CACV 193/2013
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 193 OF 2013
(ON APPEAL FROM HCCL NO. 17 OF 2012)
________________________
BETWEEN
GRANT THORNTON INTERNATIONAL LIMITED
1st Plaintiff
JONATHAN RUSSELL LEONG
2nd Plaintiff
RINGO CHIU WING CHEUNG
3rd Plaintiff
ANDREW LAM HUNG YUN
4th Plaintiff
GARY TERENCE JAMES
5th Plaintiff
LO NGAI HANG
6th Plaintiff
AU YIU KWAN
7th Plaintiff
LI WING YIN
8th Plaintiff
NORMAN TWUI KA CHE
9th Plaintiff
and
TANG CHUNG WAH
1st Defendant
LEE FUNG YING
2nd Defendant
________________________
Before: Hon Kwan JA in Chambers
Date of Hearing: 9 April 2014
Date of Decision: 9 April 2014
Date of Reasons for Decision: 10 April 2014
________________________
REASONS FOR DECISION
________________________
1. This is an application for security for costs of an appeal. The appeal is to be heard on 29 May 2014. The judgment being the subject of the appeal is a summary judgment given by Ng J on 23 July 2013. The plaintiffs’ claim was for £57,500, being the costs awarded by Hildyard J in proceedings in England and interest thereon. These are the reasons for the orders made at the conclusion of the hearing.
The background
2. The 1st plaintiff, Grant Thornton International Limited(“GTIL”), is a private company incorporated in England and the umbrella organisation for the Grant Thornton network of accountancy and audit firms. The 2nd to 9th plaintiffs, the 1st and 2nd defendants and one Chow Tak Ming Paul (“Paul Chow”) were at the material times partners in a Hong Kong partnership called JBPB & Co (“JBPB”), operating under the name of Grant Thornton in Hong Kong.
3. In late 2010, GTIL expelled JBPB from the Grant Thornton network. This led to extensive litigation in Hong Kong, China, the United States and England.
4. In April 2011, GTIL filed a request for arbitration with the London Court of International Arbitration in respect of the dispute between GTIL and JBPB.
5. In October 2011, the 2nd to 9th plaintiffs and GTIL entered into a deed of settlement, which provided for the arbitration in London to be discontinued. In November 2011, GTIL and the 2nd to 9th plaintiffs requested the arbitration tribunal to terminate the arbitration on the ground that a settlement had been reached. The 1st and 2nd defendants contested this, contending that the tribunal had no jurisdiction to determine the issue whether the settlement deed precluded the 1st and 2nd defendants from continuing their claims against GTIL.
6. The arbitration tribunal made a final award on 26 March 2012, holding that it had jurisdiction and that the settlement deed required the arbitration to be terminated.
7. The 1st and 2nd defendants brought an action against GTIL, the 2nd to 9th plaintiffs and Paul Chow in the Chancery Division of the High Court in England, seeking an order that the final award of the arbitration tribunal was of no effect because the tribunal did not have substantive jurisdiction. Paul Chow did not take part in the proceedings. On 14 November 2012, Hildyard J gave judgment dismissing the action and ordering the 1st and 2nd defendants to pay costs summarily assessed at £57,500 to GTIL and the 2nd to 9th plaintiffs within 14 days. The application for permission to appeal to the English Court of Appeal was refused in a further judgment on the same day.
8. As no payment was made by the 1st and 2nd defendants within time, GTIL and the 2nd to 9th plaintiffs brought the present proceedings in Hong Kong (HCCL 17/2012) on 14 December 2012 to recover the costs awarded with interest.
9. The 1st and 2nd defendants, acting in person at the time, filed a two-page Defence and Counterclaim in Chinese.
10. On 29 May 2013, they issued a summons (“the Retainer Summons”) requiring the plaintiffs’ solicitors, King & Wood Mallesons (“Mallesons”), to produce evidence of their authorisation to act for all nine plaintiffs in these proceedings, failing which the action should be struck out.
11. On 5 June 2013, Ng J dismissed the Retainer Summons, holding that it was misconceived, and observing that the allegation that Mallesons were not authorised to commence and conduct the present proceedings was unsubstantiated by evidence. He refused leave to appeal against that decision.
12. The 1st and 2nd defendants renewed their application for leave to appeal to the Court of Appeal. On 4 July 2013, the Court of Appeal (Yuen JA and Poon J) refused leave, for the reasons given by Yuen JA on 11 July 2013 in HCMP 1510/2013.
13. On 10 June 2013, the plaintiffs issued a summons seeking summary judgment and to strike out the counterclaim of the 1st and 2nd defendants. The defendants countered with a summons on 18 June to strike out the 2nd to 9th plaintiffs as plaintiffs in the proceedings.
