GHAZI FAIDI v. QANTEX CAPITAL MARKETS LTD AND OTHERS

CACV 296/2023, [2024] HKCA 677

On Appeal from [2023] HKCFI 2184

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 296 OF 2023

(ON APPEAL FROM HCA NOS 272 AND 486 OF 2018)

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(Consolidated by Order of Master Queenie Lau dated 2 October 2018)

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J U D G M E N T

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Hon Chow JA (giving the Judgment of the Court):

1.  This is the Plaintiff’s application for security for costs of the Defendants’ appeal against the order of Deputy High Court Judge Sara Tong, SC (“the Judge”) dated 25 August 2023 (“the Order”), whereby the Judge, inter alia, (i) entered final judgment for the Plaintiff in the sum of US$750,000 (“the Bonus Claim”), and (ii) struck out the 1^st Defendant’s counterclaim for the sum of US$250,000 (“the Bonus Counterclaim”).

2.  Having read the documents and the submissions filed by the parties, we consider that it is appropriate to determine the present application on paper without an oral hearing pursuant to Order 59, rule 14A(1) of the Rules of the High Court, Cap 4A.

BRIEF BACKGROUND

3.  The Plaintiff was an employee of the 1^st Defendant, a licensed financial institution engaged in the business of stock brokerage.

4.  The 2^nd and 3^rd Defendants are brothers, and are together the majority shareholders, directors and responsible officers of the 1^st Defendant.

5.  By an employment agreement dated 13 July 2011, the Plaintiff commenced employment with the 1^st Defendant for a fixed term of 3 years (“the First Employment Agreement”). Shortly before the expiry of the First Employment Agreement, the Plaintiff entered into a new employment agreement with the 1^st Defendant dated 3 April 2014 (“the Second Employment Agreement”), for an initial term of 39 months and thereafter to be continued indefinitely until termination.

6.  Under the Second Employment Agreement, the 1^st Defendant agreed to pay to the Plaintiff a “sign-on bonus” for agreeing to continue with his employment with the 1^st Defendant, the details of which were set out in Schedule 2 thereto. The 2^nd and 3^rd Defendants signed the Second Employment Agreement as guarantors of the 1^st Defendant in respect of a payment obligation under Clause 2(e)(iii) of Schedule 2.

7.  In the consolidated action, the Plaintiff claims, inter alia, for the sum of US$750,000 (being the amount of liquidated damages in the sum of US$1,000,000 less a part-payment of US$250,000 made by the 1^st Defendant) pursuant to Schedule 2 to the Second Employment Agreement.

8.  In their consolidated Defence and Counterclaim dated 12 February 2019, the Defendants deny the Plaintiff’s claims. The 1^st Defendant further counterclaims against the Plaintiff for (inter alia) the return of the sum of US$250,000 allegedly paid to the Plaintiff by mistake.

9.  On 14 December 2022, the Plaintiff took out a summons (“the Summons”) for (i) summary judgment for the Bonus Claim, and (ii) the striking out of the Bonus Counterclaim.

10.  On 25 August 2023, the Judge gave a written decision (“the Decision”) entering summary judgment for the Plaintiff in respect of the Bonus Claim, and striking out the Bonus Counterclaim.

11.  The relevant facts of this case and the Judge’s reasons for the Order are fully set out in the Decision, and will not be repeated here.

12.  The Defendants lodged an appeal against the Order by a Notice of Appeal dated 21 September 2023 (“the Appeal”).

13.  On 22 December 2023, the Plaintiff took out a summons, supported by an Affirmation of Choy Kam Ho filed on the same date (“Choy 1”), seeking security for the costs of the Appeal. As can be seen from Choy 1, the Plaintiff makes this application on the grounds that (i) the Defendants are impecunious, and (ii) the Plaintiff will face undue delay or expense in enforcing any costs order against the 2^nd Defendant in view of the fact that he ordinarily resides out of the jurisdiction.

