UNIQUE REALTY LTD AND ANOTHER v. HONG KONG REAL ESTATE AGENCIES GENERAL ASSOCIATION LTD AND OTHERS

CACV 74/2024, [2025] HKCA 473

On appeal from [2024] HKCFI 418

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 74 OF 2024

(ON APPEAL FROM HCMP NO 1132/2023)

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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 an originating summons dated 19 July 2023, the plaintiffs sought a summary determination of the validity of an election of the 16^th Executive Committee (“EC”) of the 1^st defendant’s Central-Western District Branch (“CW Branch”), held on 11 April 2023, at its Extraordinary General Meeting (“EGM”). The CW Branch is one of the 12 branches of the 1^st defendant. The plaintiffs were not elected at the said EGM but claimed that they were instead validly elected as members of the EC in another apparent Annual General Meeting (“AGM”) held by the CW Branch two days later on 13 April 2023. They contended that the election of the 16^th EC at the EGM was invalid for breach of the 1^st defendant’s articles of association.

2.  By a judgment dated 1 February 2024, (the “Judgment”), Mr Justice Anthony Chan ruled against the 1^st and 2^nd plaintiffs. He held that the election held at the EGM of the CW Branch was not invalid for breach of the 1^st defendant’s articles of association. The plaintiffs were thus held not to be validly elected as members of the EC of the CW Branch at its subsequent AGM.[1]

3.  The plaintiffs then appealed.

4.  By a summons dated 26 April 2024, the 2^nd to 21^st defendants, who were the elected members of the 16^th EC pursuant to the EGM of the CW Branch held on 11 April 2023, seek security of costs in relation to the plaintiffs’ appeal in the amount of HK$198,600.[2] By a summons dated 10 May 2024, the 1^st defendant also seeks security of costs in relation to the plaintiffs’ appeal in the amount of HK$535,000. Both applications are made on the ground that the plaintiffs are impecunious.

5.  Having considered the papers, we are of the view that it is appropriate to deal with the two applications based on written submissions only, without an oral hearing, pursuant to Order 59 r14A(1) of the Rules of the High Court (RHC) (Cap 4A).

Discussion

6.  The principles giving the Court’s exercise of the discretion in ordering security for costs of appeal under Order 59 rule 10(5) of the RHC are well established:

(1)  The “special circumstances” referred to in the rule which justify the ordering of security include cases of insolvency or impecuniosity and difficulty or expense of enforcing an adverse costs order. The burden is on the defendant to demonstrate the plaintiff is impecunious.

(2)  In discharging the burden of demonstrating that the plaintiff is impecunious, the defendant is not expected to produce conclusive evidence of the plaintiff’s lack of means. It is sufficient for the defendant to point to the surrounding circumstances or adduce some credible evidence in support of his belief that the plaintiff will be unable to pay the defendant’s costs. It is then up to the plaintiff to adduce such evidence as he thinks fit to demonstrate his means or to contradict the defendant’s evidence. The court shall decide whether a reasonable person with ordinary experience of daily life would consider the plaintiff unable to pay such costs. The threshold is just one of adducing credible evidence for the belief and falls short of proof of lack of means to pay: Re Estate of Nina Kung (Security for Costs) [2023] 2 HKLRD 1221 per Cheung JA at [7].

(3)  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 are the merits of an appeal. On consideration of the merits of the appeal, while a detailed examination is not required, 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. However, if the Court takes the view that the appeal could really go either way, then generally it will look to the existence of any other factors to tilt the balance, in the absence of which security will be ordered: Chung Kau v Hong Kong Housing Authority & Ors [2004] 2 HKLRD 650 per Ma CJHC (as he then was) at [14].

7.  Here, the defendants contend that based on the evidence before the court, an inference ought to be made that the plaintiffs are impecunious and that they would likely encounter undue delay or be put to undue expense in enforcing any order for costs in relation to the plaintiffs’ appeal.

8.  The 1^st defendant points to the following in support of its case of the plaintiffs’ impecuniosity:

(1)  On the face of the evidence, it does not appear that the plaintiffs have substantial assets. The 1^st and 2^nd plaintiffs have small paid-up capitals, being HK$10,000 and HK$1000 respectively. The registered office addresses of the plaintiffs do not appear to belong to the 1^st or 2^nd plaintiff on the basis of a land search conducted at the Land Registry. There are no known assets of the plaintiffs.

(2)  There was no information whatsoever of any matters or information relating to the plaintiffs’ current financial position. There is no evidence of any business dealings, bank statements or even unaudited management accounts. No audited accounts of either the 1^st or 2^nd plaintiff were disclosed. The only evidence produced by the plaintiffs were of various business licences and certificates, which are insufficient evidence of the plaintiffs’ financial condition.