14. The O 14 summons came before Ng J on 23 July 2013. The defendants’ strike out application was fixed to be heard on 29 August.
15. Other than the affirmation of Paul Chow filed on 22 July 2013, the defendants did not file any evidence to oppose the application for summary judgment. Instead, they placed before the judge a document called “Defence to summons to seek summary judgment”. They also amended the Defence and Counterclaim.
16. At the hearing on 23 July 2013, the 1st and 2nd defendants addressed the court in person. In summary, they contended that they had raised the issue whether Mallesons were authorised to commence and conduct the proceedings for the 2nd to 9th plaintiffs since March 2013, and as that issue was to be dealt with by the court in their strike out application on 29 August 2013, the judge should deal with that issue first. And until that issue was resolved in favour of the plaintiffs, they could not apply for summary judgment. It was contended that if the 2nd to 9th plaintiffs had not paid the fees of their lawyers in the English proceedings, or if there was a contingency fee arrangement, the 2nd to 9th plaintiffs had no locus standi to sue for the costs awarded to them.
17. After hearing submissions on both sides, the judge decided to give summary judgment in favour of the plaintiffs with interest and costs. He did not give detailed reasons except to say that he had considered the three documents submitted by the defendants and did not see any defence of merit in any of the documents. He adjourned the plaintiffs’ application to strike out the counterclaim to be heard with the defendants’ application to strike out the 2nd to 9th plaintiffs as plaintiffs in the proceedings.
18. On 19 September 2013, the defendants, now acting by their solicitors, filed a Notice of Appeal against the decision of the judge in entering summary judgment.
19. On 15 January 2014, Mallesons wrote to the defendants’ solicitors seeking security for costs on appeal and enclosing a skeleton bill of costs for $711,245.10. The defendants’ solicitors replied on 23 January stating that the application was groundless and the costs sought were grossly excessive.
20. Mallesons issued the present summons on 25 February 2014. Security on appeal was sought on the basis that the defendants are impecunious and that the plaintiffs will likely encounter undue delay and be put to undue expense in enforcing any costs order in respect of the appeal. Further it was contended that the defendants’ appeal is weak and it is prima facie an injustice to the plaintiffs to allow an appeal to proceed without security for costs where the plaintiffs may be unable to enforce any costs order against the defendants.
21. The defendants appeared by Mr Jeremy Cheung of counsel in this application. The plaintiffs were represented by Mr Denis Brock of Mallesons who appeared as a solicitor-advocate.
The principles on which security is ordered
22. The principles on which security is ordered pursuant to Order 59 rule 10(5) are well established. They are set out comprehensively in Chung Kau v Hong Kong Housing Authority & Ors [2004] 2 HKLRD 650 at 655J to 656H, §14, which has been followed in many cases.
23. I would have thought it non-controversial that the applicable principles are as stated in Chung Kau , but for the submission made by Mr Cheung, which I will quote in full:
“It has been held in Ali v Hudson [2003] EWCA Civ 1793 that it would only be in an exceptional case that a court would order security for costs if the order would stifle a claim or an appeal. Furthermore, Clarke LJ listed the conditions that have to be satisfied before the court will make an order of security for costs under those powers: (1) an order should not normally be made unless the party concerned could be shown to have been regularly flouting court procedures or otherwise to be demonstrating a want of good faith, which was to be taken to consist of a will to litigate a genuine case as economically and expeditiously as reasonably as possible; and (2) an order would not be appropriate in every case where the party concerned had a weak case, and the weakness of a party’s case would ordinarily only be relevant where he had no real prospect of success.”
24. Counsel’s submission was a paraphrase of §40 of the judgment of Clarke LJ in Ali v Hudson , which was in turn a summary of the principles set out by Simon Brown LJ in Olatawura v Abiloye [2003] 1 WLR 275 at 281, §§21 to 26. In those cases, the English Court of Appeal was discussing how the question of security for costs should be approached in the situation which falls outside the provisions of the Civil Procedure Rules Pt 25, Section II – the rule which expressly provides for such orders (Olatawura v Abiloye, at 276, §1; Ali v Hudson, §42). The English court provided guidance as to how security for costs may be ordered under the court’s general powers of case management in CPR Pt 3 notably rule 3.1, where the case does not fall within CPR rule 25.13, which provides specifically for the conditions to be satisfied for security for costs to be ordered. This is a far cry from our present situation, which is an application for security for costs specifically provided for under Order 59 rule 10(5).