14.  The Defendants oppose the application on the grounds that:

(1)  the state of affairs relied on by the Plaintiff in establishing the Defendants’ impecuniosity are no longer valid in light of recent developments;

(2)  this Court should take into account the fact that the 3^rd Defendant is a private individual residing in Hong Kong; and

(3)  the quantum of security sought by the Plaintiff is grossly excessive.

DISCUSSION

15.  Under Order 59, rule 10(5) of the Rules of the High Court, the Court of Appeal may, in special circumstances, order that such security shall be given of the costs of an appeal as may be just. The principles for the exercise of this jurisdiction are well settled. For this purpose, “special circumstances” include cases of insolvency or impecuniosity, or difficulty or expense in enforcing costs orders. However, even in such cases, the court retains a discretion not to order security if the appellant can demonstrate sufficient countervailing factors which would militate against such order being made (see Hong Kong Civil Procedure 2024, Vol 1, §§59/10/26 and 59/10/27).

16.  In contending that the Defendants are impecunious, the Plaintiff relies on the following matters:

(1)  the Defendants’ failure to pay several sums that are indisputably due to the Plaintiff including the judgment sum of US$750,000 plus interest thereon (“the Judgment Debt”) and the costs of the Summons in the sum of HK$261,498.10 as summarily assessed by the Judge (“the Assessed Costs”); and

(2)  a winding up petition was presented against the 1^st Defendant on 31 July 2023, and the Defendants failed to comply with the statutory demands issued by the Plaintiff against the Defendants on 16 October 2023 in respect of the Judgment Debt and the Assessed Costs.

17.  Insofar as §16(1) is concerned, as a matter of fact, on 20 March 2024, the Defendants paid into court the sums of US$1,169,620.82 and HK$273,344.58 in satisfaction of the condition imposed by the Judge on 18 March 2024 for granting a stay of execution of the Order pending the Appeal.

18.  Mr Wong (for the Plaintiff) argues that the Defendants’ payment in March 2024 does not detract from the fact that they are insolvent and facing financial difficulties because (i) the Defendants have no excuse not to pay the Judgment Debt and the Assessed Costs, (ii) if they were indeed solvent, they would have swiftly settled those sums upon (at the latest) receiving the Judge’s direction in September 2023 that the Appeal did not operate as a stay of execution of the Order and the relevant sums were due and payable, and (iii) the fact that the Defendants have dragged their feet for months, only agreeing to pay the bulk of the sums into court when they were on the brink of being wound up or declared bankrupt[1].

19.  It cannot be disputed the Appeal did not operate as a stay of execution of the Order, and the Defendants ought to have made payments to the Plaintiff or offered to have the relevant sums paid into court as a condition for a stay of execution pending appeal soon after the making of the Order by the Judge. However, the issue now for consideration is not whether the Defendants ought to have made payment earlier, but whether the evidence before the Court indicates that the Defendants are impecunious. The fact remains that the Defendants are able to pay very substantial sums of money into court in compliance with the Judge’s condition for granting a stay of execution of the Order pending appeal. We are not satisfied that the Defendants’ failure to make payment earlier shows that they are impecunious.

20.  Insofar as §16(2) is concerned, there is little information provided by the Plaintiff concerning the nature or progress of the winding up petition presented against the 1^st Defendant on 31 July 2023, while the Plaintiff’s own winding up/bankruptcy petitions against the Defendants following their non-satisfaction of the statutory demands have been dismissed by consent as a result of the aforesaid payment into court by the Defendants. The existence of the said statutory demands and/or petitions does not add anything of substance to the Plaintiff’s application.

