WILLWIN DEVELOPMENT (ASIA) CO LTD AND ANOTHER v. WEI XING AND OTHERS

CACV 76/2016
and CACV 90/2016
(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 76 OF 2016 AND 90 OF 2016

(ON APPEAL FROM HCA NO 797 of 2012)

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(HEARD TOGETHER)

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REASONS FOR JUDGMENT
AND DECISION ON COSTS

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Hon Lam VP (giving the Reasons for Judgment and Decision on Costs of the Court):

1.  These are two appeals arising from the judgment of M Chan J of 8 March 2016 in HCA 797 of 2016. After a trial which lasted 23 days, the judge found that the 1^st defendant acted in breach of his director’s duties towards the 1^st plaintiff in diverting business opportunities to the 2^nd defendant. The 3^rd defendant, the wife of the 1^st defendant, was a director and sole shareholder of the 2^nd defendant. The 3^rd defendant had also been a director of the 1^st plaintiff but her directorship was “suspended” since June 2011. The judge also found that the 1^st defendant misused confidential information of the 1^st plaintiff. She found that the 2^nd and 3^rd defendants dishonestly assisted in the breach of duties of the 1^st defendant. She further held that the 1^st and 2^nd defendants were liable to the 1^st plaintiff for passing off.

2.  The 1^st defendant, acting in person, appealed against that judgment in CACV 76 of 2016.  The 2^nd and 3^rd defendants appealed against that judgment in CACV 90 of 2016.  The appeals are scheduled to be heard together from 23 to 25 May 2017.

3.  By two summonses of 15 September 2016 taken out in the two appeals respectively, the plaintiffs sought security for costs against the defendants. 

4.  In the summons issued in CACV 76 of 2016, the plaintiffs sought security for costs against the 1^st defendant in the sum of $770,000 on the ground that the 1^st defendant is impecunious and ordinarily resides out of the jurisdiction.  They also said that there would be difficulties faced by the plaintiffs in enforcing any order for costs against the 1^st defendant.

5.  In the summons issued in CACV 90 of 2016, the plaintiffs sought security for costs against the 2^nd and 3^rd defendants in the sum of $828,000.  The application was made against them on the grounds that they were impecunious and the 3^rd defendant ordinarily resides out of the jurisdiction.  They also prayed in aid that there would be difficulties in enforcing order for costs against these defendants.

6.  Under Order 59 Rule 10(5), the Court has the power to order security for costs in an appeal in special circumstances.  The relevant principles were discussed in Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650.  Impecuniosity of an appellant and the likelihood of a successful respondent in encountering difficulties in enforcing an order for costs are special circumstances that the Court can take into account.  The merits of an appeal can constitute counterveiling factor. 

7.  In the present appeals, the defendants accepted that security should be given and they only contested the quantum of the security.  We are satisfied that security should be ordered.

8.  Since there are two appeals and the parties to the two appeals are different, we are of the view that different orders for security for costs should be made in respect of each appeal.  Thus, the non-payment of security for costs by an appellant in one appeal would not affect the other appeal if security for costs were paid by the appellant in the other appeal.

9.  Further, having read the judgment and the notice of appeal filed in the respective appeal, we can see that though there are common issues in both appeals, there are also issues which are only relevant in one set of appeal but not the other.  In assessing the quantum of security to be ordered in each set of appeal, the Court must have regard to the issues raised in that set of appeal.

10.  Since there are two different appeals and security for costs is to be ordered in each appeal, it cannot be assumed at this stage that both sets of appeal would go ahead and split the costs on common issues between the two appeals.  The plaintiffs would have to incur the full amount of the costs on common issues if only one set of appeal proceeds upon the payment of security.

11.  Before the issue of the summonses, solicitors for the plaintiffs wrote to the defendants seeking security for costs in the sum of $353,000 in CACV 76/2016 and $226,000 in CACV 90/2016.  The 1^st defendant referred to a joint offer by him and the 2^nd and 3^rd defendants in a letter of 6 July 2016 to pay the sum of $250,000 as joint security.  He said the plaintiffs did not respond to that offer when they issued the summonses in September 2016 substantially increasing the amount of security sought.  Counsel for the 2^nd and 3^rd defendants, also referred to an offer in a letter of 26 May 2016 proposing $250,000 as joint security for both appeals.  

12.  The 1^st defendant also relied on a judgment in the sum of RMB 3,444,999.95 in his favour.  However, that sum was the subject matter of proceedings in another case in Shenzhen and was frozen by an order of the court in Shenzhen.  This Court cannot regard that as the asset of the 1^st defendant available for payment of his potential cost liabilities in CACV 76/2016.

13.  On the substantial increase in the amounts of security, solicitor for the plaintiffs explained that it was due to the substantial works undertaken by him in the preparation of the appeals and the engagement of senior counsel. He also said that the estimated length of the appeals had been increased from 3 hours to 3 days.

14.  We do not accept that there had been material changes in the course of the preparation of the appeals which necessitated substantially more works to be undertaken by the solicitors for the plaintiffs. However, the increase in the length of the appeals is a valid point.

