HUNG MAY YEE ANITA V. JEANNY HELENA FRANSLAY

CACV 388 & 389/2019 and
CACV 599 & 600/2020
(Determined together)
[2021] HKCA 1324

CACV 388/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 388 OF 2019

(ON APPEAL FROM HCSD NO 43 OF 2018)

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CACV 389/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 389 OF 2019

(ON APPEAL FROM HCSD NO 44 OF 2018)

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CACV 599/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 599 OF 2020

(ON APPEAL FROM HCB NO 7035 OF 2019)

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CACV 600/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 600 OF 2020

(ON APPEAL FROM HCB NO 7036 OF 2019)

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(Determined together pursuant to the order of
Master Ho, Registrar of Civil Appeals dated 26 January 2021)

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D E C I S I O N

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Hon G Lam JA (giving the Decision of the Court):

1.  These are applications by Ms Jeanny Helena Franslay (“Creditor”), the respondent in each of these four related appeals, for further security for costs in CACV 388 & 389 of 2019 and for security for costs in CACV 599 & 600 of 2020.

Background

2.  On 23 April 2018 the Creditor obtained an arbitral award (“Award”)  made by the Singapore International Arbitration Centre in her favour against, among others, Hung May Yee Anita and Sy Wai Shan Sandy (“Anita Hung” and “Sandy Sy”, together the “Debtors”)  for payment of US$4 million.  On 5 October 2018, the Debtors’ application to the Singapore court to set aside the Award was dismissed.

3.  The Creditor instituted proceedings in Hong Kong (HCCT 38/2018)  against, among others, the Debtors based on the Award, and obtained leave to enforce the Award in June 2018.  The defendants in those proceedings, including the Debtors, applied to set aside such leave but, upon their failure to provide security, the application was dismissed and judgment was entered by Mimmie Chan J against, among others, the Debtors on 2 October 2018 (“Judgment”)  on the basis of the Award in the sum of US$4 million together with interest and costs. 

4.  The Creditor then issued a statutory demand against each of the Debtors based on the Judgment.  In November 2018, the Debtors each applied to the court for an order that the statutory demand issued against her be set aside (HCSD 43 & 44 of 2018). 

5.  The debt of the US$4 million arose from an advance payment made by the Creditor under a Framework Agreement dated 12 October 2012 with Anita Hung relating to the acquisition of the entire shareholding of and in a company called Good Year Corporation (“GYC”), which had a joint venture with a company called AJE which held valuable mining rights in Indonesia.  The details of the transactions are complex and need not be gone into for present purposes.  Suffice it to say that Anita Hung essentially advanced two grounds for setting aside the statutory demand against her:

(1)  It is said that the Creditor breached certain common understanding and condition agreed with Anita Hung that AJE should be converted into a kind of company in Indonesia permitted to have foreign shareholders and instead represented to the person-in-charge of AJE that such conversion was not necessary.  The Creditor subsequently caused a company of hers to be allotted 70% shareholding in AJE.  As a result, Anita Hung had a cross-claim against the Creditor which equalled or exceeded the amount of the debt due to the Creditor.  Anita Hung relied on a copy of the writ of summons in HCA 760/2019 which she had issued against the Creditor for pursuing that cross-claim.

(2)  The arbitral tribunal confined its focus to the question of whether the Creditor was entitled to demand repayment of the US$4 million under the Framework Agreement, ignoring all other factors. Anita Hung attacked the correctness of the Award and its “procedural propriety”, contending that it would be against the public policy of Hong Kong to enforce it.

6.  Sandy Sy was the daughter of Anita Hung and one of the guarantors under the Framework Agreement.  She advanced the following grounds for her application to set aside the statutory demand against her:

(1)  She entered into the guarantee under the undue influence of her parents.

(2)  She did not participate in the arbitral proceedings in any way and had not consented in writing to being represented.

(3)  There are errors in the Award in that all five respondents were lumped together without separately considering the situation of Sandy Sy.

(4)  It would be contrary to the public policy of Hong Kong to enforce the Award.

(5)  She had a cross-claim for damages in the amount of US$5 million.

(6)  Relying on Astro Nusantara International BV v PT Ayunda Prima Mitra [2018] HKCFA 12, Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999)  2 HKCFAR 111 and A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389, she argued that she was entitled to resist enforcement of an award in Hong Kong instead of applying for it to be set aside at the arbitral seat.

7.  On 24 July 2019, Au-Yeung J dismissed the Debtors’ applications in two separate decisions.[1]  Each of the Debtors has appealed from the decision against her by notice of appeal dated 21 August 2019, giving rise to the appeals numbered CACV 388 & 389 of 2019 (“SD Appeals”). 

8.  By consent, an order was made on 26 February 2020 in each of these two SD Appeals for Anita Hung and Sandy Sy respectively to pay $150,000 as security for the Creditor’s costs of the appeal.  The two sums of $150,000 each were paid into court shortly thereafter.

