CHOW FRANK, formerly known as ZHOU XINGFANG v. YUEN HOI PO

CACV 261/2025, [2025] HKCA 1069

On Appeal From [2025] HKCFI 1454

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 261 OF 2025

(ON APPEAL FROM HCB NO 5988 OF 2024)

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J U D G M E N T

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Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1.  This is the Debtor’s application for security for costs of the Petitioner’s appeal (“the Appeal”) against the order made by Deputy High Court Judge Alan Kwong on 3 April 2025 (“the Order”) dismissing the Petitioner’s Amended Petition for the Debtor’s bankruptcy.

2.  Having read the evidence and submissions filed by the parties, we consider that it is appropriate to determine the present application on paper without an oral hearing pursuant to Order 59, rule 14A(1) of the Rules of the High Court, Cap 4A.

BACKGROUND

3.  The basic facts of this case and the Judge’s reasons for dismissing the Amended Petition have been set out in the Judge’s decision dated 3 April 2025 (“the Decision”), and will not be repeated here.

4.  In summary, the Petitioner’s Amended Petition is based on a loan of HK$42,455,700 (together with interest thereon) which the Petitioner says he advanced to the Debtor pursuant to a written loan agreement dated 27 May 2019 (“the Loan Agreement”). According to the Petitioner, the money advanced to the Debtor under the Loan Agreement was used by the Debtor to pay the purchase price of 8,790,000 shares (“the Shares”) of a listed company called SuperRobotics Holdings Ltd sold by the Petitioner to the Debtor.

5.  The Debtor’s case is that there was in fact no loan, and no sale and purchase of shares, between him and the Petitioner. The true arrangement between them was that the Petitioner lent the Shares to him to enable him to answer a margin call made by Debtor’s stockbroker, Everbright Securities Investment Services (HK) Ltd, in relation to his margin account with the stockbroker. The Loan Agreement and the bought and sold notes in respect of the Shares were documents created to give the appearance of a sale and purchase of the Shares with a view to avoiding the lengthy and complicated internal verification exercise which it was expected would be carried out by the parties’ mutual stockbroker, Global Mastermind Securities Ltd, if the transaction between the Petitioner and the Debtor were to take the form of a stock lending arrangement.

6.  The Judge held, on the evidence before him (including contemporaneous documentary evidence that the Petitioner knew full well and agreed that the Shares were transferred to the Debtor pursuant to a stock lending arrangement, and there was in truth no sale and purchase of the Shares), that the Debtor had adduced sufficiently credible and particularized evidence to show that the alleged stock lending arrangement did exist, and was satisfied that the Debtor had raised a bona fide dispute of the petitioned debt on substantial grounds. Accordingly, the Judge dismissed the Amended Petition.

7.  On 2 May 2025, the Petitioner filed and served a Notice of Appeal against the Order containing 4 grounds of appeal. On 19 May 2025, the Debtor filed a Respondent’s Notice seeking to affirm the Judge’s decision on 2 additional or alternative grounds.

THE PRESENT APPLICATION

8.  On 15 July 2025, the Debtor issued a summons seeking security for costs of the Appeal in the sum of HK$961,800. As can be seen from the Debtor’s 4^th Affirmation filed on the same date, the basis of the application is the impecuniosity of the Petitioner.

9.  The Petitioner resists the application on the following grounds[1]:

(1)  the Debtor’s evidence falls far short of showing that he is impecunious or is otherwise unable to satisfy any costs orders which may be made against him in the Appeal;

(2)  the Shares currently held by the Debtor constitute sufficient security; and

(3)  the Petitioner has a strong and meritorious appeal.

10.  The Petitioner further submits that the amount of security sought is, in any event, excessive.

DISCUSSION

11.  Under Order 59, rule 10(5) of the Rules of the High Court, 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. The principles for the exercise of this jurisdiction are well settled. For the present purpose, “special circumstances” include cases of insolvency or impecuniosity, and difficulty or expense in enforcing costs order. Nevertheless, even in such a case, the court retains a discretion not to order security if the appellant can demonstrate sufficient countervailing factors which would militate against the making of an order of security for costs (see Hong Kong Civil Procedure 2026, Vol 1, at §§59/10/26, 27 & 32).

