CHOW TAI FOOK JEWELLERY CO. LTD. v. SHUN KAI BULLION CO. LTD.

CACV767/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 767 OF 2000

(ON APPEAL FROM HCMP 6992 OF 1998)

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R U L I N G

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1. The defendant (appellant) mortgaged its property at Flat No.3, 14/F., Hung Tak Building, Des Voeux Road Central, Hong Kong to the plaintiff (respondent) by way of a legal charge as security for a loan of HK$1.5 million to be repaid by monthly installments. The defendant defaulted in his installment repayments. The plaintiff issued an Originating Summons on 28 December 1998 claiming repayments and possession of the mortgage property. A master dismissed the summons. The plaintiff appealed.

2. The appeal came before Suffiad J on 1 June 2000. The question was whether the plaintiff was a money lender within the Money Lenders Ordinance in respect of the loan and that issue depends on whether that loan was an exempted loan within paragraph 2 of Part 2 of Schedule 1 to the Ordinance and whether the rate of interest charged was legitimate. One of the conditions for the loan to come within that exemption is the registration of the loan with the Companies Registry. A certificate from the Companies Registry would show such registration. At the hearing, the plaintiff told the judge that he had the original charge which showed that the loan had been registered and this had been shown to the defendant's counsel and no point on registration of the legal charge would be taken.

3. Unknown to the judge, the original legal charge contained a certificate of registration with the Companies Registry. The judge concluded that there was no evidence of registration. He dismissed the appeal on the ground that the plaintiff had failed to show the loan was an exempted loan under the Ordinance and he did not consider the issue on interest.

4. On 11 August 2000 the judge, on the application of the plaintiff, reconsidered the appeal in the light of the certificate of registration and allowed the appeal.

5. The defendant appealed against this decision. The plaintiff now seeks an order to require the defendant to provide security for the costs of the defendant's appeal.

6. It is submitted by Mr Chan for the plaintiff that the defendant is unable to pay the costs of the appeal in the event of it not being successful. It is for the defendant to show that he is unable to furnish security for costs from his own resources as well as from resources elsewhere and to demonstrate that his appeal has a sufficiently good chance of success to justify exposing the plaintiff to the injustice of having to bear his own costs win or lose. The grounds of appeal must be real and substantial and the threshold for that purpose is higher than that which the court applies in deciding whether to grant leave to appeal.

7. The plaintiff submits that the defendant had three properties originally registered in its own name, but two of them had been repossessed and sold by the mortgagee to third parties. The third property under mortgage if sold is unlikely to fetch a price sufficient to meet the mortgage repayments. But in any case, the plaintiff agrees with the affirmation of Wong Shun, a director of the defendant, that the defendant is an insolvent company unable to pay its debts but he said indebtedness is now being repaid on an installment basis so that the company is still running.

8. The defendant submits that the grounds of appeal are real and substantial and the appeal deserves to be heard.

9. The first ground is that the provisions of the Money Lenders Ordinance should be strictly interpreted especially in the present case where there is a Letter of Guarantee by a director of the defendant and his wife in respect of the loan. The defendant's case is the Ordinance applies only if the loan is secured by the mortgage and where it is also secured by the Letter of Guarantee, there are real prospects of success in arguing that the loan cannot be regarded as an exempted loan within the Money Lenders Ordinance.

10. This argument had been raised before Suffiad J and was rejected by him on the ground that paragraph 2 cannot be read as to mean the loan should be secured only by a mortgage. The argument was also rejected because the plaintiff had relied solely on the mortgage and had never relied on the Letter of Guarantee to recover the loan.

11. It is not for me to go into the merits of the appeal in detail but I have to consider broadly whether there is a real chance of success in this argument. On a reading of the relevant sections and paragraph 2 of Schedule 1 to the Ordinance, it is difficult for me to see a real chance of success as regards this argument on appeal.

12. The second ground is that Suffiad J was functus after he gave his judgment dismissing the summons on 31 July 2000. Mr Lo for the defendant now indicates to me that he makes no submission on this point. It appears that the defendant is not prepared to argue against the judge's jurisdiction to reconsidered the appeal.

13. The third ground is in relation to the rate of interest. But, as I have pointed out to Mr Lo, the judge in making his orders made no ruling on the rate of interest. An appeal based on the judge making a wrong ruling on the rate of interest would have no prospect of success.

14. The defendant's impecuniosity is not disputed and there is no evidence that the defendant is unable to furnish security for costs from elsewhere e.g. from the directors themselves or from the contributories or the shareholders. In the circumstances of the present case, having considered all the factors, I am of the opinion that this is an appropriate case for an order to require the defendant furnish security for costs of his appeal.

15. The amount of the security sought by the plaintiff is $161,961.00. A letter of request for security for costs had been sent to the defendant before this application was made but the defendant failed to respond to it until yesterday. For the plaintiff to make the present application is reasonable and it is in accordance with the practice of seeking security for costs.

16. The defendant in his letter yesterday offered to the plaintiff an amount of $105,000 as security for the costs of his appeal. This was rejected by the plaintiff. Mr Lo for the defendant has urged that the security for costs should be limited to the costs of the appeal which does not include the costs of this application. Mr Chan argues otherwise.

17. I do not think Mr Lo's argument can be accepted. In any case, the letter from the defendant to the plaintiff was too late and has little effect of reducing the amount of security that I intend to order. A court would normally make a discount from the Bill of costs submitted by the applicant to reflect the probable result from taxation. I order an amount of $110,000 as security for the costs of the defendant's appeal. I do not regard the time of six months asked for by the defendant to provide such security as reasonable and I reject that request.

18. In the circumstances, I make the following orders :

(1) application for security for the costs of the appeal is granted;

(2) the defendant is to furnish an amount of $110,000 as security for the costs of its appeal in cash or bank guarantee within 21 days hereof;

(3) the appeal shall be stayed until such security be given and in the event of the defendant's failing to furnish such security within the stipulated time, the appeal shall stand dismissed with costs to the plaintiff;

(4) the costs of today's application is to the plaintiff; and

(5) in respect of the summons to amend the summons application for security for costs, I grant leave to the plaintiff to amend that summons with costs to the defendant.