AU KAI TO KAREL v. END USER TECHNOLOGY LTD AND OTHERS

CACV 237/2017

[2020] HKCA 673

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 237 OF 2017

(ON APPEAL FROM HCA 170/2015)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  At the hearing on 4 January 2019, we dismissed the 1^st Defendant’s appeal but allowed the 2^nd Defendant’s appeal against the judgment of Deputy High Court Judge Kent Yee of 28 September 2017. We gave our reasons for judgment in the appeal together with our decision on costs on 18 January 2019 ([2019] HKCA 72).

2.  The present applications concerned the disposal of money paid into court in the following circumstances.

3.  After DHCJ Kent Yee’s judgment, the Plaintiff presented a Petition in HCCW 343/2017 on 13 November 2017 to wind up the 2^nd Defendant due to non-satisfaction of the judgment.  On 16 April 2018, Harris J made an order that unless the 2^nd Defendant either obtained an interim stay of the judgment or paid into court HK$4,400,000 by 3 May 2018, the 2^nd Defendant would be wound up on 7 May 2018.  On 3 May 2018, the 2^nd Defendant paid the sum of HK$4,400,000 into court.

4.  There was also an application for stay of the judgment in the Court of Appeal.  By way of consent summons filed on 14 May 2018 in this appeal, the Plaintiff and the 1^st and 2^nd Defendants consented to an order in the following terms:

(1)  The sum of HK$4,400,000.00 paid into court by the 2^nd Defendant on 3^rd May 2018 in HCCW 343/2017 be treated as payment of the same amount by the 1^st and 2^nd Defendants in compliance with the condition for stay of execution specified in paragraph 2 below.

(2)  Conditional upon the 1^st and 2^nd Defendants paying into court the sum of HK$4,400,000.00, there be a stay of execution of the following orders granted by Deputy High Court Judge Kent Yee in the Judgment dated 28^th September 2017 in HCA 170/2015 pending the determination of the appeal herein:-

(a)  The 1^st and 2^nd Defendants do jointly and severally pay the Plaintiff HK$4,400,00.00;

(b)  The 1^st and 2^nd Defendants do jointly and severally pay the Plaintiff’s costs of the action including the counterclaim and all costs previously reserved; and

(c)  The 1^st and 2^nd Defendants do jointly and severally pay the 3^rd Defendant’s costs of the action including any costs previously reserved.

(3)  Costs of this application and of the 1^st and 2^nd Defendants’ summons for stay of execution dated 22^nd March 2018 be in the cause of the appeal.

5.  The consent order was made by Kwan JA (as she then was) on 14 May 2018.

6.  After the determination of the appeal, the Plaintiff filed a summons on 17 January 2020 in these proceedings to apply for an order that the sum of HK$4,400,000 be paid out to the Plaintiff together with any interest accrued thereon, with costs to the Plaintiff. 

7.  On 10 March 2020, the 1^st and 2^nd Defendants filed a summons to apply for an order that the HK$4,400,000 be released to the 2^nd Defendant, with costs to the 2^nd Defendant. 

8.  After reading the papers, we directed that an oral hearing be held.  We heard the applications on 24 June 2020.  

9.  It is well established (and Mr Justin Lam, appearing for the 1^st and 2^nd Defendants, properly accepted) that in light of the order of Kwan JA, the sum of HK$4,400,000 is subject to a security interest to discharge the liabilities under the judgment.

10.  The nature of a sum of money paid into court was analyzed at some length by Hobhouse J in Halvanon Insurance Co Ltd v Central Reinsurance Corporation [1988] 1WLR 1122.  At p.1133 F, His Lordship said:

“ In my judgment when money has been paid into court to the credit of an action … the plaintiff has acquired a right in respect of that money of the nature of an equitable charge by way of security for his claim …”

11.  See also the judgment of Godfrey Lam J in Herbert Smith Freehills v Chris Au [2018] 5 HKLRD 207 at [14] to [16].  At [16], the following was said:

“ … Generally speaking, pending determination of the parties’ entitlement, money paid into court is money standing to the credit of the action, rather than to the credit of one party or another…”

12.  Pending disposal of the money by an order of the Court, such security interest prevails over any other legal interest in the money, see YBL v LWC (No 2) [2017] 2 HKLRD 783 at [28].

13.  In the present case, though the HK$4,400,000 was first paid by the 2^nd Defendant into court in HCCW 343/2017, it was treated by the parties and the Court as monies paid by the 1^st and 2^nd Defendants to the credit of the appeal by virtue of the consent order of Kwan JA.  Such payment was made in order to secure the stay pending the appeal as ordered by Her Ladyship.     

14.  It should be noted that the stay was in respect of a judgment on the joint and several liabilities on the part of the 1^st and 2^nd Defendants.  In other words, not only did the 2^nd Defendant benefit from the stay, so did the 1^st Defendant.  Thus, there had to be an agreement by the 1^st and 2^nd Defendants that the payment was to be treated as payment by both the 1^st and 2^nd Defendants instead of a payment by the 2^nd Defendant only.

15.  Mr Lam submitted however that the Plaintiff could only obtain payment out in its favour if this Court upheld the judgment of DHCJ Kent Yee in its entirety.  Since the appeal by the 2^nd Defendant was allowed, the Plaintiff could not rely on the security interest stemming from the consent order of Kwan JA.  The Court should order payment out to the 2^nd Defendant as owner of the money.

16.  With respect, we do not accept this submission.

17.  It is, in our judgment, too narrow to limit the security interest under the consent order to the event of the judgment below being upheld in its entirety.  That judgment imposed joint and several liabilities on the 1^st and 2^nd Defendants.  But for the stay of execution in favour of both of them, the Plaintiff was at liberty to enforce the judgment against both or either of them.  The stay was in place for both the joint as well as several liabilities of the two defendants.  The several liabilities encompassed the liability of each of the 1^st and 2^nd Defendants separately.

18.  Looking the matter in context in the circumstances under which the consent order was made, there is no reason to confine the security interest in the manner suggested by Mr Lam.

19.  Had the 2^nd Defendant minded to limit the security interest in the way as suggested by Mr Lam, there was no justification for requiring the payment be treated as one made by the two defendants.  There was also no justification for the Plaintiff agreeing to a stay of execution against the 1^st Defendant.

20.  We hold that the security interest covers the present contingency, viz the upholding by this Court of the liability of the 1^st Defendant only (which is encompassed in the judgment of DHCJ Kent Yee for several liabilities against the 1^st and 2^nd Defendants).

21.  By way of fallback, Mr Lam submitted that the security interest should only be limited to half of the HK$4,400,000, viz HK$2,200,000.

22.  We cannot see any basis for this contention.  As pointed out by Mr Derek Chan (appearing for the Plaintiff in this application), the consent order did not provide for payment of HK$2,200,000 each by the 1^st and 2^nd Defendants.

23.  We therefore make an order in favour of the Plaintiff for the payment out of the HK$4,400,000 on the summons of 17 January 2020.

24.  We dismiss the Defendants’ summons of 10 March 2020.

25.  We also order the 1^st and 2^nd Defendants to pay the costs of the Plaintiff in the two summonses.  Having considered the statement of costs of the Plaintiff (in which a total sum of HK$150,485 is asked for, HK$50,000 was for counsel’s fee), we find the charges proposed on solicitor’s professional work and communication to be excessive.  We fix the costs at HK$100,000.