MAGNIFICENT MELODY LTD v. CHAN JOHN LOONG FAI AND OTHERS

CACV 273/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 273 OF 2013

(ON APPEAL FROM HCMP NO. 1485 OF 2012 AND HCA NO. 1229/2012

(CONSOLIDATED))

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BETWEEN

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1.  This is the plaintiff’s application for security for costs on appeal against the 1^st defendant, Chan John Loong Fai, on the grounds that he is not ordinarily resident in Hong Kong and he is impecunious.

2.  The 1^st defendant filed a notice to act in person on 13 June 2014.  He has not filed any evidence to oppose the application pursuant to the directions given on 21 February 2014, nor has he filed any submission in writing.  He told the court it was only the day before the hearing that he read the papers of this application served by the plaintiff some time ago, that he was not clear of the grounds of application and did not know what to say although he opposed the application.

3.  At the hearing, I made an order that security for costs on appeal should be provided and these are the reasons for decision.

4.  The appeal brought by the 1^st defendant is in respect of a summary judgment granted by Deputy High Court Judge Seagroatt on 2 December 2013.  The appeal has not been set down.

5.  There are three defendants in this consolidated action.  The first two are individuals and they are directors of the third defendant, Lanco International Holdings Limited (“Lanco”).  Lanco went into receivership in 2012 and a winding-up order was made against it on 2 April 2014 on the petition of the plaintiff on the basis of the judgment debt in the summary judgment.  Lanco has not appealed the summary judgment.

6.  By that judgment, it was ordered against the three defendants that the register of members of Lanco be rectified by inserting therein the name of the plaintiff as the holder of 200,000 shares and as against Lanco, it was ordered to pay the plaintiff US$1,026,000 being outstanding service fees.  An order of costs in the plaintiff’s favour was made against all three defendants.

7.  The 1^st defendant filed a Notice of Appeal on 23 December 2013, contending that the application for summary judgment was an abuse of process in view of certain indications given by Deputy High Court Judge Le Pichon at a directions hearing on 26 October 2012, and that the judge was in error in rejecting the 1^st defendant’s arguments on economic duress and past consideration for the two loan agreements.

8.  The principles for ordering security for costs on appeal under Order 59 rule 10(5) of the Rules of the High Court are well established.  Special circumstances for ordering security within the meaning of that provision are made out where the appellant is impecunious or that the respondent is likely to encounter undue difficulty or expense in enforcing any costs order in his favour in respect of the appeal.

9.  I am satisfied on the evidence that special circumstances are made out in this instance.

10.  The 1^st defendant does not appear to be ordinarily resident in Hong Kong.  According to the evidence filed by the plaintiff, he works and resides in Guangxi, China.  In the documents filed in the Companies Registry, he provided as his addresses an address in Admiralty Centre, Hong Kong and an address in the United States.  The address in Admiralty Centre is merely that of a business centre that was used for the time by Lanco when Lanco moved out of a regular office.

11.  The 1^st defendant is not known to have any real property or other substantial assets within Hong Kong.  He is the majority shareholder of Lanco which had encountered financial difficulties for some time, as borne out by his letter to the court dated 27 May 2013 when he sought an adjournment of the application for summary judgment.  He has provided a personal guarantee of a loan of about $50 million to Lanco, which is the subject of another action, and Lanco has been in default since 2009.

12.  The 1^st defendant also has outstanding costs liability in the present action, estimated by the plaintiff to be in the region of $1 million.

13.  It is therefore incumbent on him to show countervailing factors why the court should not order him to provide security for costs on appeal.

14.  I do not consider there are any countervailing factors here.  The grounds of appeal are clearly not of sufficient merit that the court should exercise discretion not to order security.

15.  The amount of security sought by the plaintiff is $1.15 million, for an appeal scheduled to last for half a day.  The draft bill of costs provides for the fees of a senior counsel and a junior counsel attending the application for security for costs and for the appeal, so that disbursements of counsel fees would come up to $1,029,000.

16.  It seems to me the amount of costs sought is grossly inflated, both in respect of solicitors’ fees and fees of counsel.  In my view, reasonable costs for the application for security for costs and for the appeal should not cover the deployment of a senior and junior counsel for a relatively simple matter.  I would reduce the solicitors’ fees by about a third and assess the fees of counsel on the basis that only one counsel of suitable seniority be engaged.  My assessment of estimated reasonable fees is $330,000 and this will be the amount of security to be provided.

17.  The 1^st defendant informed the court he expects to receive funds in early September.  I decided to give him a longer period of 56 days to provide security.

18.  I have made the following orders:

(1) the 1^st defendant do within 56 days hereof give security for the plaintiff’s costs of the appeal in CACV 273/2013 in the sum of $330,000 by making lodgement in court of the said sum by cash or bankers draft, and until such lodgement be made and notice thereof given to the Registrar and to the solicitors for the plaintiff (such notice to be given on the same day as the lodgement is made) all proceedings in the said appeal are to be stayed;

(2) in default of the 1^st defendant making such lodgement as aforesaid within the time specified, or within such further time as the court may for special reasons allow, the said appeal do (upon the solicitors for the plaintiff certifying such default to the Registrar) stand dismissed out of this court without further order;

(3) in the event that the appeal is dismissed in the circumstances provided for above, the 1^st defendant do pay the plaintiff its costs occasioned by the said appeal, such costs to be taxed if not agreed; and

(4) the costs of this application be costs in the appeal.