21.  The Plaintiff relies on the fact that the 2^nd Defendant ordinarily resides out of the jurisdiction. This is not disputed. However, it is counter-balanced by the fact that there is a co-appellant within the jurisdiction, namely, the 3^rd Defendant. This is a relevant, though by no means conclusive, factor which the Court may take into account when deciding whether to order security for costs where the ground of application is foreign residence of a party (see Hong Kong Civil Procedure 2024, Vol 1, §23/3/5). Mr Wong argues that the 3^rd Defendant’s residence in Hong Kong is not a countervailing factor because “if (as here) the appellants are all impecunious, the respondent will face the risk of not being able to recover the costs of the appeal from the appellants irrespective of where the appellants reside”[2]. This argument has no force given our view that the Plaintiff has failed to show that the Defendants are impecunious.

22.  The Plaintiff also relies on the fact that the Defendants “did not dispute the fact that they are impecunious, nor did they furnish any proof of their financial income”[3]. However, as pointed out by the Court of Appeal in Siu Wai Ming v Shiu Wai Hong [2021] HKCA 1802, at §12 –

“In relation to ‘impecuniosity’, Mr Lee argues that the Plaintiff has not refuted or directly responded to the ‘suggestion’ that ‘he may be impecunious’ … However, the burden is on the Defendants seeking security for costs to produce evidence of the Plaintiff’s impecuniosity. It is insufficient for the Defendants to make a suggestion that the Plaintiff ‘may be’ impecunious and then ask the court to find or infer that the Plaintiff ‘is’ impecunious by reason of his failure to refute or directly respond to the suggestion. Such approach is wrong in principle, and turns the application on its head.”

23.  Overall, we are not satisfied, on the materials before us, that special circumstances exist in the present case which would render it just to order security for the Plaintiff’s costs of the Appeal to be given by the Defendants.

24.  Having reached this conclusion, it becomes unnecessary for us to deal with the Defendants’ argument that the amount of the security sought by the Plaintiff is grossly excessive. Nevertheless, we cannot end this Judgment without a brief comment on the Plaintiff’s skeleton bill of costs. The Plaintiff’s estimated costs of the Appeal come to over HK$721,000, which is more than 2.5 times the costs of the Summons as summarily assessed by the Judge (on a party and party basis), even though the arguments before the Court of Appeal will probably be the same as, or very similar to, those before the Judge, and are themselves pretty straight forward. A total of 4 fee earners are involved, and it is stated that more than 15 hours have been spent on “Reviewing/considering/persuing relevant pleadings and documents in the Court below, the Notice of Appeal etc. including this Skeleton Bill of Costs”, and it is further estimated that (i) 32 hours will be spent on “Further attendances upon and exchanging correspondence with client for the purpose of taking instructions and advising on the proceedings, obtaining further instructions to brief Counsel, arranging for including attending in consultation and pre-trial conference for full preparation for the appeal hearing etc.”, (ii) 12 hours will be spent on “Attendances upon and/or exchanging correspondences with the Applicants’ solicitors in relation to incidental matters relevant to the forthcoming appeal hearing etc.”, (iii) 24 hours will be spent on “Attendances upon and/or exchanging correspondence and/or attending in consultation with Counsel for necessary advice to be sought on the merits of the appeal etc., arranging for conference(s), discussing on skeleton submissions, list of authorities etc”, and (iv) 5 hours will be spent on “Attending necessary further legal research throughout for the proper conduct of these proceedings”. The hours/estimated hours spent or to be spent are, we consider, plainly and grossly excessive. To ensure reasonable access to the court and to promote a sense of reasonable proportion and economy in the conduct of legal proceedings, we consider that the courts and taxing masters, when assessing costs either summarily or upon taxation, should be ready to scrutinise legal bills robustly. Had we decided to order security in the present case, we would not have been minded to award anything more than 50% of the amount sought by the Plaintiff.

DISPOSITION

25.  The Plaintiff’s application for security for costs is dismissed with costs to the Defendants, which we summarily assess in the sum of HK$100,000. The above assessment of the Defendants’ costs is an order nisi, which shall become absolute unless an application is made to vary it within 14 days from the date of this Judgment.