9.  The 2^nd to 21^st defendants similarly point to a lack of evidence showing that the plaintiffs have sufficient means to pay the costs below and of the appeal, pointing out that the operation of the plaintiffs’ business as estate agents are as service providers and do not require owning of any assets. They also refer to the expiration of the plaintiff’s status as members of the 1^st defendant on 30 November 2023 and 31 March 2024 respectively and claim that they no longer have locus standi to sue and that the matter under appeal is in any event academic.

10.  The plaintiffs, on the other hand, claim that the defendants have not been able to discharge the burden of establishing that the plaintiffs are allegedly impecunious or that this case falls under the “special circumstances” under Order 59 rule 10(5) RHC. They also claim that their intended appeal is meritorious and not academic.

11.  In our view, the fact that the plaintiffs’ small paid up capital; that the lack of apparent ownership of assets, that the fact that the plaintiffs do not require the holding of any assets for the operation of their businesses, and that the complete absence of any evidence relating to the plaintiff’s current financial information or business returns, do cast serious doubt on whether the plaintiffs have means of pay an adverse costs order.

12.  We also find it telling that when the defendants raised doubts as to the plaintiff’s ability to pay costs in correspondence, the plaintiffs have not produced any meaningful evidence to address their concerns. The plaintiffs could only assert that they were “running their business of an ongoing concern in the industry of estate agency” and that they intended to continue to do the same, without, however, producing any evidence or information of their business dealings, bank statements, or audited accounts. When the solicitors of the 1^st defendant requested for copies of the plaintiffs’ audited reports in the past two years to support the plaintiffs’ assertion of their “ongoing concern”, the plaintiffs refused to provide the same. They only produced ongoing business licences and certificates but that falls far short of showing that they have the requisite financial ability.

13.  In our view, from the available evidence, the only reasonable inference that can be drawn is that the plaintiffs are indeed impecunious.

14.  As to the merits (or lack of merits) of the appeal, we do not find them to be such as to be decisive on the issue of security for costs either way.

15.  We also do not see any other factors that will tilt the balance in favour of not ordering security against the plaintiffs.

16.  In conclusion, we find it just to exercise our discretion to order the plaintiffs to pay security for the defendants’ costs of the appeal.

17.  Turning to quantum, the principles concerning the assessment of the quantum of security for costs are summarised in Thapa Hari Bahadur v Paramount Engineering & Manpower Services Ltd [2022] HKCA 1516, per Au JA at [40]:

(1)  First, the Court normally takes a broad-brush approach and does not conduct a taxation of the respondent’s costs in fixing the quantum of security. Instead, the exercise on which it is engaged is to arrive at an appropriate estimation of the likely amount of costs which would be ordered to be paid by the appellant to the respondent on a party and party taxation.

(2)  Second, one of the factors to bear in mind when fixing the amount is the underlying objectives in Order 1A, rule 1 of the RHC, in particular rule 1(c) and (d) which highlight proportionality in conduct of proceedings and fairness between the parties.

(3)  Third, to facilitate the Court’s discretion on the appropriate amount of security, the applicant’s legal representatives must provide a realistic estimate of the time and costs likely to be incurred in each stage of the proceedings which must bear some logical correlation to the complexity of the case and the issues involved. Otherwise, the Court is deprived of the assistance it rightly expects.

18.  The 1^st defendant seeks the sum of HK$535,000. Having considered the complexity of the case and the issues involved, we consider that the estimated of the solicitors’ costs on the appeal (HK$382,800) to be on the high side and these should be substantially reduced. Taking a broad-brush approach, we consider that the appropriate amount of security should be HK$150,000.

19.  The 2^nd to 21^st defendants seek security in the sum of HK$198,600. We will also reduce this to HK150,000.

Order

20.  We therefore make the following orders:

(1)  The plaintiffs do pay into court within 28 days: (i) the sum of HK$150,000 as security for the 1^st defendant’s costs of the plaintiffs’ appeal; and (ii) the sum of HK$150,000 as security for the 2^nd to 21^st defendants’ costs of the plaintiffs’ appeal.

(2)  The appeal is stayed until the sums are paid.

(3)  In default of payment, the appeal is dismissed without further order together with costs to the 1^st defendant and the 2^nd to 21^st defendants.

(4)  The 1^st defendant and the 2^nd to 21^st defendants to have the costs of their present applications, summarily assessed, respectively at HK$80,000 and HK$80,000.