CITIBANK, N.A. v. KCL CHEMICAL LTD AND OTHERS

CACV 72/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 72 OF 2017

(ON APPEAL FROM HCA NO 1635 OF 2016)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  On 18 January 2017 Deputy High Court Judge Hunsworth granted summary judgment in favour of the plaintiff in respect of banking facilities provided to the 1^st defendant. The 2^nd and 3^rd defendants were also held liable as guarantors. As far as the 2^nd defendant is concerned, the judgment held it liable jointly and severally with the 1^st defendant in the sum of $12,891,670.64 with interest.

2.  The 2^nd defendant issued a Notice of Appeal on 22 March 2017.

3.  By a summons of 21 April 2017, the plaintiff sought security for costs in the sum of $252,602 against the 2^nd defendant. The application was made on the ground that the 2^nd defendant is impecunious.  The 2^nd defendant only maintains a registered office with a secretarial company.  Its sole director Cai is a resident of the PRC with no known residential address in Hong Kong.  The 2^nd defendant does not operate any business in Hong Kong.  Though Cai had suggested that he could produce audited accounts of the 2^nd defendant to substantiate the means of the 2^nd defendant, these were never produced.   

4.  On the other hand, in his affirmation of 7 June 2017, whilst admitting that the 2^nd defendant does not operate business in Hong Kong, Cai said it is an investment holding company and it has assets over $10 million in a wholly-owned PRC subsidiary.  He did not specify the name of that PRC subsidiary and the nature and whereabout of the so-called $10 million assets.    

5.  The summons proceeded in accordance with the directions in para 36 of PD 4.1.  There was no request for oral hearing in the submissions. Having read the papers, we are of the view that the summons can fairly be processed on paper.  We now give our decision on the summons.  

6.  The principles governing an application for security for costs on appeal were discussed in Chung Kau v The Hong Kong Housing Authority [2004] 2 HKLRD 650.  In the present case, the plaintiff relied on the impecuniosity of the 2^nd defendant as the special circumstances to seek an order for security pursuant to Order 59 Rule 10(5). Further, the likelihood of a successful respondent encountering undue delay or being put to undue expense to enforce any costs order in its favour is also a ground for seeking security for costs, Hong Kong Civil Procedure 2016 §59/10/27; Shum Yeung v Skynet Group Ltd CACV 140 of 2016, 14 October 2016.

7.  In the submissions before us, solicitors for the 2^nd defendant advanced three main grounds to oppose the application:

(a)  The application is disingenuous as it does not arise from any genuine concern about recovery of costs;

(b)  The 2^nd defendant has strong grounds of appeal;

(c)  The 2^nd defendant has the means to pay costs; and

(d)  The amount of security claimed by the plaintiff is excessive. 

8.  Under (a), solicitors for the plaintiff submitted that the costs involved in the application could be higher than the costs of the appeal itself.  The appeal could be proceeded swiftly and economically.  Delay in the filing of the notice of appeal was caused by objection from the solicitors for the plaintiff.  Similarly, solicitors for the plaintiff did not readily consent to late filing of affirmation of Cai.  It was said that the present application was an attempt to dispose of the appeal “without a chance of full hearing” to the 2^nd defendant and an attempt to cause financial burden to it.

9.  We are not impressed by these submissions.  For reasons elaborated below, we are of the view that the plaintiff has proper ground to support the present application.  The costs of and time engaged in this application could have been minimal if the 2^nd defendant (with the advice of its solicitors) took a realistic stance and parties had negotiated on the amount of security.  We do not regard the procedural episodes cited by the 2^nd defendant’s solicitors to be indicative of lack of genuineness in the application.  If, as asserted by Cai, the 2^nd defendant is well positioned financially to pay costs, the application could not prevent the appeal from being heard at a full hearing. Substantial costs were incurred on account of the 2^nd defendant to oppose the application. 

10.  We consider that the application is properly brought because it is clear from the evidence that the plaintiff could face undue delay or being put to undue expense to enforce any costs order in the appeal as the 2^nd defendant has no business operation or assets in Hong Kong.  As far as the materials before us are concerned, the 2^nd defendant had not really identified the $10 million assets it said it had and the subsidiary company.  It is no good for solicitors for the 2^nd defendant to mention in submissions that the subsidiary had been identified in an affirmation of Cai, filed in the proceedings before the Court of First Instance, which is not before us.  We are not going to speculate about materials which the 2^nd defendant decides not to put before us.  There was no reason why Cai could not have identified it in the affirmation filed in the present application.  There was no explanation as to the failure to produce the accounts of the 2^nd defendant and this subsidiary before us.  In any event, the mere fact that the 2^nd defendant had 100% shareholding over that subsidiary is not evidence of means or assets readily available for payment of costs or enforcement of costs order against the 2^nd defendant, see Koo Shing Sun v Hung Wing San, Tony CACV 241 of 2012, 11 April 2013.  

11.  At the same time, impecuniosity or difficulty in enforcement of costs order is not conclusive as to the outcome of the application.  The court will also consider whether there are any countervailing factors to militate against the grant of security.  We therefore turn to the merit of the appeal.

12.  At this stage, we should not engage in a detail examination of the merit as if we were hearing the appeal itself.  We have read the notice of appeal in light of the judgment of Deputy High Court Judge Hunsworth.  We are unable to agree with the submissions of the 2^nd defendant that it has such strong grounds of appeal to warrant the refusal of an order security for costs.  Though the point about Mr Tang’s cessation of directorship is reasonably arguable, the judge also adverted to the liability of the 2^nd defendant stemming from the guarantee at para 44 of the judgment.  The crucial question is whether the execution of the 6^th facility letter resulted in the discharge of the 2^nd defendant as a guarantor.  The submissions filed on behalf of the 2^nd defendant did not really address this issue. 

13.  As to the merit of the argument that costs should not be ordered on indemnity basis, we would not put it as higher than being barely arguable in light of Tele-Art Inc v Bank of China [2012] 1 HKLRD 484; [2012] 5 HKLRD 399.  In any case, such argument relates only to the order for costs and could not by itself be of sufficient weight to avoid the grant of security for costs.    

14.  Taking all circumstances into account, we consider it is appropriate for us to order security for costs against the 2^nd defendant.  On Cai’s own evidence, the 2^nd defendant should not have difficulty in complying with such an order.   

15.  Having considered the skeleton bill exhibited to the affirmation of the plaintiff (which adds up to $252,602), and having regard to the complexity and length of the appeal and the experience of counsel and solicitor involved in its preparation on behalf of the plaintiff, we shall order the 2^nd defendant to pay security for costs in the sum of $150,000. The security for costs is in respect of the costs of the appeal.  It does not include the costs of this application, for which we would make a separate order below.  We will give the 2^nd defendant 21 days to pay such security for costs.  Subject to such modifications, there will be an order in terms of paras 1 to 3 of the summons.   

16.  In the letter of 18 April 2017 rejecting the request for security, solicitors for the 2^nd defendant claimed that the 2^nd defendant had business in Hong Kong in operation.  This is manifestly untrue.  The 2^nd defendant has unreasonably opposed the application.  We order the 2^nd defendant to pay the plaintiff’s costs of this application.  Having considered the statement of costs of the plaintiff of 28 June 2017, bearing in mind this is an application disposed on paper, we fix the same at $83,452.00.