LIN LESTER CHI KEE v. CHAN LEUK FU AND ANOTHER

  CACV 282/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL No. 282 of 2007

(ON APPEAL FROM HCCW 293 No. of 2006)

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DECISION

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Hon.  Yuen JA:

1.  This is an application by the Petitioner (respondent in the appeal) that the 1^st Respondent (appellant) give security for costs in the sum of $322,417 for his appeal against Kwan J’s judgment given on 3 August 2007 ordering that the 2^nd Respondent company be wound up and that the 1^st Respondent pay the Petitioner’s costs.

Grounds

2.  The Rules of the High Court allow a respondent in an appeal to apply to the Court for an order that as a condition for allowing an appellant to proceed with an appeal, the appellant must pay a sum into court as security for the costs that the respondent would have to incur to defend the appeal, so that if the appeal were to fail, the respondent would be able to recoup his costs immediately from that sum, instead of having to pursue the appellant for the costs of the appeal.  The rationale of such an order is that since the appellant has already lost at first instance, the respondent should be protected against having to suffer further costs on defending the appeal which may be difficult to recoup from the appellant. 

3.  It is well-established that a court may order security for costs of an appeal where an appellant is resident out of the jurisdiction, or where he is impecunious.  If the judgment below is upheld, a respondent would have difficulty enforcing an order for costs of the appeal in either situation.

4.  The grounds advanced by the Petitioner in the present case are first, that as the 1^st Respondent is resident in the United States, there will be undue delay or expense in enforcing any costs order abroad, and secondly, that the 1^st Respondent is impecunious.

Residence overseas

5.  The Petitioner does not dispute that he has a United States passport and that his wife resides there.  He also says in his affirmation filed on 7 April 2008 that he has a company in the United States of which he is the sole proprietor and that he spends half of the year there. He says however that he has been a permanent resident of Hong Kong for the past 58 years and that he has relatives or friends in Hong Kong who would be able to pass correspondence to him and there is no problem liaising with him.

6.  However that does not answer the Petitioner’s point.  The point is not whether the 1^st Respondent has relatives and friends who would receive correspondence on his behalf; the point is that if he loses the appeal and the Petitioner wishes to say, serve a bankruptcy petition on him, the 1^st Respondent would not be easily available for service as he would be able (if he chose) to stay in the United States permanently.

7.  On that ground alone, I find that the Petitioner is entitled to an order that the 1^st Respondent pay security for costs of the appeal.  

Impecuniosity

8.  The Petitioner has another ground, that of the 1^st Respondent’s impecuniosity.  The Petitioner relies on the fact that at the hearing before Kwan J in July 2007, the 1^st Respondent had admitted that he did not have the financial means to buy the Petitioner’s shares and that he would need to borrow from friends and banks to do so.  This admission was recorded in para. 71 of the judgment.

9.  The 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, thus:

“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 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 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”.

10.  In his affirmation of 7 April 2008 the 1^st Respondent admits that he has no ready cash to buy the Petitioner’s shares, but he alleges that the 2^nd Respondent company’s net assets are worth $4 million (and so his 50% is worth $2 million), and he further alleges that the US company in which he has invested with the Petitioner is worth $8 million (and so his 50% is worth $4 million), so that in total his shares in the 2 companies are worth $ 6 million.

11.  As for the 2^nd Respondent company, the judge found that its solvency was in doubt (para. 73).  As for the US company, there is no evidence before me as to the worth of that company.  In any event if his shares in the US company were indeed valuable, then he should be able to obtain finance to satisfy the security for costs ordered by reason of his residence overseas.

12.  In conclusion, I am satisfied that the Petitioner has proven the grounds for his application for security for costs of the appeal.

Merits of the appeal

13.  The next stage is to see if the 1^st Respondent has demonstrated countervailing factors which would militate against an order for security being made, in other words, whether his appeal is so strong that an order should not be made notwithstanding his residence overseas and his impecuniosity. 

14.  I have considered the judgment of Kwan J and the grounds of appeal set out in the Notice of Appeal.  The judgment was based on findings of fact detrimental to the 1^st Respondent.  The judge found that the 1^st Respondent’s excuses for his conduct were not supported by evidence and his allegations were inconsistent and evasive.  These are findings of fact by the judge who had presided over the course of a 5-day hearing in which the parties gave oral evidence and were cross-examined.  It is well-established that the court of appeal does not normally interfere with findings of fact made by a judge who had seen and heard the parties.   

15.  The 1^st Respondent’s grounds of appeal merely assert that he was the “good” man and the Petitioner, the “bad” man, and that the judge should not have believed the Petitioner and should have believed him.  I would have to say that at this stage, I am not persuaded that the 1^st Respondent has a strong appeal.  Accordingly I would exercise my discretion in the usual way, that is, I would order security for costs of the appeal. 

Estimate of costs

16.  As for the estimate of costs, the draft bill is over-generous in some respects and a sum of $240,000 is in my view a reasonable estimate of the costs involved.

Order

17.  I would therefore give an order in terms of the Petitioner’s summons filed on 4 December 2007 save for the substitution of the sum of $240,000 in place of the figure of $322,417.

18.  I would also record that by consent the costs reserved for the aborted hearing on 3 January 2008 are to be paid by the 1^st Respondent to the Petitioner.