THE BANK OF EAST ASIA, LTD v. LABOUR BUILDINGS LTD AND ANOTHER

CACV 33/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 33 OF 2008

(ON APPEAL FROM HCMP NO. 769 OF 2002)

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JUDGMENT

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Hon Tang VP:

1.  The Bank of East Asia Limited (“the Bank”) claimed to be the legal chargee of No. 11 Changsha Street, Kowloon (“the property”) under a debenture granted by the 1^st defendant.  After a trial which had lasted over 40 days, the validity of the debenture was upheld by Deputy Judge Gill.  In consequence, the learned judge ordered that until payment due under the debenture was made, possession of the property should be delivered to the Bank.

2.  That decision is the subject of the appeal by the 1^st and 2^nd defendants by a Notice of Appeal dated 4 February 2008.

3.  On 27 May 2008, the Bank applied for security for costs of the appeal.

4.  On 18 June 2008, Rogers VP ordered the 1^st and 2^nd defendants to provide security for costs in the total sum of $2,500,000.  The defendants were given up to and including 31 July 2008 to give security by payment into court:

“… by cash or bankers draft or by the provision of a bank guarantee of the like amount which guarantee shall have been approved by the Registrar”.

5.  That order was made on the basis of a skeleton bill which was supplied by the Bank’s solicitor on 19 May 2008 (“May skeleton bill”).  The May skeleton bill covered costs totalling $3,473,550 made up of costs incurred of $1,227,550 and the estimated amount of costs to be incurred of $2,246,000.

6.  The $2,500,000 ordered by Rogers VP represented approximately 72% of the amount sought.

7.  However, Mr. Edward Chan, SC who appeared on behalf of the 1^st and 2^nd defendants, has asked us to note that the order of Rogers VP was that the 1^st defendant should provide security in the sum of $2,000,000, and that the 2^nd defendant was to provide security in the sum of $1,500,000 save that:

“… should the 1^st defendant provide security in the sum of HK$2 million, such sum be reduced to HK$500,000.00”.

8.  $2,000,000 is about 57.5% of the amount sought of $3,473,550 and $1,500,000, 42%. 

9.  There had been various applications for a stay of order of Deputy Judge Gill, both to the learned deputy judge himself as well as to Rogers VP.

10.  On 18 June 2008, on the same occasion when security for costs was ordered, Rogers VP refused a stay of execution pending appeal.  The Bank obtained possession on 18 June 2008 and receivers were appointed on 20 June 2008.

11.  Arrangements had been made by the receiver to sell the property by auction.  Since the 1^st and 2^nd defendants believed that a forced sale by auction would be disadvantageous, the defendants obtained a bridging loan to pay off the Bank and discharge the security.

12.  On 14 August 2008, the parties came to an agreement for satisfying the judgment debt and discharging the security upon the payment of $103,000,000 by the defendants which sum was inclusive of the Bank’s legal costs up to 14 August 2008.  According to the Bank, in agreeing to such a settlement, it had made the commercial decision to forego a substantial part of legal costs and the costs of receivers actually incurred up to 14 August 2008 which would otherwise have been payable under the judgment and the debenture.

13.  Earlier on 11 July 2008, the 2^nd defendant lodged an appeal against the two orders of Rogers VP made on 18 June 2008.  On 9 September 2008, the 1^st defendant applied by summons to appeal against the two orders of Rogers VP.  These appeals are out of time and an extension of time is sought.

14.  On 31 July 2008, both the 1^st and 2^nd defendants had issued summonses for extension of time for payment of security for costs.

15.  The appeals from Rogers VP’s order refusing a stay is no longer pursued.  As noted, the Bank has been paid $103,000,000, the receiver discharged and the debenture fully satisfied.  We are only concerned with the order of security for costs made on 18 June 2008.

