

(1)  the Plaintiff’s failure to pay the costs of HK$300,000 as ordered by the Judge despite repeated demands; and

(2)  the Plaintiff’s status as a foreign company.

9.  The Plaintiff opposes the Defendant’s application for security for costs on the following grounds:

(1)  The Defendant’s reliance on “residence out of jurisdiction” and “difficulty or expense in enforcing costs order” is contradictory to the case run by her before the Judge to resist the Jurisdiction Ground, namely, that the 3 core requirements set out in Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501 for the court’s exercise of its jurisdiction to wind up a foreign company were satisfied in the present case (“the Inconsistency Ground”).

(2)  Even if the Defendant has made out a case of “special circumstances” to justify an application for security for costs, the court should exercise its residual discretion to refuse to make an order because the grounds of appeal in the Notice of Appeal are “real and substantial”, and the Plaintiff has a real chance of success (“the Residual Discretion Ground”).

(3)  The court should be reluctant to make an order for security here because the Defendant’s costs of making the security application are likely to be much the same as the costs of defending the appeal itself (“the Proportionate Ground”).

DISCUSSION

10.  Under Order 59, r 10(5) of the Rules of the High Court, Cap 4A, the Court of Appeal may, in special circumstances, order that such security shall be given of the costs of an appeal as may be just. The principles for the exercise of this jurisdiction are well settled.  For this purpose, “special circumstances” include cases where a respondent to an appeal will likely encounter undue delay or be put to undue expense in enforcing any order for costs in respect of the appeal.  The fact that the appellant is resident abroad is prima facie proof that there will be difficulty or expense in enforcing a costs order.  However, in all cases, the court retains a residual discretion not to order security if the appellant can demonstrate sufficient countervailing factors which would militate against such order being made (see Hong Kong Civil Procedure 2021, at §§59/10/27 and 59/10/28).

11.  The Plaintiff does not dispute that it is not resident within the jurisdiction.  There is also no sufficient evidence before the court to show that the Plaintiff has assets, or sufficient assets, within the jurisdiction to pay the Defendant’s costs of the appeal.

12.  In the Defendant’s submissions before the Judge, there was reference to a bank account of the Plaintiff at Wing Hang Bank Limited which it was said was used to receive the bulk of the loan under the Loan Agreement (see §5 of the Affirmation of Chiang Wee Tiong filed by the Plaintiff on 2 November 2020).  Although the Defendant said that there was “NO” evidence that money had been transferred out of it, it is the Plaintiff’s case that the loan was originally taken to pay the “Transaction Costs” of an acquisition by the Plaintiff of a company (Gold Lord Investments Inc) which owned a goldmine and mining rights in Guizhou Province in the PRC (see §33 of the Judgment).  It stands to reason that, on the Plaintiff’s case, the proceeds of the loan would have been used to pay the said Transaction Costs.  The Plaintiff has not suggested that the loan proceeds are still kept in the Wing Lung Bank Account, or that the account has any substantial credit balance.  It would be an easy matter for the Plaintiff to produce the relevant bank statements of the Wing Lung Bank Account to prove the current state of the account, but the Plaintiff has not done so.

13.  The Plaintiff has produced a “Consolidated Statement of Profit or Loss and Other Comprehensive Income for Year Ended 20 June 2019”, which shows that “Quest Investments Limited and controlled entities (‘Consolidated Group’ or ‘Group’)” had assets of over HK$27 million in Hong Kong by geographical region.  There is, however, no evidence to show that such assets belonged to the Plaintiff, as opposed to other “controlled entities” of the Group.  The nature of the assets in question is also not known.

14.  On the materials before us, we are satisfied that the Defendant will likely encounter undue delay or be put to undue expense in enforcing any order for costs in respect of the appeal.

15.  We shall now consider the specific grounds relied upon by the Plaintiff to resist the application.  In respect of the Inconsistency Ground, the Plaintiff argues that the Defendant’s case before the Judge, namely, that the 3 core requirements established in Kam Leung Sui Kwan for the court’s exercise of its discretion to wind up a foreign company were satisfied in this case, is contradictory to her present application for security for costs.