15.  As regards the engagement of senior counsel, we note that the plaintiffs were continuously represented at the trial by two counsel (though there had been a change of leading counsel, no senior counsel had been engaged at the trial).  The appeals mainly involve issues of fact and we do not see any complicated arguments on law being involved.  However, the scope and complexity of the issues warrant, in our view, the engagement of two counsel by the plaintiffs in the appeals.  We are of the view that the engagement of a senior junior as leader will be sufficient.  Bearing in mind the guidance on the proper perimeters in an appeal against factual findings set out in China Gold Finance Ltd v CIL Holdings Ltd CACV 11/2015, 27 November 2015 and Hoptai Sharkfins Co Ltd v Productos Pesqueros Gallegos SL CACV 240/2014, 7 December 2015, there is clearly much room for improvement in the concise and clear formulation of the grounds of appeal in both appeals.  The 1^st defendant, in his written submissions of 5 December 2016 demonstrated his understanding of such guidance and his ability to focus on arguable grounds of appeal at paragraphs 7 to 12.  With proper preparation and skeleton submissions clearly distilling the relevant issues which are arguable (and we shall later give specific case management directions in these appeals with a view to achieve the same), we are further of the view that the appeals should be able to be finished within 2 days. 

16.  In ordering security, the Court does not necessarily have to order the full amount which it assesses as reasonable costs of the appeals.  This is particularly so when two separate sets of security are ordered.  The Court shall make an order as it deems just.

17.  We also bear in mind the discussion on reasonable estimate of costs of the appeal in Macau First Universal International Ltd v Ding Xiao Hong CACV 190/2014, 11 December 2014.

18.  Taking these into account, we ordered $400,000 as security for costs in CACV 76/2016 and another $400,000 as security for costs in CACV 90/2016.  In light of the imminence of the hearing of the appeals, after taking account of the requests of the defendants, we shortened the time for payment of security to payments by 6 March 2017.  Subject to our decisions on costs below, there shall be order in terms of the summonses with these revisions.  

19.  Whilst the amounts ordered by us exceed the joint offer of the defendants, we are of the view that solicitor for the plaintiffs should have been more forthcoming in pursuing these applications.  It is not conducive to the efficient disposal of an application for security for costs to increase the amounts sought in the summons substantially without proffering any explanation why less security were previously asked for. We note that the plaintiffs only account for the increase in the reply affirmation of Wei Wen of 8 November 2016. For this reason, to discourage similar practice in the future, we shall only give the plaintiffs half of the costs of these applications.  Further, we do not accept it is reasonable to engage two counsel for the purpose of these applications.  Having regard to the statement of costs of the plaintiffs and the submission of the parties, we fix the costs payable by the 1^st defendant in CACV 76/2016 at $51,825 and the costs payable by the 2^nd and 3^rd defendants in CACV 90/2016 at $46,825. Such costs are to be paid forthwith.        

20.  We have also given case management directions for the proper preparation of the appeals on the assumption that the security for costs as ordered by us will be duly paid (otherwise the appeals would be dismissed according to our orders on security for costs):

(a)  Notwithstanding the stay ordered under summonses for security for costs, the 1^st defendant shall file and serve a summons for admission for fresh evidence (and if he deems fit a summons challenging the authority of the solicitors for the plaintiffs) together with his affirmation and submission in support of such application(s) by 24 February 2017. Failure to do so will debar him from making such applications in CACV 76 of 2016;

(b)  Notwithstanding the stay ordered, the 1^st defendant shall file his Amended Notice of Appeal by 3 March 2017; 

(c)  After the payment of the security for costs in CACV 76 of 2016, the Plaintiffs shall file submission opposing the application(s) of the 1^st defendant by 10 March 2017;

(d)  The 1^st defendant shall file submission in reply by 17 March 2017;

(e)  The court shall process the application(s) on paper and give its ruling on the application by 24 March 2017;    

(f)  Notwithstanding the stay, the 1^st defendant shall liaise with solicitors for the 2^nd and 3^rd defendants immediately on the preparation of Joint Appeal Bundles.  The defendants shall lodge and serve Joint Appeal Bundles prepared in accordance with the new PD 4.1 Section F paragraphs 38 to 51 and paragraph 53 by 5 April 2017;

(g)  The 1^st defendant shall lodge and serve his skeleton submissions in CACV  76/2016 which shall be prepared in accordance with the new PD 4.1 Section G by 5 April 2017;

(h)  The 2^nd and 3^rd defendants shall lodge and serve their skeleton submissions in CACV 90/2016 which shall be prepared in accordance with the new PD 4.1 Section G by 5 April 2017;

(i)  If the plaintiffs wish to refer to additional documents which are not in the Joint Appeal Bundles lodged under (f), the supplemental bundles shall be lodged and served by the plaintiffs by 26 April 2017;

(j)  The plaintiffs shall lodge and serve their skeleton submissions in both appeals which shall be prepared in accordance with the new PD 4.1 Section G by 26 April 2017;

(k)  Apart from the above, no further documents or summons shall be filed without leave of the Court;

(l)  Strict compliance with these directions is expected and non-compliance may result in the dismissal of the appeals (in case of non-compliance by the appellants) without consideration of the merits or barring submissions to be advanced at the hearing of the appeals or the vacation of the hearing dates with immediate costs sanction against the defaulting party.