(i)  The Petitioner’s impecuniosity

12.  We consider that there is, in the present case, credible and sufficient evidence of the Petitioner’s impecuniosity. In particular, it appears from two WhatsApp messages that the Petitioner sent to Raymond Lei and forwarded to the Debtor on 29 and 31 July 2024 respectively that he was in severe financial difficulties to the extent that he had been unable to pay salaries to his staff for several months, and could not pay his rent, his son’s tuition fees or his credit card bills. He also stated that he had exhausted all his friends from whom he could ask for loans, and begged Raymond Lei for financial assistance to the tune of two million dollars to save his life (請無論如何幫我先還二百萬救命吧). The Petitioner says that the two WhatsApp messages were merely “emotional pleas [he] employed to tug at Raymond’s heartstrings and to urge him to procure the [Debtor] to repay the Loan”. We do not accept this explanation. Nowhere in the two WhatsApp messages did the Petitioner refer to any debt owed by the Debtor, or ask Raymond Lei to urge or procure the Debtor to repay any money. On the face of those messages, the Petitioner was only looking to Raymond Lei for financial assistance.

13.  In relation to the Petitioner’s evidence that he had in fact settled his rent, credit card bills, staff salaries and his son’s school fees, as pointed out by Mr Lai (for the Debtor), the amounts of the credit card bills were not substantial compared to the amount of the security sought, while the other expenses were paid by either the Petitioner’s wife or a company of which the Petitioner was neither a director nor a shareholder.

14.  Overall, we are satisfied that the Debtor has sufficiently demonstrated the Petitioner’s impecuniosity, and that the Debtor will likely encounter difficulty or have to incur expenses in enforcing any costs order that may be awarded in his favour in the Appeal.

(ii)  The Shares as security

15.  The Shares are currently held by the Debtor, but they have to be returned to the Petitioner upon request pursuant to §39 of the Decision. The Petitioner is prepared to give an undertaking not to request for their return until the conclusion of the Appeal, including taxation and satisfaction of any costs orders.

16.  The Petitioner has produced evidence that the market price of the Shares as at 28 July 2025 was HK$0.13 per share. At that price, the Shares would be worth HK$1,142,700. However, there is also evidence produced by the Debtor that the market price of the Shares was very volatile. The range of the market price of the Shares for the year up to 1 August 2025 was between HK$0.083 and HK$0.90, and the Shares apparently lost approximately 70% of their value over a 6-month period up to August 2025. Moreover, the trading volumes of the Shares were thin. Over the period from 2 January to 4 August 2025, there was no turnover on many days, and the average turnover came to about 259,100 shares per day, meaning that it would take approximately 34 trade days to completely dispose of 8,790,000 shares, leaving aside the impact that the disposition of such a large block of shares would have on the market price.

17.  Further, even if the Shares are to remain in the hands of the Debtor, since he does not hold any security right or interest in them, before he can utilize them as a source to recover any costs that he may be awarded in the Appeal, he will need to obtain an order from the Court for the sale of the Shares and payment of the proceeds of sale to satisfy any unpaid costs, which could lead to further difficulty or expense in enforcing costs order.

18.  Overall, we are not satisfied that the Shares should be regarded as sufficient security for the Debtor’s costs of the Appeal.

19.  In passing, we should mention that the Petitioner’s claim against the Debtor based on the Loan Agreement will not necessarily come to an end even if the Appeal is eventually dismissed, because the Petitioner can bring a fresh, ordinary civil action against the Debtor. In such an action, the validity of the sale and purchase of the Shares between the Petitioner and the Debtor, and thus the issue of the ownership of the Shares will still have to be determined.

