JOTRON AS (FORMERLY KNOWN AS JOTRON ELECTRONICS AS) v. STANLEY CHANG t/a HONG KONG INSTECH TRADING CO.

CACV49/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 49 OF 2014

(ON APPEAL FROM HCA NO. 378 OF 2010)

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REASONS FOR DECISION

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1. This is the plaintiff’s application for security for costs in this appeal brought by the defendant against the judgment dated 19 February 2014 (“the Judgment”). After hearing submissions, I granted the application and indicated that I would give my reasons in writing, which I now do.

The action below

2. The action was initially brought by the plaintiff in the District Court for the price of goods sold and delivered to the defendant.  The defendant counterclaimed against the plaintiff for damages for libel.  Subsequently, judgment on admission was entered against the defendant on the plaintiff’s claim in the sum of NOK253,432 (which is in approximately the same amount in Hong Kong currency) (“the Judgment Sum”) together with interest.  The defendant’s counterclaim was transferred to the Court of First Instance.  It was tried before G Lam J (“the Judge”).  By the Judgment, the Judge found for the plaintiff on its defence of justification and dismissed the counterclaim with costs.

The plaintiff’s application

3. On 10 March 2014, the defendant served and filed a notice of appeal against the Judgment. On 28 March 2014, the plaintiff took out the present summons.  Although the summons made reference to both costs of the appeal and the costs of the action below, Mr Collins, who appeared for the plaintiff, clarified in his submission that the application is only for security for the plaintiff’s costs in the appeal and the amount of security asked for is $410,000. 

4. The plaintiff based its application on two broad grounds, namely, (i) the defendant is impecunious; and (ii) the plaintiff will encounter difficulty or undue delay or will have to incur undue expense in enforcing any costs order made against the defendant in the appeal.

The applicable legal principles

5. Under Order 59 rule 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 for the costs of an appeal as may be just.

6. It is settled practice to require security for costs to be given by an appellant who would be unable through impecuniosity to pay the costs of the appeal, if unsuccessful. Security for costs may also be ordered upon proof that the respondent will be likely to encounter undue delay or put to undue expense in enforcing any order for costs in the appeal. The court, however, has a discretion and 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 for costs be provided.  But once a case of impecuniosity or some other factor such as difficulty or expense in enforcing a costs order is demonstrated, it is generally up to the appellant to demonstrate countervailing factors militating against an order being made: See Chung Kau v. Hong Kong Housing Authority & Others [2004] 2 HKLRD 650 and Hong Kong Civil Procedure 2014 Vol.1 paras.59/10/26 & 59/10/27.

7. In deciding whether to order security for costs of an appeal, the court takes into account the fact that the appellant has already had the issue concerned determined in the court below, and it is prima facie an injustice to a respondent to allow an appeal to the Court of Appeal to proceed without security for costs being furnished in circumstances where the respondent will be unable to enforce against the appellant any order for costs made by the Court of Appeal: Hong Kong Civil Procedure 2014 Vol.1 para.59/10/25. 

The arguments

8. In support of its application, the plaintiff referred to the following matters:

(1) The defendant delayed for nearly eight months before paying off the Judgment Sum plus interest.  In enforcing the Judgment Sum, the plaintiff had to incur time and expenses in applying for a charging order absolute over the defendant’s interest in a property that he jointly owns with his wife (“the Property”) and to discharge the charging order when the Judgment sum was paid off.

(2) It was almost a year after the plaintiff’s costs on the Judgment Sum was taxed (in the sum of HK$ 44,753.01) that the sum was settled.  Again, the plaintiff had to incur time and expenses in obtaining a charging order absolute over the defendant’s interest in the Property and discharging the same after the sum was settled.

(3) The bill of costs on the counterclaim which the defendant has been ordered to pay under the Judgment comes up to HK$1,652,000 before taxation.  

9. The plaintiff also pointed out that the Property is mortgaged to the bank and as of February 2014, there were four loan agreements awaiting to be registered against the Property.  The plaintiff estimated the indebtedness under the mortgage and the loan agreements to be about HK$1.5 million.  Having regard to recent transactions of similar properties, the plaintiff further estimated the value of the Property to be about HK$5 million.  On this basis, the plaintiff said that the net value of the defendant’s interest in the Property is about HK$1.75 million (i.e. (HK$ 5 million – HK$ 1.5 million) x ½), which is insufficient to cover the costs that the defendant is liable to pay to the plaintiff under the Judgment. 

10. The defendant in his affidavit opposing the application said that the indebtedness under the mortgage has been much reduced and that two of the loan agreements that featured in the land search result had been repaid.  He indicated that the total outstanding indebtedness is only about HK$600,000, hence the net value of his share in the Property should be about HK$ 2.2 million.  He, however, did not contest the plaintiff’s suggestion that he is impecunious.  I also note that the defendant had not exhibited any document to show the current indebtedness under the mortgage and the other loans.

11. In his oral submission, the defendant argued it was unreasonable to order him to provide security for the plaintiff’s costs in the appeal because he has a strong appeal and that the net equity of his interest in the Property is more than sufficient to cover the $410,000 costs estimated by the plaintiff.

Reasons for decision

12. On the materials before the court, I am satisfied that the plaintiff has made out a case for seeking security for costs against the defendant.  Firstly, the fact that the defendant had incurred a number of loans and the creditors had sought to register the loan agreements against the Property suggests that the defendant’s financial position is probably not very ideal.  Secondly, the plaintiff had twice been put to the trouble and expense of applying for a charging order before being able to recover from the defendant the Judgment Sum and the costs on the plaintiff’s claim.  It is probable that the plaintiff would encounter similar delay and would also have to incur expenses to enforce any costs order made against the defendant in the appeal.  Thirdly, as the Property is owned by the defendant and his wife as joint tenant, even with a charging order against the defendant’s interest in the Property, the plaintiff will encounter difficulty in obtaining an order to sell the Property under Order 88 of the Rules of the High Court.  Thus viewed, the fact that there is a net equity in the defendant’s share in the Property is no assurance that the plaintiff can recover its costs from the defendant’s interest in the Property.  

