TOP TALENT DEVELOPMENT LTD v. TOP SYSTEM INVESTMENTS LTD

CACV 124 /2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL No. 124 of 2008

(ON APPEAL FROM HCA No. 2098 of 2006)

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DECISION

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Hon. Yuen JA:

1.  This is an application by the Plaintiff that the Defendant give security for costs in the sum of $509,500 for the Defendant’s appeal against Yam J’s order given on 20 March 2008 (“the Order”).  The judge handed down his reasons for judgment on 9 April 2008.

Background

2.  The Plaintiff had rented commercial premises to the Defendant for a term of 4 years from 1 February 2003 to 31 January 2007, with two options for the Defendant to renew the tenancy, the first for a term of 3 years from 1 February 2007 to 31 January 2010, and the second for a further term of 3 years from 1 February 2010 to 31 January 2013.  The option to renew was conditional upon the Defendant having punctually paid the rent and there being no subsisting breach of the obligations in the Tenancy Agreement. 

3.  The Plaintiff alleged that the Defendant failed to pay rates for the 1^st and 3^rd quarters of 2006 and failed to pay interest for late payment of rent and other charges.  The Plaintiff issued a writ on 21 September 2006 demanding delivery up of vacant possession and payment of the outstanding sums. 

4.  The Defendant counterclaimed for an order for specific performance of the first option to renew, claiming that it had validly exercised the option on 29 June 2006. 

5.  Accordingly as at the time of trial, the Defendant was still in occupation of the premises although the original term had already expired. 

6.  After a 3-day trial, the judge ordered that the Defendant deliver up vacant possession of the premises to the Plaintiff and pay the Plaintiff mesne profits, rates and interest as well as costs on a solicitor and own client basis.  The judge however ordered a stay of execution of the Order for delivery up of vacant possession until 30 June 2008, on condition that the Defendant paid the sums ordered within 21 days of the date of the Order (i.e. by 10 April 2008).

7.  The Defendant failed to make that payment but subsequently applied for a stay pending appeal.  On 13 June 2008 the judge ordered a stay of execution pending appeal, on condition that the Defendant pay the Plaintiff a total sum of $2,278,124.40 by 3 pm on 27 June 2008 and mesne profits at $600,000 a month on the first day of each calendar month commencing 1 July 2008.

Appeal

8.  On 6 May 2008 the Defendant lodged a Notice of Appeal from the Order.  I note that the Defendant has not appealed against the order that it pay the Plaintiff mesne profits, rates and interest in the sums stipulated in the Order.

9.  A Respondent’s Notice was lodged on 27 May 2008.  The appeal has been fixed to be heard on 21 November 2008.

Summons for security for costs

10.  On 15 July 2008 the Plaintiff issued a summons for security for costs of the appeal.  This was supported by an affirmation of its accountant Ku Shing Lan.

11.  The Defendant did not file any affirmation in opposition.  Its solicitor informed the Court today that he was unable to contact the directors of the Defendant and that he had no instructions to consent or to object to the application for security for costs. 

Principles

12.  The principles governing applications for security for costs of an appeal have been summarized by the Court of Appeal in Chung Kau v Hong Kong Housing Authority and others [2004] 2 HKLRD 650, at 656, thus:

“The relevant principles in particular the treatment of impecuniosity as a special circumstance are summarized in Hong Kong Civil Procedure 2004 vol. 1 at paragraphs 59/10/28 - 59/10/29.  In this context however, I would emphasize the following:

(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 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, whilst 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 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”.

Defendant’s impecuniosity

13.  Applying the above principles to the present case, the first matter to be examined was whether the Plaintiff has shown that the Defendant is impecunious.

14.  The Plaintiff relied upon the fact that the Defendant company has only issued two $1 shares, and also the fact that the Defendant has made no payment to the Plaintiff even though:

(1)   the Defendant’s director has alleged on affirmation dated 26 May 2008 that he was able to settle immediately all outstanding balances,

(2)   the two orders for stay of execution were conditional upon payment, and

(3)   a statutory demand has been served.

15.  In my view, the Plaintiff has clearly proven that the Defendant is impecunious, or at least that it is not prepared readily to make payment to the Plaintiff.

16.  It is thus clear that if the Defendant were to fail on appeal, it is unlikely that the Plaintiff would be able to recover its costs of the appeal. 

Merits of the Defendant’s appeal

17.  Applying the principles set out in Chung Kau, the next stage is to see if the Defendant has demonstrated countervailing factors which would militate against an order for security being made.

18.  I have considered the grounds of appeal set out in the Notice of Appeal.  At this stage (when a detailed examination of the merits is not necessary or desirable - see Chung Kau), it seems to me that the Defendant’s case is not that strong that I should exercise my discretion against security for costs. 

Estimate of costs

19.  As for the estimate of costs, given the simplicity of the points raised in the Notice of Appeal and the Respondent’s Notice, the solicitors’ costs of preparation should be substantially reduced and a sum of $300,000 should be in my view an adequate estimate of the costs involved.

Order

20.  I would therefore order that the Defendant do within 28 days pay $300,000 into Court as security for the costs of and occasioned by its appeal, and that until such security is given, the appeal be stayed, and that in default of the security being furnished within the time aforesaid, the appeal stand dismissed without further notice or order, with costs of the appeal to be taxed if not agreed and paid by the Defendant to the Plaintiff. 

21.  I would also order that the Defendant pay the costs of the summons for security for costs which I would assess at a gross sum of $35,000.