(iii)  Merits of the Appeal

20.  This is not the occasion for an in-depth consideration of the merits of the Petitioner’s appeal. It suffices for us to say that, having considered the grounds of appeal appearing in the Petitioner’s Notice of Appeal, we consider that the Petitioner has, at best, an arguable appeal, but the merits are far short of being sufficient countervailing factors to militate against the making of an order of security for costs in the present case.

QUANTUM OF SECURITY

21.  The Debtor seeks the sum of HK$961,800 as security for costs. A breakdown of his likely costs and disbursements for defending the Appeal has been set out in a Statement of Costs (“the Statement of Costs”) prepared by the Debtor’s solicitors[2].

22.  The Petitioner takes exception to Items A, B and C appearing in the Statement of Costs in relation to solicitors’ costs, on the grounds that:

(1)  the estimated time spent by the handling solicitor, a partner admitted in 2004, is clearly excessive in light of the engagement of preeminent leading counsel and experienced junior counsel; and

(2)  there is no attempt to delegate mechanical work to the junior staff of the solicitors’ firm, as all of the billable work has purportedly been undertaken/will allegedly be undertaken by the partner.

23.  Generally speaking, it is not the practice of the court in fixing the quantum of security to give a full indemnity in respect of the likely costs that may be incurred by an applicant in the appeal, and the quantum of security should be premised on the estimated costs that would be allowed on taxation on a party-and-party basis. The court adopts a broad brush approach and does not conduct a taxation of the applicant’s costs in fixing the quantum of security. It should seek to do practical justice to the applicant by awarding a reasonable amount as security (see Thapa Hari Bahadur v Paramount Engineering & Manpower Service Ltd [2022] HKCA 1516, at §40; TGL v SDC & Anor [2025] HKCA 229, at §7; and Hong Kong Civil Procedure 2026, at §59/10/35A).

24.  We accept Mr Lai’s submission that solicitors do not act as a mere messenger or post-box, and even where “preeminent leading counsel and experienced junior counsel” are engaged as in the present case, it is still reasonable for solicitors to carry out the work described in Items A, B and C in the Statement of Costs, although the time spent on some of the items (eg Items A1, A2, B6 and B7) seems to us to be on the high side. On the other hand, although the Petitioner has not taken any objection to counsel fees, we consider the amounts claimed (Items D1 and D2) are obviously excessive and could be not justified in a party-and-party taxation, taking into account the fact that the issues in the Appeal are, we consider, simple and straightforward, there are only a few key documents in the Appeal, and counsel should be familiar with the facts and issues in the case, having appeared before the Judge at the substantive hearing below. We would allow half of the counsel fees claimed by the Debtor when fixing the quantum of the security.

25.  Overall, we consider that the appropriate amount of security for costs should be in the sum of HK$500,000.

DISPOSITION

26.  We allow the Debtor’s application for security for costs, and make the following orders:

(1)  The Petitioner do pay into court the sum of HK$500,000 as security for the Debtor’s costs of the Appeal within 35 days from the date of the order herein.

(2)  Until such payment into court be made and notice thereof given by the Petitioner to the Registrar of Civil Appeals and to the solicitors for the Debtor, all proceedings in the Appeal be stayed.

(3)  In default of making such payment into court within the time aforesaid, the Appeal, upon the solicitors for the Debtor certifying such default to the Registrar of Civil Appeals, do stand dismissed without further order of the court with costs to be paid by the Petitioner to the Debtor, such costs to be taxed if not agreed.

27.  There is no reason why the costs of the present application should not follow the event. We make an order that the Petitioner shall pay the costs of the Debtor in respect of the present application. The above order is an order nisi which shall become absolute unless an application is made to vary the same within 14 days from the date of this judgment. In the event that an application to vary the order nisi is made, the application will be dealt with on paper, and the Court will give further directions in relation to the conduct of the application, including the length of written submissions which may be lodged by the parties.

28.  Lastly, the Debtor’s costs shall be summarily assessed. The Petitioner shall have leave to file and serve a statement of objections (limited to 2 pages) to the Debtor’s statement of costs filed on 9 September 2025 within 14 days from the date of this judgment.