16.  The 3 core requirements, it will be recalled, are:

“(1) there had to be a sufficient connection with Hong Kong, but this did not necessarily have to consist in the presence of assets within the jurisdiction;

(2) there must be a reasonable possibility that the winding-up order would benefit those applying for it; and

(3) the court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.”

See the joint judgment of Ma CJ and Lord Millet NPJ in Kam Leung Sui Kwan,at §20, quoting from the judgment of Kwan J (as she then was) in Beauty China Holdings Ltd [2009] 6 HKC 351, at 355-356.

17.  The first core requirement, being the one relevant for the purpose of the present discussion, is a “sufficient connection” with Hong Kong, which does not have to consist in the presence of assets within the jurisdiction.

18.  At §5 of the Affirmation of Chiang Wee Tiong, he sets out §§51 and 59 of the Defendant’s submissions before the Judge which it is said demonstrate that her case below is contradictory to her present application for security for costs.  It is not necessary to recite the Defendant’s submissions before the Judge here.  The matters relied upon by the Defendant are relevant to prove the Plaintiff’s connection with Hong Kong, but do not show that the Plaintiff is resident within the jurisdiction.  The two concepts are distinct.

19.  We do not accept that there is any inherent inconsistency between the Defendant’s present application for security for costs based on, inter alia, the Plaintiff’s foreign residence, and her case before the Judge that the Plaintiff has a sufficient connection with Hong Kong to justify the court’s exercise of its jurisdiction to make a winding up order against the Plaintiff.

20.  In respect of the Residual Discretion Ground,we do not propose to examine the merits of the Plaintiff’s appeal in detail, suffice it to say that, having considered the Notice of Appeal and the other materials before us, we are not satisfied that the merits of appeal are such that they should be given significant weight in the court’s exercise of its discretion whether to make an order for security, certainly not in the Plaintiff’s favour.

21.  In respect of the Proportionate Ground, we accept that the proportionality of the costs incurred in the security application relative to the estimated costs of the appeal is a factor relevant to the court’s exercise of discretion whether to make an order for security. In the present case, the costs of the security application claimed by the Defendant come to around HK$180,000, while the estimated costs of the appeal come to around HK$250,000.  The estimated costs of the appeal are not remarkable, but the costs claimed in respect of the security application appear to us to be excessive.  Part of the reason is that the costs include “Drafting various affirmations” by counsel, which should be done by solicitors, and “Brief for hearing”, which assumes that there will be a hearing of the application.  As it is, we do not consider an oral hearing to be necessary.  In our view, the costs properly to be allowed for the application for security for costs should be no more than HK$90,000.  Overall, we do not consider that the application for security should be denied on the ground that the costs incurred in the application are disproportional to the costs of the appeal.

22.  In passing, we would mention that the mere fact that the Plaintiff has failed to pay the costs of HK$300,000 ordered by the Judge is not, of itself, a sufficient ground to make an order for security for costs in the Defendant’s favour (see Hills v London Passenger Transport Board [1937] 4 All ER 230).

23.  In conclusion, we are satisfied that there are special circumstances in the present case which justify ordering the Plaintiff to give security for the Defendant’s costs of the appeal.

DISPOSITION

24.  We allow the Defendant’s application for security for costs, and fix the amount of the security for the Defendant’s costs of the appeal (including the costs of the present application) at HK$280,000.

25.  The following orders are made:

(1)  The Plaintiff do within 28 days from the date of the order herein pay into court the sum of HK$280,000 as security for the Defendant’s costs of the appeal.

(2)  Until such payment into court be made and notice thereof given by the Plaintiff to the Registrar of Civil Appeal and to the solicitors for the Defendant, all proceedings in the appeal herein be stayed.

(3)  In default of making such payment into court within the time aforesaid, the said appeal, upon the solicitors for the Defendant certifying such default to the Registrar of Civil Appeal, do stand dismissed without further order of the court with costs to be paid by the Plaintiff to the Defendant, such costs to be taxed if not agreed.

26.  We further order the Plaintiff to pay the Defendant’s costs of the application for security for costs, which are summarily assessed at HK$90,000, and give liberty to the Defendant to apply for payment out of the amount of HK$90,000 upon payment into court of the security ordered to be given by the Plaintiff.