RE AU WAI MING

CACV 167/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 167 OF 2015

(ON APPEAL FROM HCB NO 7306 OF 2014)

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REASONS FOR JUDGMENT
AND
DECISION ON COSTS

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Hon Cheung JA:

1.  I agree with the reasons for judgment of Yuen JA in respect of the application for security for costs of the appeal, and her decision in respect of the summary assessment of costs for the application for security.

Hon Yuen JA:

2.  This is an application by Lo Chun Cheong (“the Creditor”) for security for costs of an appeal lodged by Au Wai Ming (“the Debtor”) from a Bankruptcy Order.  At the conclusion of the hearing on 2 October 2015, we gave judgment on the application ordering that the Debtor pay $65,000 as security for the costs of the appeal.  My reasons appear below. 

3.  Further, upon obtaining the judgment above, the Creditor’s counsel asked for summary assessment of the costs of the summons for security.  We gave the Debtor 7 days to respond in writing but he has not responded on this matter. My assessment appears below.

Background

4.  After a hearing on 9 July 2015, Ng J handed down a judgment the next day and made a Bankruptcy Order against the Debtor. 

Default Judgment in District Court action

5.  The petition for bankruptcy was based on a debt in the sum of $461,291 with interest for which the Creditor obtained judgment in default in DCCJ 2050/2014 (“the District Court action”) on 7 July 2014.  The Creditor’s claim was for the price of goods (a large quantity of wines) sold and delivered to the Debtor from 20 February to 20 August 2008.  

Statutory Demand

6.  Pursuant to the judgment in the District Court action, a statutory demand dated 23 July 2014 was served on the Debtor personally on 27 August 2014.  He did not seek to set aside the statutory demand. 

Petition for Bankruptcy

7.  On 26 September 2014 a petition for bankruptcy was duly presented to the High Court.  It was served on the Debtor personally on 14 October 2014.

8.  On 5 January 2015 the Debtor filed an affirmation in opposition to the petition disputing the debt. He alleged that the wines had not been sold to him personally, and that he had only introduced the Creditor to the manager of the restaurant to which the wines were sold.

9.  This affirmation was answered by the Creditor’s affirmation filed on 29 January 2015.

Application to set aside the Default Judgment

10.  As the petition was based on the judgment debt in the District Court action, the Debtor issued a summons in the District Court on 9 February 2015 seeking to set aside the default judgment.  The ground he gave was that he had not received the writ of summons in the District Court action.

11.  The Creditor filed a number of affirmations in opposition, including one from Li Hon Ki, a process server, filed on 13 February 2015 who deposed that:

(1) the writ in the District Court action had been served in May 2014 by registered post at the Debtor’s last known address, being 24-28 Yik Yam Street, Ground Floor, Happy Valley;

(2) the writ had not been returned through the dead letter service; and

(3) three months later, in August 2014 he (the process server) attended the same address for the purpose of serving the statutory demand, and contact was duly made with the Debtor through a person present at the address.

12.  The Debtor did not file any affirmation in reply.

13.  It would be noted that 24-28 Yik Yam Street was the address given by the Debtor himself in his affirmation filed on 5 January 2015 in the bankruptcy proceedings, although he gave another address along the same street in a later affirmation. 

14.  The Debtor failed to attend the hearing of his summons to set aside the Default Judgment on 16 February 2015.  Master S P Yip duly dismissed his summons with costs summarily assessed at $5,000 and ordered to be payable forthwith.  

Ng J’s Judgment

15.  In the bankruptcy proceedings the Debtor filed an affirmation on 10 April 2015 alleging again that he was not the buyer of the wines. 

16.  As mentioned above, the petition was heard on 9 July 2015.  For reasons given in Ng J’s written judgment handed down on 10 July 2015, the learned judge was not satisfied that the Debtor had shown a bona fide dispute to the debt on substantial grounds. Nor had the Debtor shown any “fraud, collusion or miscarriage of justice” in impugning the default judgment or the decision dismissing his application to set it aside.

Application to set aside Master Yip’s order

17.  Shortly thereafter, on 14 July 2015 the Debtor issued a summons in the District Court for “leave to set aside the order of Master S P Yip dated 16/2/15”. Apparently no affirmation in support was filed. 

