XCHRX NISSAN LTD. V. LEUNG MAY YUK

IN THE COURT OF APPEAL

1996, No. 221
(Civil)

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J U D G M E N T

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Liu, J.A.:

1. The appellant/plaintiff is an insubstantial company. It is not in dispute that the appellant will not be able to meet the appeal costs should it fail in its prosecution. The appeal arises in this way. $2 1/2 million was paid as a deposit for the performance of a contract for the sale of land. The $2 1/2 million represented 20% of the purchase price. The appellant was allegedly in default and the 20% deposit was thereupon forfeited. The appellant claims the return of the 20% deposit in the sum of $2 1/2 million. The respondent/defendant resisted the appellant's claim. The respondent counterclaimed against the appellant for damages over and above $2 1/2 million and evidently if damages were to be awarded in full, the forfeited 20% deposit would be taken into account. Naturally, the appellant was a defendant in the counterclaim.

2. Issues having been joined in the way I have just described, the respondent successfully sought security for costs from the appellant. The application for security of costs in the action was entertained by Jerome Chan, J, who awarded a sum of $550,000 as security. The appellant feels aggrieved, hence the appeal. A Notice of Appeal has been lodged, challenging the order of Jerome Chan, J, granting $550,000 by way of security of costs. The provision for forfeiting the said 20% deposit is said to be a penalty. Therefore, the forfeiture could not be sustained. It is also complained that the judge was wrong in giving less than full weight to the fact that the appellant was a defendant in the respondent's counterclaim. The appellant is further critical of the judge for having taken into account costs that had been awarded. There was also a question of alleged delay in the making of the respondent's application for security of costs. The Judge considered all these submissions.

3. The respondent now applies for security of costs in the appeal from the appellant. The respondent's instant application is being resisted. . It is common ground that the appellant limited company would be unable to pay the costs of the appeal if the respondent should succeed. I considered the abstract question of 20% deposit inSilverpole Ltd. v. China Pride Investment Ltd. H C Action A8894 of 1991, the judgment of which was delivered on 18 February 1994, but without the assistance of expert evidence on conveyancing in Hong Kong. Again unaided by any such expert evidence, success of the appellant's appeal on the construction of the forfeiture clause as a penalty clause cannot now be said to be "real and substantial" (see p.1008 Vol. 1 1997 White Book), although as I am presently advised, the matter is not unarguable. The appellant's want of means has not been brought about by any wrongful act, in the true sense of that term, committed against it by the respondent. The source from which the $2 1/2 million deposit was provided has not been disclosed. It is not known whether that source is now unavailable or exhausted. The authorised capital of the appellant and its subscribed shares are not sufficient to meet a realistic portion of the appeal costs. The principles to be applied by this court on an application for security for costs are, as I understand it, "wider and stricter". 1997 White Book p. 1006, 59/10/19. The appellant is clearly unable to satisfy the appeal costs and he has already had the issue of security for costs for the action decided once in the court below by Jerome Chan, J. Moreover, the issue decided by the judge involved the exercise of discretion. It is trite law that the exercise of such a discretion is not easy to disturb. Further, in addition to the lack of information as to how the $2 1/2 million deposit came about, it has not been shown that the appellant could not obtain fund elsewhere for its appeal if it is serious enough to wish to retrieve the $2 1/2 million forfeited deposit. Jerome Chan, J had dealt with the complaints set out in the appellant's grounds of appeal. This court is not at all persuaded that the judge has clearly been shown to have erred. Taking all these into account, the matter rests ultimately in my residual discretion. I am indebted to Sir John's usual clear skeleton submission and the assistance rendered by Mr Chow for the appellant. In the circumstances, it is not difficult to see which side the scale should tip. Clearly, in the circumstances the appellant must be asked to pay security of costs for re-ventilating the exercise of judicial discretion in the Court of Appeal. For all these reasons, I would accede to the applicant's application.

4. There is no serious arguments as to the quantum sought. Of the $160,000 in the estimate, the applicant seeks $155,000 by way of security of costs. The applicant's summons is therefore granted in terms and the amount of the security ordered is $155,000. And subject to what counsel have to say, I propose to order that costs of the application be costs in the course of the appeal.

(Submissions on costs)

5. The applicant succeeds in her application. There is much to be said for the proposition, as I am reminded of it by Sir John, that the party succeeds should take costs as well. That is the usual order to be made that costs is to follow the event. The appeal is one concerned with security for costs in an action for the recovery of forfeited 20% deposit. As I said before, the source of the $2½ million deposit has not been disclosed, and it has also not been demonstrated that the appellant is in any way inhibited from obtaining the necessary fund from the same or other source for prosecuting its appeal. But for this last consideration, I would find it a little difficult to resolve the question of costs in the instant application which is made for the protection of the appellant, albeit as a successful litigant who has had an issue determined in her favour in the court below. But in the circumstances, the relevant matters for consideration, including those I have specifically referred to, are insufficient to displace the usual order for costs to follow the event.

6. I agree with Sir John, therefore, that costs of the application be borne by the appellant in the appeal, the respondent in this application. I further order that the security ordered be furnished by payment into court.