WONG CHUNG CHI v. YUILLEY BUILDING MATERIALS CO LTD AND OTHERS

CACV 139/2019

[2019] HKCA 949

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 139 OF 2019

(ON APPEAL FROM HCCW 367/2016)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

Introduction

1.  By a summons filed on 8 May 2019, the respondents applied for security for costs in this appeal against the judgment of Anthony Chan J given on 21 February 2019.  The judge dismissed the petitioner’s application to wind up the 1^st respondent (“the Company”) on just and equitable ground as well as the claim for reliefs on the ground of unfair prejudice.  The petitioner lodged his notice of appeal on 21 March 2019.

2.  The respondents filed an affirmation of Wong Tak Sing, the 2^nd respondent, (“the Affirmation”) on the same day in support of the application.

3.  The petitioner did not file any evidence nor lodge any submission to oppose this application.

4.  Having perused the materials placed before us, we are of the view that the application can be processed on the papers without an oral hearing.

5.  This is our decision on the application.

Background

6.  The background and the parties’ respective cases were set out at [3] – [44] of the judgment ([2019] HKCFI 324).  Briefly stated, the petition was based on three allegations: (a) the assets of the Company were misapplied in paying the down payment for the purchase of the 2^nd respondent’s residence; (b) the 2^nd and 3^rd respondents allotted to themselves additional shares of the Company and the petitioner’s shareholding was diluted; and (c) there were misconducts on the parts of the 2^nd and 3^rd respondents in misapplying or misappropriation of the assets of the Company.

7.  In dismissing the petition, the judge found that the down payment for the 2^nd respondent’s residence was made pursuant to an agreement amongst the petitioner, the 2^nd and 3^rd respondents at the time.  The judge also found no ulterior purpose in the allotment of additional shares.  He also found no substance in the petitioner’s complaints of misconduct against the 2^nd and 3^rd respondents.

8.  The petitioner put forth three main grounds of appeal in his notice of appeal.  It was contended that the judge:

(1)  took into account irrelevant consideration in believing that the parties fell out over the stolen money incident (referring to [60] – [67] of the judgment);

(2)  erred in finding that the purchase of the properties was not unfairly prejudicial to the petitioner (referring to [56] – [59] of the judgment); and

(3)  erred in law in refusing an order for the respondents to buy out the petitioner’s shares (referring to the judge’s finding regarding the dilution of the petitioner’s shareholding: see [68] – [74] of the judgment).

Application for Security for Costs

9.  According to the summons, the respondents sought security for costs in the sum of $3,628,132 on the grounds that:

(a)  The petitioner does not have substantial financial means and/or property in Hong Kong to pay for the respondent’s costs in the event the appeal is dismissed;

(b)  It is just that security for the respondent’s costs be ordered having regard to all the circumstances of this case.

10.  In addition to impecuniosity, the respondents submitted in their skeleton submission that the appeal was an abuse of process as it has no prospect of success.

Legal Principles

11.  Order 59, rule 10(5) of the Rules of the High Court (Cap 4A) provides that 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.  The legal principles governing the court’s exercise of discretion to make an order for security for costs are well established and set out in Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650 at [14] and Shum Yeung v Skynet Group Ltd CACV 140/2016, 14 October 2016.

12.  It is for the applicant to demonstrate to the satisfaction of the court that special circumstances (though not exceptional) exist.  Examples of special circumstances include the impecuniosity of the appellant or the difficulty in enforcing a costs order.

13.  Security will be ordered upon proof of the prima facie case of an abuse or threatened abuse of the process of the court.  The mere fact that the grounds of appeal are weak is not sufficient to bring the case within this category.  In deciding whether, for the purposes of a security application, an appeal is vexatious or an abuse of the process of the court, the court applies the same test as in the case of applications to strike out a notice of appeal on those grounds.  See Hong Kong Civil Procedure 2019, paras 59/10/29 & 59/3/6.

14.  With these principles in mind, we turn to the merits of this application.

Impecuniosity

15.  In the Affirmation, the respondents relied on the following matters in support of the claim that the petitioner lacks the financial means to pay for the respondents’ costs:

(a)  since the termination of the monthly payment by the Company in 2014, the petitioner had not been working and/or earned any living;

(b)  the petitioner had a serious gambling problem;

(c)  the petitioner, and his wife, sold their property in Richard Gardens in 2015; 

(d)  their other property in Banyan Garden was subject to 5 outstanding mortgages.  The respondents contended that such outstanding mortgages indicated that the petitioner suffered financial difficulties. 

16.  They also referred to a provisional agreement where the petitioner and his wife agreed to sell the Banyan Garden Property in March 2019.  The gist of the respondents’ contention in this regard is that the petitioner is taking steps to dissipate his assets to avoid effective enforcement of order of costs against him.