25. Insofar as Mr Cheung placed reliance on the guidance given in Ali v Hudson , his reliance is wholly misplaced. The appropriate test for this application is as stated in Chung Kau , where the court stated clearly at §14(4) that the overriding consideration is to consider, as Order 59 rule 10(5) requires, “whether “special” (not exceptional) circumstances exist making it “just” to order security”.
If special circumstances are made out for security to be ordered
26. I am firmly of the view that the plaintiffs have established special circumstances here.
27. The defendants had admitted before Ng J at a hearing on 5 June 2013 that they were impecunious. The 1st defendant told the court that over the years, they had been going through legal proceedings with or against GTIL, they owed their solicitors ONC Lawyers “substantial legal expenses” and had told the latter in 2012 they had no money to further engage ONC Lawyers as their solicitors.
28. In the 2nd defendant’s affirmation filed to oppose the present application, she asserted that whilst the 1st defendant’s statement to the court was true as of June 2013, the financial situation of the 1st and 2nd defendants “has now improved”. This, she said, was “evidenced by [their] ability to engage [their] present Solicitors and Counsel to handle this appeal and [their] Striking Out Summons in the court below”. She went on to say that although their “cash flow might fluctuate from time to time”, as they are certified public accountants with over 20 years in the profession, their earning capacity “should not be in issue”.
29. The defendants have not disclosed any evidence that they have substantial assets in Hong Kong which are readily available for enforcement. They have a history of failing to pay the judgment debts and costs orders made against them.
30. In respect of the arbitration in London, the tribunal awarded costs to GTIL against the defendants in the sum of £84,047.12 plus $1,024,513.59. The defendants have not paid that sum. GTIL took out enforcement proceedings in Hong Kong being HCCL 13/2002, which was resisted by the defendants. On 5 April 2013, Au J recognised and enforced the award and ordered the defendants to pay 2/3 of the costs of the defendants’ application to oppose enforcement of the arbitration award. To date, the defendants have not paid the judgment debt pursuant to the judgment of Au J in the sum of about $2.4 million, or the costs awarded by Au J, which are estimated to be in the region of $355,000 and taxation proceedings have been commenced by GTIL in November 2013.
31. In a separate proceeding between the same parties to this action, being HCMP 1284/2011, Deputy Judge Lok ordered costs against the defendants on 8 June 2012. The costs were taxed by Registrar Lung on 30 September 2013 at $168,442.33. The defendants have not made any payment of the taxed costs.
32. Although there were costs orders in the defendants’ favour in HCB 4396/2013 and HCB 4397/2013 dated 21 August 2013 which were set off against two costs orders in the plaintiffs’ favour in HCCL 17/2012 dated 29 May 2013 (for $21,000) and 20 June 2013 ($84,500) on 22 November 2013, the defendants still owe the plaintiffs costs in excess of $3.2 million. I note that the set off was made only after the defendants were examined as debtors before Master R Yu on 22 November 2013.
33. I have little doubt that the plaintiffs will be put to difficulty and expense and will encounter undue delay in enforcing a costs order in their favour in this appeal. The court is entitled to look at the history of outstanding costs liability, and take into account the practicalities of extracting costs from an unsuccessful appellant. And as the defendants’ cash flow is not steady but fluctuating, as asserted by the 2nd defendant, it is entirely appropriate to order them to provide security for the appeal. Besides, if their financial position has now improved as claimed, they would be able to provide a suitable amount of security and there is no question of forcing them to abandon their appeal for want of means to provide security, as Mr Cheung would appear to suggest.
If sufficient countervailing factors are demonstrated
34. The burden is on the defendants to show there are countervailing factors which would militate against the exercise of discretion to order security on appeal where special circumstances have been made out by the plaintiffs.
35. The defendants have pointed to the merits of their appeal as a countervailing factor.
36. On appeal, they would run the same arguments as they had advanced before the judge, namely, that the judge should have dealt with their summons to strike out the 2nd to 9th plaintiffs first before considering the plaintiffs’ Order 14 summons as the “fundamental question” of authority to sue by Mallesons must be resolved first, before the case should be allowed to proceed further. For this proposition, Mr Cheung would rely on Kammy Town Ltd v Super Glory Corporation Ltd , HCA 3524/2003, 14 January 2005, A Cheung J, §§18 and 21, where the judge was discussing the situation “where the court was unable to decide the question of authority – which is in essence a question of fact (or maybe a mixed question of fact and law)” and “if there is any real doubt about the authority to sue”. Mr Cheung also relied on the judgment of the Court of Appeal in Liquidation Committee of Foshan Hongda Development v East Legend Investment Ltd [2009] 1 HKLRD 169, which approved of the principles stated in Kammy Town in §18. Mr Cheung would also contend that the judge had failed to take into “sufficient account” the settlement deed dated 28 September 2011 between the 2nd to 9th plaintiffs and GTIL and the draft litigation co-operation agreement exhibited to the affirmation of Paul Chow. He would contend that as the 2nd to 9th plaintiffs would not be responsible for the fees of their lawyers in the chancery proceedings in London, they would not be entitled to recover such costs from the defendants in the present proceedings based on the indemnity principle in costs.