16.  Mr Chan, subject to what I will mention later, does not dispute that the Bank should have security.  The dispute is over quantum and approach.  Indeed, quantum would depend on the approach adopted.  Mr Chan’s approach is to proceed on the basis (I have simplified it) that the amount of security should be so much of the $2,500,000 ordered by Rogers VP as was proportionate to that part of the costs in the May skeleton bill which represented costs incurred or to be incurred after 14 August 2008.  Mr Chan submitted (and accepted by Mr Whitehead) that out of the total of $3,473,550, sought by the May skeleton bill, $1,905,550 was attributable to costs incurred prior to 14 August 2008.  Further (also accepted by Mr Whitehead), the total of $3,473,550 had wrongly included sums totalling $220,000.  The net result is that of the sum of $3,473,550 sought under the May skeleton bill, only $1,348,000 related to costs incurred or to be incurred after 14 August 2008.  That being the case, if one discounts $1,348,000 by 28% (the apparent discount adopted by Rogers VP), the amount of security required should be $970,560.  Mr Chan further submitted that although the total security ordered, namely, $2,500,000 amounted to about 72% of the total sought, in considering the respective position of the 1^st and 2^nd defendants, we should proceed on the basis that the amount of security the 1^st defendant was ordered to provide was only $2,000,000 and that in default of the 1^st defendant, the 2^nd defendant was only required to provide $1,500,000.  Thus, the discount should be based on these lower figures.  I hope I will be forgiven for dealing with Mr Chan’s complicated calculations so briefly.

17.  Although the Bank had not applied formally to us to vary the security for costs ordered, with our encouragement, Mr Whitehead asked us to deal with the matter as if there was such an application by the Bank.  I believe I should proceed on the basis that the order made by Rogers VP has been overtaken by events.  The position today is a simple one.  The property has been released, so the Bank no longer has the security of the property.  The bank has been paid all its costs incurred up to 14 August 2008.  It is immaterial that they had made the commercial decision to give up part of such costs, Mr Whitehead accepted that on taxation, the Bank would not be able to recover any costs incurred prior to 14 August 2008.  The appeal, however, remains pending.  No payment has been made into court and there is no security in relation to the costs of the appeal incurred or to be incurred subsequent to 14 August 2008.  According to the Bank’s revised skeleton bill submitted to us the amount of such costs will be HK$1,968,800. 

18.  Mr Chan submitted that since the 1^st defendant has agreed to sell the property for $160,000,000 with completion to take place on 30 September 2008, no security should be ordered.  But Mr Chan also frankly accepted, there is no certainty that completion would take place.  It is true that the property has been released from the debenture but there is a bridging loan of $103,000,000. 

19.  I believe that in all the circumstances of this case, it is only fair that security for costs of the appeal should be ordered.  As for quantum, taking a broad-brush approach, I believe the appropriate amount of security to be ordered is $1,200,000. 

20.  Mr Chan has drawn attention to the fact that a sum of $300,000 had been paid into court on 14 May 2008 as security for interest.  Since such interests would have been subsumed in $103,000,000 already paid, this amount is available as security for costs. 

21.  So the order that I would make is that the amount of $300,000 paid into court should be treated as part of the security for costs in relation to the Bank’s costs of the appeal.  So the 1^st defendant will only need to pay the balance of $900,000 into court either by cash or banker’s draft or by way of security to be approved by the Registrar.  I do not propose to make a separate order in relation to the 2^nd defendant save that if the additional security in the sum of $900,000 be not provided by the 1^st defendant within 21 days, then unless the same be provided by the 2^nd defendant within 14 days thereafter, the appeals of both defendant will be stayed.  If, however, the amount of security is provided by either defendant, neither appeal should be stayed. 

22.  As for the costs of the hearing before us, I would make an order nisi that it be in the cause of the appeal.  I do so, because, as may be apparent form my judgment, the arguments had undergone substantial changes before us.  It will be pointless to try to decide who has won on which argument, nor, whether the outcome is closer to the defendants’ position or the Bank’s.

Hon Burrell J:

23.  I agree.