9.  On 29 June 2020, the Debtors each took out a summons in the respective SD Appeals for leave to adduce additional evidence in the form of the Amended Writ and Statement of Claim in HCA 760/2019 dated 20 February 2020.

10.  Meanwhile, on 14 November 2019, the Creditor had presented a bankruptcy petition against each of the Debtors (in HCB 7035 & 7036 of 2019 respectively)  on the basis of the two statutory demands.  In his decision handed down on 14 October 2020,[2] Recorder Eugene Fung SC adjudged each of the Debtors bankrupt.  It was held that the Debtors’ appeals against Au-Yeung J’s refusal to set aside the statutory demands did not constitute a challenge to the Judgment or the Award.  Given that there had been an arbitration on the merits and the Debtors had failed in their attempt to set aside the Award, had made no attempt to challenge the Judgment and had failed to identify any fraud, collusion or miscarriage of justice, the Debtors were unable to rebut the prima facie evidence of indebtedness.  As to the alleged cross-claim, the Recorder noted that the implied term raised in the Notices of Appeal for the SD Appeals had not been raised before Au-Yeung J but had been raised by the Debtors when they sought to set aside the Award in Singapore and rejected by the Singapore court.  They had failed to advance any submissions as to why the Singapore court was said to be wrong in rejecting the implied term point. As such it was unnecessary to decide whether it was an abuse of process and a collateral challenge against the Singapore decision for them to raise the point again in the bankruptcy proceedings.  The Recorder also rejected the Debtors’ arguments based on restitution and constructive trust.

11.  The Debtors filed and served notices of appeal in November 2020 against the bankruptcy orders, giving rise to the appeals in CACV 599 & 600 of 2020 (“Bankruptcy Appeals”).

12.  Since January 2021 the four appeals have been directed to be heard together by the Court of Appeal together with the Debtors’ applications to adduce new evidence mentioned above. 

13.  On 7 May 2021, the Creditor issued a summons in each of the four appeals, seeking further security for costs in the sum of $200,000 for each of the SD Appeals and security for costs in the sum of $100,000 for each of the Bankruptcy Appeals, i.e. a total sum of $600,000, in addition to the $300,000 already paid.

The Creditor’s stance

14.  The Creditor contends that the original security totalling $300,000 ordered in the SD Appeals was based on the Debtors’ original Notices of Appeal, and that there have since been two material changes in circumstances justifying an order for further security. 

(1)  First, the Debtors have applied for leave to adduce new evidence for the SD Appeals.  Affirmations have been filed by both sides and written submissions have also been lodged.  The applications have on 23 September 2020 been directed to be heard at the same time as the SD Appeals.

(2)  Secondly, the Debtors have amended their Notices of Appeal in the SD Appeals on 10 November 2020 (i.e. the date when they lodged their Bankruptcy Appeals).

15.  Further, the Creditor submits that the two Bankruptcy Appeals will lead to additional costs being incurred on her part in the region of $300,000, and that security for costs should therefore be ordered.

The Debtors’ stance

16.  The Debtors contend that the four appeals are closely related and overlap with each other, that the amendments to the Notices of Appeal in the SD Appeals have the effect of streamlining and reducing the scope of the issues there, and that the charging bases in the bills of costs of the Creditor’s solicitors are unreasonable and excessive.  The Debtors submit that a fair order is to require them to pay $100,000 in total as additional security for all the appeals.

Discussion

17.  The principles on ordering security for costs of an appeal are well established, and can be seen from cases such as Re Lau William John, ex parte Wan Yuk Lin Alison & others (CACV 62/2016, 25 April 2017)  at §23, and need not be repeated here.  It is not in dispute that an order for security for costs may be ordered against a bankrupt in respect of an appeal against the bankruptcy order: Re Au Wai Ming, ex parte Lo Chun Cheong (CACV 167/2015, 29 October 2015)  at §24; Re Wong See Yin, ex parte Tin Wan Tung (CACV 78/2019, 25 March 2020)  at §40.  An order for security may cover the costs of applications in the Court of Appeal incidental to the appeal: China Star Enterprise Hong Kong Ltd v Hung Wing San Tony (CACV 41/2013, 11 April 2013)  at §45.

18.  Although an order has already been made for security for costs of the SD Appeals and $300,000 has been paid in, it is not disputed that the court retains a discretion to make a further order for security where there has been a material change of circumstances that justifies it.  This is however meant to cover the costs caused by the material change of circumstances, not to re-open argument about security already ordered or to remedy any previous under-estimation: Hing Yip Holdings (Hong Kong)  Ltd (in liquidation)  v Cellmark China Ltd & another [2018] HKCFI 1653, §§6-9. 

