21 FINANCE LTD v. GOLDEN HORSE ASIA PACIFIC LTD AND ANOTHER

CACV 207 & 208/2023

(Heard Together)

[2024] HKCA 237

CACV 207/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 207 OF 2023

(ON APPEAL FROM HCMP NO. 507 OF 2022)

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AND

CACV 208/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 208 OF 2023

(ON APPEAL FROM HCMP NO. 1231 OF 2022)

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(Heard Together)

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DECISION

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

I.  Introduction

1.  This is the plaintiff’s application for an order that the defendants in CACV 207/2023 (‘i.e. the defendants in HCMP 507’) do pay into court a sum of $400,000 and the defendants in CACV 208/2023 (‘i.e. the defendants in HCMP 1231’) do pay into court a sum of $250,000, as security for costs of their appeals lodged against the judgment of Deputy High Court Judge K C Chan (the ‘Judge’) dated 8 June 2023 (the ‘Judgment’). The Judge handed down his reasons for the Judgment on 19 June 2023 (‘Reasons’).

2.  The plaintiff filed its summonses, in respect of both CACV 207/2023 and CACV 208/2023, on 13 September 2023 pursuant to Order 59, rule 10(5) RHC (the ‘Applications’). The plaintiff seeks security on the basis that the defendants in these two appeals are 1) impecunious, and 2) their grounds of appeal are unmeritorious.

3.  The defendants were informed that they were required to file evidence and submissions if they sought to oppose the plaintiff’s Applications. They failed to do so and were subsequently debarred from doing so.

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

II.  The background facts

5.  The relevant background facts and procedural history were set out by the Judge in his Reasons at [8]-[20].

6.  In short, the defendants had taken loans or made guarantees with the plaintiff. The defendants have failed to repay those loans (the ‘Loans’). The Loans were secured with properties (the ‘secured properties’). It is common ground that no interest payments have been made by any of the defendants since mid‑July 2022 in respect of the Loans.

7.  The defendants at trial contended that there was an oral agreement that the plaintiff would withdraw both sets of proceedings so that the defendants could sell the secured properties. Alternatively, the plaintiff was estopped by its promise to allow the defendants to sell the secured properties.

8.  The Judge determined that the defendants’ allegation that an agreement to withdraw the two sets of proceedings or a similar promise having been made by the plaintiff to be ‘utterly unbelievable and no triable issue is thereby raised’. The Judge also rejected the defendants’ contention regarding promissory estoppel. The Judge repeated that there is no triable dispute of fact that a promise had been made, and in any event, the defendants had not shown there was any reliance or alteration in their position such as to make the plaintiff’s continued prosecution of the two sets of proceedings unconscionable.

9.  In respect of HCMP 507/2022, the Judge ordered the defendants to pay :

1)  $27,990,780.24 being the outstanding principals, interests and overdue interests up to 16 September 2022;

2)  Interest on the balance of principal 1^st loan of $23,600,000.00 at the rate of 10% per annum from 17 September 2022 until full payment; and

3)  Interest on the principal 2^nd loan of $3,000,000.00 the rate of 24% per annum from 17 September 2022 until full payment.

10.  The Judge also ordered, amongst other things, the defendants to deliver vacant possession of the secured properties.

11.  In respect of HCMP 1231/2022, the Judge ordered the defendants to pay :

1)  $14,909,748.51 being the outstanding principals, interests and overdue interests up to 23 September 2022;

2)  Interest on the aggregate loans of $14,000,000.00 at the rate of 15% per annum from 24 September 2022 until full payment; and

3)  Overdue interest on the outstanding sum of $50,000.00 at the rate of 15% per annum from 24 September 2022 until full payment.

12.  The Judge also made similar orders on the secured properties.

13.  The amount of the principals and interests were not disputed by the defendants.

III. Legal principles – security for costs

14.  The legal principles regarding security for costs were set out in Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650 at [14], and more recently in T & T Global Trading Ltd v BOE (HK) Group Co Ltd [2022] 4 HKLRD 234 at [12] :

1)  Under Order 59, rule 10(5) of RHC, the Court of Appeal may, in special circumstances, order that such security shall be given for the costs of an appeal as may be just. ‘Special circumstances’ include impecuniosity and difficulty or expense of enforcing an adverse costs order.

2)  The burden is on the applicant to demonstrate the respondent is impecunious.

3)  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 that security for costs be provided. But once a case of impecuniosity or some other factor such as difficulty or expense in enforcing a costs order is demonstrated, it is generally up to the respondent to demonstrate countervailing factors militating against an order being made.

4)  Whilst the burden of showing that the respondent is impecunious, or there are reasons to believe that the respondent is impecunious, rests upon the applicant, it is sufficient for the applicant to point to the surrounding circumstances or adduce some credible evidence in support of their belief that the respondent will be unable to pay the applicant’s costs. It is then up to the respondent to adduce such evidence as he thinks fit to demonstrate his means or to contradict the applicant’s evidence. The Court shall decide whether a reasonable person with ordinary experience of daily life would consider the respondent unable to pay such costs. The threshold is just one of adducing credible evidence for the belief and falls short of proof of lack of means to pay.

5)  The overriding consideration remains to consider whether ‘special’ (not exceptional) circumstances exist making it ‘just’ to order security.

IV. The correspondence between the parties regarding security

15.  By way of two separate letters dated 17 August 2023, the plaintiff informed the defendants :

1)  That it intended to apply for security for costs on the basis that the appeal was unmeritorious and the plaintiff had reason to believe the defendants were impecunious.

