MANN KEVIN PATRICK v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD

CACV 84/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 84 OF 2015

(ON APPEAL FROM HCB 8025/2013)

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AND

CACV 86/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 86 OF 2015

(ON APPEAL FROM HCB 8023/2013)

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(HEARD TOGETHER)

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REASONS FOR JUDGMENT

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Hon Poon JA (giving the Reasons for Judgment of the Court) :

Introduction

1.  By two summonses both dated 17 August 2015, HSBC sought security for costs of the appeal against Ms Hilda Li Chung Yan, the appellant in CACV 84/2015 and Mr Kevin Patrick Mann, the appellant in CACV 86/2015 (“Ms Li” and “Mr Mann” individually and “the Appellants” collectively).

2.  On 7 October 2015, after hearing the parties, we allowed the applications and made the following orders :

(1) In respect of CACV 84/2015 :

(a) Ms Li is to provide security for costs of the appeal in the sum of HK$80,000.00 by paying the same into court within 42 days;

(b) Pending the payment of the security as aforesaid, the proceedings of the appeal be stayed;

(c) In default of the payment of the security as aforesaid, the appeal do stand dismissed without further order with costs to be taxed and paid by Ms Li; and

(d) Ms Li is to pay HSBC costs of its summons dated 17 August 2015 to be summarily assessed with consequential directions.

(2) In respect of CACV 86/2015 :

(a) Mr Mann is to provide security for costs of the appeal in the sum of HK$80,000.00 by paying the same into court within 42 days;

(b) Pending the payment of the security as aforesaid, the proceedings of the appeal be stayed;

(c) In default of the payment of the security as aforesaid, the appeal do stand dismissed without further order with costs to be taxed and paid by Mr Mann; and

(d) Mr Mann is to pay HSBC costs of its summons dated 17 August 2015 to be summarily assessed with consequential directions.

3.  We now hand down the reasons for our judgment.

Background

4.  The Appellants are husband and wife.  They are the only shareholders and directors of Manhattan (Asia) Limited (“Manhattan”). Manhattan used to operate Dymocks Booksellers in Prince’s Building, Central, Hong Kong.  Manhattan ceased business in about 2012.

5.  The Appellants are the guarantors under a joint and several guarantee for a term loan granted by HSBC to Manhattan up to HK$3 million. Manhattan has defaulted since August 2012.  On 27 December 2012, HSBC served two statutory demands both dated 16 December 2012 on the Appellants.  They then made a number of repayments to HSBC in the first half of 2013, totalling HK$135,250.00, leaving a balance of indebtedness of HK$1,889,296.30 as at 19 March 2015.

6.  HSBC then presented two bankruptcy petitions dated 5 November 2013 against Mr Mann (in HCB 8023/2013) and Ms Li (in HCB 8025/2013).  The petitions were heard together before Ng J on 19 March 2015.  By a judgment handed down on 24 March 2105, Ng J made a bankruptcy order against each of the Appellants respectively.

7.  The Appellants then appealed.  HSBC sought security for costs of the appeals against them.

Discussion

8.  Order 59, rule 10(5) of the Rules of the High Court, Cap 4A empowers the Court of Appeal, in special circumstances, to order security for costs of an appeal as may be just.  The impecuniosity of the appellant is one of the special circumstances.  The applicable principles governing how the Court exercises such power have been helpfully summarized by Ma CJHC (as the Chief Justice then was) in Chung Kau v Hong Kong Housing Authority & Others [2004] 2 HKLRD 650 at [40] as follows:

“(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, while 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.

(4) As I have said above, the overriding consideration for the court is to consider, as the rule requires, whether ‘special’ (not exceptional) circumstances exist making it 'just' to order security.”

9.  We would also add that it has long been the practice of the Court of Appeal to order provision of security where the appellant is resident abroad.  The rationale is undue delay or expense in enforcing the costs order aboard.  While it is the practice to order security, if special circumstances exist, the Court still retains a discretion not to order security against a resident abroad if the appellant could demonstrate countervailing facts which would militate against such order being made.  See Hong Kong Civil Procedure (2015 Edition), Vol 1, §59/10/28 at p 1098.

10.  Applying the principles here, we first consider the question of impecuniosity.  In our view, there is ample evidence to show that both Appellants are impecunious :

(1) They are bankrupt.

(2) Ms Li said in her affidavit filed on 27 November 2014 in HCB 8025/2013 that the Appellants could not afford legal representation.