19.  The contest between the parties here boils down to one of quantum.  The question is what further security should be ordered on account of the amendments to the Notices of Appeal and the applications to adduce new evidence in the SD Appeals, and the existence of the Bankruptcy Appeals.

20.  We accept that the two appeals brought by Sandy Sy substantially replicate and depend on the grounds of the two appeals brought by Anita Hung, as can be seen from Sandy Sy’s two Notices of Appeal.  Sandy Sy essentially contends that where the principal debtor has a right of set-off or cross-claim against the creditor, she as guarantor is also entitled to raise it as a defence to the creditor’s claim on the guarantee.

21.  As for the amendments to the Notices of Appeal in the SD Appeals, the original Notices contend that Anita Hung has a bone fide counterclaim, set-off and cross-claim on four different legal bases, namely: (1) a constructive trust based on the Pallant v Morgan[3] equity; (2) an implied term in the Framework Agreement to the effect that once the Creditor elected to demand repayment of the advance payment, she came under an obligation to return the shares in GYC in the same condition as when they were transferred to her in the first place (“Implied Term”); (3) unjust enrichment; and (4) breach of contractual or tortious duties of confidentiality. 

22.  The amendments made two main changes:

(1)  First, bases (1), (3)  and (4)  were deleted, leaving only the Implied Term ground with the underlying factual assertions remaining largely unchanged. 

(2)  Secondly, two grounds (B and C)  were added, namely:

(a)  Ground B — that Au-Yeung J was wrong to hold that Anita Hung had, should have or could have presented all the grounds now relied on before the arbitrator, the Singapore court or in HCCT 38/2018 before Mimmie Chan J.  There was no abuse of process for her to rely on her counterclaim, set-off and cross-claim against the statutory demand since she had advanced in the arbitration the relevant factual matrix but the arbitrator brushed aside her arguments without making any ruling on them.  Anita Hung correctly refrained from raising her counterclaim, set-off and cross-claim in the previous proceedings prior to the statutory demand.

(b)  Ground C — that the judge erred in failing to recognise that Anita Hung’s counterclaim, set-off and cross-claim were personal claims and not claims for reflective loss suffered by her purely as shareholder of GYC.

23.  As such, in relation to the causes of action for the cross-claim, the amendments indeed represent a reduction in the scope of the grounds.  There are, however, new grounds in the form of Grounds B and C.

24.  Anita Hung’s Notice of Appeal in her Bankruptcy Appeal raises two main grounds.  The first ground states that Recorder Fung SC was wrong to ignore her SD Appeal when hearing the bankruptcy petition and should instead have adjourned the petitions pending the SD Appeals. It seems to us this ground has little significance now given that the appeals have been directed to be heard all together.  The second ground relies on the Implied Term and also attacks the Recorder’s decision for not holding that Anita Hung’s claim against the Creditor based on breach of an implied term gave rise to a substantial cross-claim.  In particular, it is said that there was no ruling by the arbitrator or the Singapore court against the point, and that there is no abuse of process or collateral challenge for her to raise the implied term claim against the bankruptcy petition.  In other words, the Implied Term ground and Ground B raised in the SD Appeals are also relied upon in the Bankruptcy Appeals.  It seems to us, therefore, that the Debtors are justified in saying that the SD Appeals and the Bankruptcy Appeals are overlapping and closely related.  The existence of the Bankruptcy Appeals should not lead to a very substantial increase in costs.

25.  As to the applications for adducing the Amended Writ and Statement of Claim in HCA 760/2019 as additional evidence in the SD Appeals, the Debtors contend that that document was prepared based on essentially the same factual matrix as set out in the original Notices of Appeal in the SD Appeals.  It does appear that the pleading, broadly speaking, puts forward the claims also relied upon for Anita Hung’s counterclaim, set-off and cross-claim in the SD Appeals. Nevertheless, it is inevitable, and it has not been denied, that additional costs will have to be incurred by the Creditor in opposing the applications.

26.  The Debtors also submit that the quantum in the Creditor’s bills of costs is unreasonable and excessive.  In particular, it is said that there is no need for both the firm’s founder and an associate to be involved in addition to counsel, and that there is room for reduction in the estimates of counsel’s fees.  Without carrying out a line by line scrutiny of the bills, it does seem to us that the amount of $408,180 (inclusive of 46.7 solicitor-hours of work plus counsel’s fees of $200,000)  claimed for the costs solely relating to the Debtors’ applications to adduce additional evidence is excessive.

27.  Having examined the nature of the applications to adduce additional evidence, the amendments of the Notices of Appeal in the SD Appeals (involving the deletion of 3 grounds and the addition of Grounds B and C), and the Bankruptcy Appeals, and taking into account all the circumstances, we consider that further security in the total sum of $150,000 ($75,000 payable by each of the Debtors)  should be ordered.

28.  Having regard to the positions adopted by the parties and the outcome according to our decision, we would make an order nisi that there be no order as to costs on the Creditor’s summonses.