2)  The plaintiff believed the defendants were impecunious because they had never made any payment to the plaintiff since the commencement of the proceedings, and because the defendants had informed the plaintiff they would repay the Loans by utilising the sales proceeds of the secured properties without mentioning anything coming from their own pockets.

3)  The valuation of the secured properties had been falling since mid-July 2022 and the plaintiff was not optimistic that the sales proceeds would be sufficient to discharge the outstanding debt. The plaintiff provided estimated valuations of the secured properties in support.

(1)  The HCMP 507 secured properties had an estimated value of $29.4 million and the sum outstanding to the plaintiff was approximately $30 million.

(2)  The HCMP 1231 secured properties had an estimated value of $27.4 million and the sum outstanding to the plaintiff was approximately $16 million. However, the HCMP 1231 secured properties were subject to a prior Bank of China mortgage.

4)  That a sum of $400,000 be given as security for the costs of the appeal in CACV 207/2023; and a sum of $250,000 be given as security for costs in CACV 208/2023.

16.  By way of a letter dated 24 August 2023, the defendants informed the plaintiff that the balance of the sales proceeds of the secured properties was more than sufficient to satisfy the plaintiff’s costs should the plaintiff succeed. But the defendants in HCMP 507 were willing to pay $50,000 as security for costs for CACV 207/2023; and the defendants in HCMP 1231 were willing to pay $50,000 for security for costs for CACV 208/2023 respectively.

17.  By way of a letter dated 28 August 2023, the plaintiff wrote to the defendants in HCMP 1231 and sought clarification as to whether a sale of the HCMP 1231 secured properties would be sufficient to satisfy the plaintiff’s costs of the appeal should the plaintiff succeed.

18.  By way of a letter dated 4 September 2023, the plaintiff responded to the defendants in HCMP 507 and annexed a copy of a Notice to Mortgagee on Outstanding Rates and Government Rent of the HCMP 507 secured properties dated 30 August 2023 (the ‘Notice’). The Notice showed that the defendants had defaulted in paying the rates and rents since January 2023 and that the default persists. The total sum in default was $34,410.

19.  By way of a separate letter dated 4 September 2023, the plaintiff informed the defendants in HCMP 1231 that it was aware that they had defaulted in paying the HCMP 1231 secured properties rates and rents for the past three quarters, and that the default persists. Demonstrating their financial ability to meet the appeal costs is seriously in doubt. The total sum in default was $30,589.

20.  Following the above correspondence, the plaintiff filed the present Applications and the plaintiff filed updated evidence in respect of the debt due and owing and the estimated valuation of the secured properties. The HCMP 507 secured properties were estimated to be valued at $30.8 million with a now outstanding debt of approximately $31 million. The HCMP 1231 secured properties were estimated to be valued at $27.4 million with a now outstanding debt of approximately $17 million, and still subject to the prior Bank of China mortgage.

V.  Our view

21.  In our view, the plaintiff has discharged its burden of showing that the defendants are impecunious or at least that there is reason to believe that the defendants will be unable to pay the plaintiff’s costs of the appeal if they fail in the appeal. The issue turns on the individual circumstances of each case.

22.  The evidence shows that the defendants were not able to pay the Loans unless the secured properties could be sold. Further, there is evidence from the plaintiff that the proceeds of the sale of the secured properties would be insufficient to repay all the outstanding sums due under the Loans, in each action, let alone further costs incurred as a result of an appeal. Furthermore, the defendants’ defaults in its payments of its rates and rents for the secured properties further demonstrate there is reason to believe that the defendants are impecunious or that there is reason to believe that they would be unable to pay the plaintiff’s costs of the appeal if they fail.

23.  The defendants have ignored the present Applications and not filed any evidence in opposition, and therefore chosen not to disclose anything pertinent to their financial state. In correspondence, they asserted that the amount of security sought was too high and a sum of $50,000 would be appropriate in respect of CACV 207/2023 and CACV 208/2023 and made a bare assertion that the secured properties are sufficient to satisfy the costs of the appeal if the plaintiff succeeds.

24.  There is sufficient evidence of impecuniosity to support the plaintiff’s Applications without the need for us to discuss the plaintiff’s further ground that the defendants’ appeal is unmeritorious. All that we need to say is that the merits of the appeal are not such that it will cause us to exercise our discretion against the granting of security.

25.  As to the amount of security, we are of the view that $400,000 for CACV 207/2023 is excessive. The appeal is not complicated and essentially a rehash of the arguments run before the Judge in the court below. Counsel fee for the appeal is charged at $80,000 which covers CACV 208/2023 as well. The appropriate amount of security on a party-to-party basis is $160,000 which includes $80,000 for counsel fee. With respect to CACV 208/2023, the sum of $250,000 is excessive. We will order security for a sum of $80,000.

VI. Conclusion

26.  Accordingly, we will make the following orders :

1)  The defendants in CACV 207/2023 are to pay into court within 21 days the sum of $160,000 as security for the costs of this appeal;

2)  The defendants in CACV 208/2023 are to pay into court within 21 days the sum of $80,000 as security for the costs of this appeal;

3)  The appeals are (respectively) stayed until their respective sum is paid;

4)  In default of payment, the appeal is dismissed without further order together with costs to the plaintiff;

5)  In respect of CACV 207/2023, the plaintiff is to have the costs of the Application, which are summarily assessed in the sum of $70,000 (this includes counsel fee charged at $30,000 which covers CACV 208/2023 as well); and

6)  In respect of CACV 208/2023, the plaintiff is to have the costs of the Application, which are summarily assessed in the sum of $40,000.