17.  In the wake of these allegations, the petitioner did not proffer any evidence to counter the respondents’ contention.  He did not refute the allegation that he is not working and has no earnings.  He did not refute the allegation that the disposal of the Banyan Garden Property was an attempt to frustrate the enforcement of costs order against him.

18.  Whilst the burden remains on the respondents to demonstrate that the petitioner is impecunious or there would be difficulty in the enforcement of costs order against the petitioner, the reticence of the petitioner in wake of the evidence of the respondents could give rise to adverse inference being drawn against him.

19.  The situation is similar to the one in Shum Yeung v Skynet Group Limited, supra, where security was ordered against an appellant when she did not put forward evidence to refute the allegations of the respondent when she could have done so.    

20.  In our view, though we would not place much weight on the assertions concerning the petitioner’s gambling habit and the changes of mortgagee, the respondents have adduced sufficient evidence to put forward a prima facie case that the petitioner was impecunious and that they would encounter undue delay and being put to undue expense to enforce a costs order against the petitioner.

21.  In the circumstances, the court can and we would draw an adverse inference against the petitioner when he did not file any evidence or put forward any submission to resist the application for security.

Abuse of Process

22.  In light of our above conclusion, it is not necessary for us to consider the argument on abuse of process. 

23.  In this regard, we would echo the comment of Tang VP (as Tang NPJ then was) in Tang On Kwai v Tang Hoi Wo CACV 181/2008, 25 September 2008 at [6] that an application for security for costs based on the ground of abuse of process should not be encouraged where there are no good reasons why an application to strike out was not made.

24.  Even though much of the disputes in the case revolved around factual matters, we are not satisfied at this stage that the appeal is plainly and obviously devoid of merit.

25.  At the same time, we do not find the appeal to be a strong one.  Thus there is no counterveiling factor to balance against the grant of security based on our conclusion above on impecuniosity and difficulty in enforcement of costs order. 

26.  We are of the view that it would be just to order security to be given.

Amount of Security

27.  According to the respondents’ skeleton bill (exhibit “WTS-5” to the Affirmation), the respondents’ estimated costs amounted to $2,428,132, half of which ($1.2 million) is said to be the estimated legal fee for engaging a Senior Counsel. According to [25] of the Affirmation, another $1.2 million was added in the amount sought in the summons ($3,628,132) to cater for the possibility that each of the respondents is to be separately represented on appeal.

28.  In our view, the estimated costs of the respondents are grossly inflated. 

29.  Even assuming that the engagement of Senior Counsel can be justified in this appeal, it seems to us to be highly disproportionate to engage a senior counsel at $1.2 million for an appeal of this complexity.  We note that the fee of Junior Counsel as stated in the bill is $300,000.  In the court below, both side appears with junior counsel only.

30.  Further, as we see it, the issues on appeal are very much factual and bearing in mind the stricture on appeal on facts the appeal should not take more than one day.    

31.  In a shareholder’s dispute, the Company should normally take a neutral stance.  The respondents did not explain why this practice has to be departed from in the present case.

32.  Nor do we see any justification that each respondent should be separately represented in the appeal, given that they have been jointly represented by the same legal team up to now.  The raising of the amount sought in the summons with such inadequate explanation cast doubt in the estimate of costs prepared by the solicitors for the respondents.

33.  The skeleton bill exhibited as WTS-5 is defective as there are items which are plainly not relevant for this appeal: e.g. items 3 and 4 under Part D refer to Pre-trial Review and CMC hearing and pre-trial hearing.   

34.  There are also items which are obviously grossly inflated if assessed on the basis of a party-to-party taxation.  Such items included Part B items 1, 2, 3, Part C items 1, 2, 5 and 6, Part D items 1 and 2.

35.  In light of the above misgivings we have on the skeleton bill, we are not prepared to rely on the skeleton bill in assessing the amount of security.  Solicitor who put forward grossly inflated bill and advised his client to seek unrealistic amount as security for costs should not be surprised if the court takes a robust approach in fixing the amount of security without attaching weight to a bill prepared by him.  

36.  Having taken into account the complexity and nature of this appeal, we would fix the amount of security at $750,000.

Disposition

37.  We order as follows:

(1)  Unless the Petitioner pay into court the sum of $750,000 within 42 days from the handing down of this decision as security for costs of this appeal, the appeal shall be dismissed without further order.  Upon such dismissal, the Petitioner shall pay the Respondents the costs of this appeal, such costs are to be taxed if not agreed.

(2)  In the meantime, the appeal shall be stayed until the payment of the security as ordered under (1) above.

38.  In respect of the costs of this application, as the Petitioner did not oppose the application, we would order that the costs of this application be costs in the cause of the appeal save that we would disallow the costs of the respondents in the preparation of the skeleton bill in view of what we said above.