THE KWANGTUNG PROVINCIAL BANK v. CHIN KAM CHIU

CACV 121/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.121 OF 2005

(ON APPEAL FROM HCA NO 8971 OF 2000)

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AND BETWEEN:

(By original Amended Writ and Order to carry on)

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DECISION

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Hon. Yuen JA:

1.This is an application by the Plaintiff for security for costs of an appeal.

Background

2.In the action, the Plaintiff ("the Bank") had sued the Defendant as guarantor of sums it had lent Keen Lloyd Resources Ltd ("the Company") for the purposes of purchasing a property in La Hacienda, Mount Kellett Road, in 1997.  The Defendant was the chairman of the board of directors of the Company, was described as "a substantial owner" and controlled its activities.

Action against the Company

3.In another action (HCMP 4696/2000), the Bank had successfully sued the Company on the same loan.  On 14 August 2001, Chu J. gave summary judgment to the Bank.  The Company’s appeal against that judgment was dismissed by the Court of Appeal on 26 February 2002.  The Company was subsequently wound up by Kwan J. on 23 July 2003 after a contested petition.

This Action

4.In this action, Deputy Judge Carlson gave summary judgment to the Bank on 14 March 2005 in the sum of more than HK$6.6m and US$3.7m., together with interest and costs of the action on an indemnity basis.  He also struck out the Defendant’s Amended Counterclaim. 

5.The Defendant has lodged an appeal against Deputy Judge Carlson’s order giving summary judgment.  The appeal has been set down and I am told it has been listed for hearing in about 6 weeks time on 7 December 2005.

Application for security for costs of appeal

6.This gave rise to the Bank’s application for security for costs of the appeal on the ground of the Defendant’s impecuniosity, which is generally recognized as a “special circumstance” under Order 59 rule 10(5) of the Rules of the High Court. 

Principles

7.The relevant principles governing applications for security for costs of an appeal have been summarized by the Court of Appeal in Chung Kau v Hong Kong Housing Authority and others [2004] 2 HKLRD 650, at 656, thus:

“The relevant principles in particular the treatment of impecuniosity as a special circumstance are summarized in Hong Kong Civil Procedure 2004 vol. 1 at paragraphs 59/10/28 - 59/10/29.  In this context however, I would emphasize the following:

(1) The fact that an appellant is impecunious does not lead automatically to an order that security for costs must be provided.  The court is entitled to consider other relevant factors such as the strength of the appeal to determine whether or not it would be just to order that security be provided.

(2) That said, 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, whilst 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.

(3) On a consideration of the merits of the appeal, while a detailed examination is not required (or desirable, even if possible on the materials before the court at this stage), the Court should form some sort of preliminary, even instinctive, view.  Where the merits appear strongly one way or the other, this may by itself be a decisive factor.  Thus, an appeal which is very strong would often be a very good reason not to order security.  The converse of course also applies.  A hopeless appeal may even by itself justify an order for security.  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.  This is of course on the assumption that a factor such as impecuniosity has already been demonstrated”.

Defendant’s impecuniosity

8.Applying the above principles to the present case, the first matter to be examined was whether the Defendant is impecunious.

9.The Bank has adduced evidence of the Defendant’s impecuniosity and the Defendant has not denied it.  It is therefore clear that if the Defendant were to fail on appeal, the Bank would not be able to recover its costs of the appeal. 

Merits of the Defendant’s appeal

10.Applying the principles set out in Chung Kau, the next stage is to see if the Defendant has demonstrated countervailing factors which would militate against an order for security being made.  The Defendant has suggested that he has such strong merits on appeal that the court should exercise its discretion not to order security. 

11.I have considered the Defendant’s 2 affirmations in the action, in particular the 2^nd affirmation made in December 2003 which contains a new assertion of economic duress and/or representation and/or collateral contract  arising from an incident that the Defendant alleges occurred in 1997. 

12.This allegation had not been raised as a defence by the Company (which the Defendant controlled) in the Bank’s action against it.

13.Irrespective of whether this gave rise to res judicata in the narrow or wider sense, the judge was entitled to take into account the fact that this allegation had not previously been raised (and the Defendant’s explanation for this omission) when considering whether the Defendant had raised a real or bona fide defence.  

14.Having considered the Defendant’s affirmations, the  judgment of Deputy Judge Carlson and the grounds of appeal set out in the Notice of Appeal, I have to say that at this stage (when a detailed examination of the merits is not necessary or desirable - see Chung Kau), it seems to me that the Defendant’s appeal is not that strong that I should exercise my discretion against security for costs.

Estimate of costs

15.As for the estimate of costs, I have considered the Skeleton Bill and Miss Au’s submissions on it and in my view a sum of $180,000 for this appeal, which has been set down for half a day, would be a more reasonable estimate of the costs involved.

Application for legal aid

16.There is then the Defendant’s argument that no order for security for costs should be made at this stage as he has applied for legal aid, and if legal aid is granted to him as appellant, the Director would be liable (under s.16C(1)(b)(i) Legal Aid Ordinance Cap. 91) for the costs of the appeal if it is unsuccessful. 

17.The Defendant applied for legal aid in July 2005.  To date there has been no decision from Legal Aid.  The 42-day automatic stay has expired quite some time ago, the appeal is due to be heard in 6 weeks time and I do not think an order on this summons should be held in abeyance any longer when there is no indication when the decision will be available.  Mr Coleman has also drawn my attention to s.18B Legal Aid Ordinance which provides that "in any case in which an aided person is obliged to furnish security for costs, the Director may provide such security out of funds in his control which are available for that purpose ...".

Order

18.Accordingly the order I propose to make is that:

"The Defendant do within 21 days pay $180,000 into Court as security for the costs of and occasioned by his appeal, and that until such security is given, the appeal be stayed, and that in default of the security being furnished within the time aforesaid, the appeal stand dismissed without further notice or order, with costs of the appeal to be taxed if not agreed and paid by the Defendant to the Plaintiff".

[After submissions on costs]

19. I would order that the Defendant pay the costs of the summons for security for costs.