13. In deciding on how to exercise my discretion under Order 59 rule 10(5), I have regard to the grounds on which the defendant mounts his appeal.  It is however important to bear in mind that a detailed examination of the case and arguments on appeal is neither necessary nor desirable.  All that the court needs to do is to form a preliminary view: Chung Kau v. Hong Kong Housing Authority & Others, supra.

14. In his Notice of Appeal, the defendant has set out his arguments for the appeal at great length.  The defendant is essentially replying to the Judgment paragraph by paragraph.  It is, however, evident from the Judgment that the crucial issue underlying the dispute is a question of fact, namely, whether the defendant was responsible for the creation of the Service Agreement, which the Judge found was no doubt a fabricated document.  The Judge concluded that it was more probable than not that the defendant was responsible for the creation of the Service Agreement after careful consideration of the witnesses’ evidence and the documentary evidence as well as the inherent probabilities of the parties’ respective case.

15. The challenges that the defendant seeks to raise in the appeal are directed at the factual findings of the trial Judge and in turn his assessment and conclusions on the credibility of the witnesses and the documentary evidence.  It is trite that unless an appellant can demonstrate that the trial judge was plainly wrong in the conclusions he reached on the facts, the Court of Appeal would not disturb his assessment on witnesses’ credibility and findings of fact: Ting Kwok Keung v. Tam Dick Yuen & Others [2002] 3 HKLRD 1, at para.42.  It is also important to bear in mind that an appeal is not a re-trial. Notwithstanding the lengthy content of the Notice of Appeal, the defendant has not shown that the trial Judge was plainly wrong on the findings of fact that are in issue in the appeal. 

16. The defendant submitted that because the trial was conducted in English and he did not have sufficient time to read and understand the written closing submission of the plaintiff’s trial counsel, he had not been afforded an opportunity to make a proper closing submission or to deal with the points raised by the plaintiff’s counsel.  Consequently, he said, the Judge had adopted wholesale the plaintiff’s arguments in the Judgment.  Two points to be made on this.  First, contrary to the defendant’s submission, the Judge did not accept all the plaintiff’s submissions.  For instance, he had rejected the plaintiff’s argument on the defence of qualified privilege.  Second, the Judge had in the Judgment given the reasoning and analysis underlying his findings, which shows that he did not just blindly adopt the plaintiff’s submissions.  

17. The defendant further suggested that because the plaintiff is a Norwegian company, it should be ordered to provide security for the defendant’s costs.  This argument cannot stand since there is no jurisdiction to order a respondent to an appeal, irrespective of whether it is a foreign party, to provide security for costs.

18. Taking an overall view of the Judgment and the Notice of Appeal, I am not convinced that the defendant’s appeal has substantial chances of success and/or that there are other circumstances justifying exercising my discretion against making an order for security for costs of the appeal.  I therefore granted the plaintiff’s application.

19. I turn next to consider the amount of security to be ordered. The plaintiff asked for HK$410,000 and has provided a skeleton bill of costs showing the breakdown, which was prepared on the basis that the appeal would take two days.  In my view, it is most unlikely that the appeal would take more than three hours.  The Judgment turns on a narrow issue of fact, and there is not a lot of papers.  Having regard to the amount of the brief fee, which is not insubstantial, the additional provision of HK$60,000 for general advice is unnecessary.  I am of the view that the appropriate amount of security to be ordered is HK$300,000.

20. The defendant requested to have three months to provide the security in order to await the remittance of payment from his customer(s).  This is too long.  I would only allow a period of two months.

Costs of the application

21. As to costs of the application, there is no justification to depart from the normal rule of costs follow event.  It is also to be noted that the plaintiff had, before taking this application, written to the defendant on 17 March 2014 to invite the defendant to agree to provide security for costs.

22. Since this is a small application involving not many papers, it is appropriate to deal with the costs by summary assessment.  Mr Collins had provided a simple breakdown of the plaintiff’s costs for this application that amount to HK$60,800.  In respect of item (iii) (preparing for and attending at the hearing), given that the hearing took one hour and since Mr Collins is an experienced solicitor and had been personally involved in the drafting of the papers and preparation of the argument and authorities for the hearing, the time of five hours should be reduced, bearing in mind that this is party-and-party taxation. 

23. As for item (iv) (preparing breakdown for costs), at the hearing I erroneously thought it was the breakdown for the costs of the hearing and disallowed the item in full on this basis.  On re-reading it together with the description of item (i), the breakdown of costs in question should be that at pages 7 to 12 of exhibit GHC-1 of Mr Collins’ first affidavit filed on 28 March 2014.  This breakdown was superseded by the bill of costs prepared by the professional law costs draftsman, which was exhibited as GHC-2 to Mr Collin’s second affidavit.  This being the case, on a party-and-party taxation, the costs cannot be recovered from the defendant.

24. For these reasons, I assessed the plaintiff’s costs of the application to be HK$30,000.

Disposition

25. The orders that I made are as follows:

(1) The defendant shall by 25 August 2014 pay into court the sum of HK$300,000 as security for the plaintiff’s costs in the appeal herein.

(2) Pending compliance with paragraph (1) above, all further proceedings in the appeal herein shall be stayed.

(3) In the event the defendant fails to comply with paragraph (1) above, the appeal herein shall, without further notice or order from the court, stand dismissed with costs to the plaintiff. 

(4) The defendant pays the plaintiff the costs of this application, summarily assessed at HK$30,000.