(3) In another affidavit filed on 26 February 2015 in HCB 8025/2013, at [10], Ms Li said that the Appellants do not have resources available to HSBC.

(4) Manhattan has started proceedings in the Federal Court of Australia against Dymocks Franchise Systems (China) Limited seeking damages for breach of a franchise agreement.  The proceedings have been stayed because of Manhattan’s failure to provide security for costs in the sum of AUD58,000.00.

11.  Before us, Ms Li readily accepted that the Appellants are impecunious.  However, she argued that there were sufficient funds in the Appellants’ accounts with HSBC to meet their liability towards HSBC.  She was referring to the shares standing in their accounts with an average value of HK$750,000.00 which had been frozen by HSBC.  She argued that their impecuniosity is caused by HSBC because it has frozen the said accounts.

12.  But the reality is that the securities held in those accounts had already been realized by HSBC on 19 August 2015, pursuant to the instruction of the trustees of bankruptcy estate of the Appellants.  The freezing and sale of the shares were consequences of the making of the bankruptcy orders.  The same cannot be attributed to HSBC.  The net proceeds of about HK$670,000.00 are now with the trustees.  Plainly, the proceeds are not available to the Appellants to meet any costs order that the Court may make against them in their appeals. And since HSBC has no priority over the proceeds, it cannot be said that the Appellants’ impecuniosity is attributable to HSBC.

13.  That being our conclusion on the Appellants’ impecuniosity, provision of security for costs is prima facie in order.  In Mr Mann’s case, the fact that he is a resident of Australia and is in fact living there is an additional ground why, prima facie, security for costs should be ordered against him.

14.  We next consider if the Appellants can demonstrate countervailing factors which would militate against such an order from being made.

15.  The Appellants took a number of points.

16.  They argued that their appeals are meritorious.  At this stage, a detailed examination of the matters relied on by the Appellants is not necessary.  What we need to do is to form a preliminary view on the merits.  Having carefully considered all the matters relied on by the Appellants, we do not think that the merits of their appeals are so strong that it would tilt the balance and persuade us that an order of security should not be made.

17.  The Appellants relied on the fact that Mr Mann is now suffering from stress-related illness and it is the medical opinion of an Australian psychologist that he is not fit to participate in legal proceedings until his health improves.  While we have sympathy for Mr Mann, his health condition is simply irrelevant to the question of security.

18.  The Appellants alleged that HSBC had breached the Disability Discrimination Ordinance, Cap 487.  But that it is simply not a matter relevant to the bankruptcy proceedings below or their appeals.  They may well wish to take the necessary proceedings elsewhere but it has nothing to do with security.

19.  The Appellants contended that an order of security would stifle their appeals.  But that possibility is only one factor in the overall balancing scale.  The Court is mindful that the Appellants have already had their case determined before Ng J below, and so is prima facie an injustice to HSBC to allow an appeal to the Court of Appeal to proceed without securing for costs being furnished in circumstances where HSBC will be unable to enforce against the Appellants any order for costs made by the Court of Appeal: see Hong Kong Civil Procedure, supra, §59/10/25 at p 1095.  We do not think the possibility militate against security being ordered.

20.  The Appellants referred to the relative disparity of the resources of the parties.  In our view, such disparity is hardly a factor against ordering security in the circumstances before us.

21.  Finally, the Appellants argued that the proceedings involve public importance because the loan made to Manhattan was partially guaranteed by the Government pursuant to the Special Loan Guarantee Scheme.  Ng J in [13] to [17] of his judgment dealt with the Scheme in some length.  The Appellants’ contention, in gist, is that HSBC had been mis-selling the loans granted under the Scheme to their clients, including the Appellants.  Their appeals raised the issue of misuse of public monies by HSBC.  Even taking the Appellants’ case to the highest, we do not think HSBC’s alleged misconduct could give rise to such public importance as contended.  And we fail to see how the Appellants could resist the making of an order for security on such a ground.

22.  For the above reasons, the Appellants have failed to demonstrate any countervailing circumstances that militate against an order of security from being made.

23.  On quantum, having considered the skeleton bill supplied by HSBC, we think a reasonable figure is HK$80,000.00 for each of the Appellants’ appeals.

24.  As to the costs of the present applications, they should follow the event.  We give the Appellants 14 days to respond in writing to HSBC’s skeleton bill of costs and HSBC to respond in writing within 7 days thereafter.  We will then summarily assess the costs on paper.

Conclusion

25.  For the above reasons, we made the orders as set out in [2] above.