37. Mr Brock’s answer was that these arguments were essentially the same as those raised before the judge. The authority issue has been considered and dismissed by the Court of Appeal in HCMP 1510/2013 when the court refused leave to appeal against Ng J’s decision in dismissing the Retainer Summons. See the Reasons for Judgment of 11 July 2013, §§34 to 42. In short, the court held that Kammy Town was not authority for the proposition that a litigant can require his opponent’s solicitors to prove authorisation “in the absence of any material evidence throwing doubt on the authorisation”. The court agreed with Ng J’s view that the evidence adduced by the defendants “do not constitute evidence substantiating the defendants’ allegation that [Mallesons] were not authorised to commence this action” and “there is no ground for the defendants to challenge the solicitors’ retainer by demanding production of it on threat of striking out the action.” There has been no new evidence put forward by the defendants on this issue since the decision of the Court of Appeal.
38. I need only form a preliminary view on the merits of the appeal for present purpose. I am of the view that the defendants’ appeal clearly does not have strong merits. It is not necessary for me to say tentatively that it is hopeless. Suffice it to say that my assessment of the merits of the appeal is such that it is plainly not sufficient to tilt the balance in the defendants’ favour for this court to exercise discretion against awarding security for costs where special circumstances have been made out.
39. I turn to consider if there are other countervailing factors.
40. Mr Cheung submitted there was delay in applying for security for costs. He referred to the remarks of Sir John Donaldson MR in A Co v K Ltd [1987] 1 WLR 1655 at 1656G to 1657A. I have taken delay in issuing this summons into account. But I do not think this is a sufficient countervailing factor. I do not think it is likely that the defendants’ solicitors would have delivered a brief to counsel for this appeal, scheduled to last for three hours, six weeks in advance of the hearing date.
41. As to the set off of costs, I have already considered this. Even with set off, the defendants still owe the plaintiffs a very substantial amount of costs.
42. For the above reasons, this is an appropriate case to award security for costs on appeal.
What amount of security should be ordered
43. The plaintiffs sought security of $711,245.10 on the basis they would engage leading and junior counsel for this appeal, with brief fees of $300,000 and $150,000 and they would incur counsel fees for the application for security for costs of $100,000.
44. On behalf of the defendants, it was submitted that it is entirely viable for the plaintiffs to engage Mr Brock as a solicitor advocate for this appeal and that a figure of $100,000 to $120,000 should be sufficient security.
45. Regardless of whether Mr Brock is engaged to appear as advocate in the appeal, this court should provide for a reasonable amount of brief fee of a hypothetical counsel capable of handling the appeal effectively. The figure of $100,000 to $120,000 put forward by the defendants is too low. I would allow an amount of security of $250,000, made up of estimated solicitors’ costs of $150,000 and counsel’s fees of $100,000. The amount of security allowed includes the estimated costs in the application for security for costs.
Orders and costs
46. I have made the following orders at the conclusion of the hearing:
(1) the 1st and 2nd defendants do within 28 days hereof give security for the plaintiffs’ costs of the appeal in CACV 193/2013 in the sum of $250,000 by making lodgement in court of the said sum by cash or bankers draft, or by provision of a bank guarantee of like amount, which guarantee shall have been approved by the Registrar; and until such lodgement be made and notice thereof given to the Registrar and to the solicitors for the plaintiffs (such notice to be given on the same day as the lodgement is made) all proceedings in the said appeal are to be stayed;
(2) in default of the defendants making such lodgement as aforesaid within the time specified, or within such further time as the court may for special reasons allow, the said appeal do (upon the solicitors for the plaintiffs certifying such default to the Registrar) stand dismissed out of this court without further order;
(3) in the event that the appeal is dismissed in the circumstances provided for above, the 1st and 2nd defendants do pay to the plaintiffs their costs occasioned by the said appeal, such costs to be taxed if not agreed; and
(4) the costs of this application be costs in the appeal.
(Susan Kwan)
Mr Denis Brock (solicitor advocate), of King & Wood Mallesons, for the Plaintiffs (Applicants)
Mr Jeremy Cheung, instructed by Joseph Li & Co., for the Defendants (Respondents)