EXCLUSIVE NETWORKS DEUTSCHLAND GMBH v. WAKOON TRADING (H.K.) LTD AND ANOTHER

CACV 424/2022, [2023] HKCA 1072

An appeal from [2022] HKCFI 2966

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 424 OF 2022

(ON APPEAL FROM HCA NO. 954 OF 2019)

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D E C I S I O N

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Hon Cheung JA (giving the Decision of the Court) :

I.  Security for costs of the appeal

1.  This is the 2^nd defendant’s application for an order that the plaintiff do pay into court $907,500 as security for costs of the appeal lodged by it against the judgment of Harris J dated 28 September 2022 (‘the Judgment’).

2.  Having considered the papers, we are of the view that it is appropriate to deal with this application on paper, without an oral hearing, pursuant to Order 59, rule 14A(1) of the Rules of the High Court (‘RHC’) (Cap. 4A).

3.  According to the affirmation of Mr. Chong Ling Wan filed on behalf of the 2^nd defendant, the application is made on the following grounds :

1)  The plaintiff is a company ordinarily resident out of the jurisdiction;

2)  There is no evidence that the plaintiff has fixed or permanent assets within the jurisdiction to satisfy the 2^nd defendant’s costs in the event that the plaintiff is unsuccessful in the appeal proceedings;

3)  The plaintiff has provided security for costs in the proceedings at first instance; and

4)  The plaintiff’s appeal against the Judgment made in favour of the 2^nd defendant has no strong prospect of success.

4.  The plaintiff opposes the application on three grounds :

1)  Security for costs should not be ordered because the merits of the appeal are strong;

2)  The 2^nd defendant has not demonstrated that the enforcement of costs order against the plaintiff would face undue delay or difficulties; and

3)  The amount of legal fees sought is exorbitant.

II.  Principles

5.  Under Order 59, rule 10(5) of RHC, the Court of Appeal may, in special circumstances, order security to be given for the costs of an appeal as may be just. For this purpose, ‘special circumstances’ include, inter alia, cases where if the appellant fails in the appeal, the respondent may encounter difficulty in terms of delay or expenses in enforcing the costs order against the appellant. The burden is on the respondent to demonstrate that there will be delay or expenses in enforcing an adverse costs order against the appellant.

6.  The Court, however, has a discretion and 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 security for costs to be provided. But once a special circumstance is shown, it is generally up to the appellant to demonstrate countervailing factors militating against an order being made.

III.  Our view

1)  Difficulty or Expense in Enforcement of Costs

7.  In our view, the 2^nd defendant has discharged the burden of showing that there will be delay or expenses in enforcing the costs order against the plaintiff. The plaintiff is a company incorporated in Germany. It does not dispute that it has no assets in Hong Kong. It merely stated that it is a sizeable company with presence in multiple jurisdictions without providing any details. The problem in terms of time and expenses in enforcing a court order against a foreign litigant does not require elaboration.

8.  In the written submission Mr. Ng for the plaintiff relied on Germany being a country listed in the 2^nd Schedule of the Foreign Judgment (Reciprocal Enforcement) Order Ordinance (Cap. 319) (‘FJREO’) and submitted that there were no material difficulties in enforcing the costs order against the plaintiff. The case of Lim Yi Shenn v Wong Yuen Lee [2012] 3 HKLRD 505 was cited.

9.  This Court has stated in Dracco Netherlands BV v Simba Toys GmbH & Co. KG [2018] HKCA 75 that :

‘ 3.6 Third, the Judge had wrongly taken into account the reciprocal enforcement provisions under the FJREO. The reliance of this provision was only made at the hearing before the Judge. Clearly, in order for the defendant to meet this point, he was entitled to adduce evidence in the nature of Netherlands law on how a Hong Kong judgment is to be enforced in the Netherlands against the plaintiff. While the burden rests with the defendant to show that it is just to require the plaintiff to provide security, plainly the defendant must be given an opportunity to adduce evidence on the operation of reciprocal enforcement of judgments in a foreign country.’

10.  In the present case, the 2^nd defendant is deprived of such an opportunity when the reliance on FJREO is only made by way of counsel’s submission. In any event, generally speaking, the provisions for reciprocal enforcement of judgments in different jurisdictions are merely for a foreign judgment to be treated as a local judgment in the jurisdiction where enforcement is sought. It does not mean that the problems enforcing a judgment, particularly in a foreign country, in terms of delay or expenses are in any way lessened. As Kwan VP held in ATAL Technologies Ltd v Stratech Systems Ltd (unrep., CACV 125/2011, 8 November 2011) :

‘ 7. The applicable legal principles may be stated shortly as follows. The rationale for the practice of ordering security where the appellant is resident abroad is deemed expectation of undue delay or expense in enforcing the costs order abroad. The presumption that it is difficult to enforce the costs order abroad may be disproved by the appellant.’

11.  The Recorder in Lim Yi Shenn recognized in [64] that the reciprocal enforcement arrangement is not by itself conclusive. Unlike that case which did not order security against a foreign litigant, in the present case Germany is not a common law jurisdiction and the national language is not English.

12.  The only issue in this application is whether the plaintiff is able to show that its appeal is so meritious that this Court should not order it to provide security so as not to stifle a genuine appeal which has a high chance of success.

13.  The Judge found that the plaintiff was defrauded in a scam and the plaintiff’s money was transferred to the account of the 2^nd defendant. The plaintiff sought to recover the money on the ground of money had and received, knowing receipt, knowing assistance and constructive trust. The Judge, however, found that the 2^nd defendant was a bona fide purchaser for value without notice (‘the defence’) which provided a complete defence to the plaintiff’s claim. The appeal is solely on the correctness of the defence. It is sufficient for us to say that for the purpose of the appeal, the plaintiff is able to show that it has a reasonably arguable appeal but we are not prepared to hold that the appeal is so meritious that we should not exercise our discretion in ordering security.

2)  Quantum

14.  As to the amount of security, according to the 2^nd defendant’s Schedule of Estimated Costs, the estimated costs of the appeal (excluding the present application) are $907,500, comprising $217,500 as solicitors’ fees and $690,000 as fee for two counsel. The costs of the present application are estimated at $129,600 which includes counsel fee of $60,000.

15.  The 2^nd defendant was represented by one counsel in the trial below. The appeal, although involving issues of law, is not a particularly difficult one. We are of the view that the appropriate amount of security of appeal on a party to party basis excluding the present application is $350,000.

IV.  Conclusion

16.  Accordingly, we will make the following orders :

1)  The plaintiff is to pay into court within 28 days the sum of $350,000 as security for the costs of its appeal;

2)  The appeal is stayed until the sum is paid;

3)  In default of payment, the appeal is dismissed without further order together with costs of the appeal to the 2^nd defendant; and

4)  The 2^nd defendant is to have the costs of this application, summarily assessed at $90,000.