Notice of Appeal

18.  Two days later on 16 July 2015 the Debtor served a Notice of Appeal against the Bankruptcy Order. The only ground read: “not the truth”. 

Application for security for costs of appeal

19.  On 20 August 2015 the Creditor issued a summons for security for costs of the appeal.  This was supported by the affidavit of Lee Ying Biu Andrew, the Creditor’s solicitor.  

20.  The Creditor’s application is made on the ground of the Debtor’s impecuniosity, which is generally recognized as a “special circumstance” under Order 59 rule 10(5) of the Rules of the High Court.

21.  The Debtor did not file any affirmation in opposition to the summons.  On 8 October 2015 (after judgment had been given on 2 October 2015), he wrote to the court indicating that he could pay $25,000 as security for costs.   

Principles

22.  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.  The principles are well-known and are as follows.

“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 for costs 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 to go 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”.

Impecuniosity

23.  It is clear in this case that the appellant is impecunious.   He has been adjudicated bankrupt. 

24.  The fact that the Debtor is a bankrupt is in itself no bar to an order of security for costs of an appeal.  In para. 59/10/26 Hong Kong Civil Procedure 2015 vol. 1, p.1096, the position is set out as follows:

“... where an insolvent or impecunious appellant is not legally aided for the appeal, it is no bar to the award of security for costs by the Court of Appeal that he does not have the money and therefore the security order will have the effect of preventing him from pursuing his appeal; on the contrary that is inherent in most applications for security on the grounds of insolvency or impecuniosity”.

25.  Further it is well-established that

“where ... an appellant contends that security should not be awarded because it would prevent him pursuing his appeal, he has to satisfy the court not only that he is unable to furnish security for costs from his own resources, but also (and the onus of proof is on him on this issue) that he is unable to raise the money elsewhere” (para. 59/10/32 Hong Kong Civil Procedure 2015 vol. 1, p.1097).

Merits of the appeal

26.  As far as the merits of the appeal are concerned, the making of the Bankruptcy Order is an exercise of discretion.  It is well-established that an appellate court would not lightly interfere with a judge’s exercise of his discretion unless it can be shown that he had erred in principles of law, or had misapprehended material facts, or had failed to take relevant matters into account, or had taken irrelevant matters into account, or the exercise of his discretion was “plainly wrong”. 

27.  At the hearing before us, the Debtor repeated that he had nothing to do with the sale of the wines, but it is clear from the narrative of events above that he has failed to take the opportunities available to him previously to put forward his defence.  First, he failed to file a Defence in the District Court last year, and second, when he applied to set aside the default judgment this year, he did not turn up at the hearing. 

28.  The Debtor alleged at the hearing before us that he had had a traffic accident as a result of which he was immobilized.  However he has never asserted this on affirmation, nor produced any documentary evidence in support of this allegation.  Even if he had not realized when he appeared before Ng J that it was necessary to support this bare allegation with evidence, he must have realized that it was necessary to do so before coming to this court.  It is clear from documents in the court file that he has filed affirmations and exhibits in the past, so he obviously knows how to go about it. 

29.  Having considered Ng J’s Judgment and the documents before this court, I did not (at this stage) see any grounds for disturbing the exercise of his discretion.  Ng J had cited the correct principles of law.  Moreover it cannot be disputed that the petition was based on a judgment debt. Although it was a default judgment, the Debtor had his chance to persuade the District Court to set it aside but chose not to appear at the hearing.  In any event the only evidence before the court indicates that the writ in the District Court action was properly served. 

Estimate of costs of the appeal

30.  As for the estimated costs of the appeal, we considered the Creditor’s skeleton bill.  Making some reductions on certain items for the time estimated to be spent, we ordered a sum of $65,000 as security for the costs likely to be incurred for the proposed appeal.

Order for security of costs for the appeal

31.  We therefore made an order in terms of paras. 1-3 of the summons dated 20 August 2015 save that the sum of $65,000 was substituted for the sum of $79,600 in para. 1.

Summary assessment of costs for the application for security

32.  Having considered the statement of costs provided by the Creditor, I take the view that the Creditor’s costs of this summons should be assessed at $50,000, and I would order the Debtor to pay the Creditor this sum.