KWAI TAK MING v. K.S. CAPITAL ONE LTD AND OTHERS

CACV 132/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 132 OF 2016

(ON APPEAL FROM HCA NO 679 of 2012)

________________________

_________________

JUDGMENT

_________________

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

1.  In this action, Chung J handed down his judgment on 5 May 2016 finding in favour of the plaintiff that the agreements of 7 and 23 March 2012 in respect of the purported sale of 1/3 interest in a shop at Shek Wu Hui, Sheung Shui between the plaintiff and the 1^st defendant were made under misrepresentation. The judge set aside the agreements and dismissed the counterclaim. He also ordered the defendants to pay the costs of the plaintiff but he did not order the 2^nd and 3^rd defendants to pay any damages (as none were suffered by the plaintiff upon the rescission of the agreements). The costs were substantial as the trial lasted for 6 days.

2.  The defendants issued a Notice of Appeal on 2 June 2016.  The plaintiff issued a respondent’s notice on 23 June 2016.

3.  By a summons of 1 December 2016, the plaintiff sought security for costs in the sum of $800,000 against the 1^st defendant.  The application was made on the ground that the 1^st defendant is impecunious.  The 1^st defendant is a company acquired for the sole purpose of the agreements and it only has a paid-up capital of $1.  It does not carry on any other business activities.  Its shareholder is a BVI company and the 2^nd defendant is its sole director.

4.  Prior to the issue of the summons, solicitors for the plaintiff wrote to request for security on 24 June 2016 and without prejudice negotiations ensued until 15 November without success.  In this connection, the letter written by the solicitors for the defendants on 27 June 2016 is clearly a letter making a without prejudice offer (stating explicitly that the offer was made on a without prejudice basis) though the letter was not marked as such.  In the circumstances, it was inappropriate for the defendants to refer to it and paragraph 36 of the 2^nd defendant’s affirmation of 15 December 2016 and exhibit (“NWJ-2”) should be struck out.  We do not accept Mr Lam’s submission that the situation falls within the impropriety exception to the without prejudice rule.  The presence of credit balance in the bank account of the 1^st defendant does not mean that the money would remain there by the time of enforcement of costs order.  Further, taking account of the costs liability at the court below, the credit balance in the bank account pales into insignificance.  

5.  The court gave directions for disposal of the summons on 5 December 2016, including directions for filing evidence and submissions for the summons.  There was no request for oral hearing in the submissions.  Having read the papers, we are of the view that the summons can fairly be processed on paper.  We now give our decision on the summons. 

6.  The principles governing an application for security for costs on appeal were discussed in Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650.  In the present case, the plaintiff relied on the impecuniosity of the 1^st defendant as the special circumstances to seek an order for security pursuant to Order 59 Rule 10(5).  Though impecuniosity of an appellant is not conclusive, the court will consider whether there are any counterveiling factors to militate against the grant of security.  The merit of an appeal is relevant though at this stage the court should not engage in a full-fledged examination of the merit as if it were hearing the appeal itself.  Further, likelihood of a successful respondent encountering undue delay or being put to undue expense to enforce any costs order in its favour is also a ground for seeking security for costs, Hong Kong Civil Procedure 2016 §59/10/27; Shum Yeung v Skynet Group Ltd CACV 140 of 2016, 14 October 2016.

7.  In the submissions before us, the main issues are whether the Plaintiff is impecunious and whether security should be ordered against the 1^st defendant in light of the participation of the 2^nd and 3^rd defendants in the appeal.  Mr Lam also submitted that the appeal has strong merit and no security should be granted in any event.

8.  On the merit of the appeal, we have read the notice of appeal in light of the judgment of Chung J.  We are not able to say this is an appeal with sufficient merit to warrant us not to order security for costs in any event.  It seems to us basically it is an appeal challenging the findings of fact by the judge and if such findings could not be upset we do not find the other points raised in the notice of appeal to be particularly convincing.   

9.  Turning to the question of impecuniosity, Mr Lam on behalf of the 1^st defendant referred to the credit balance in the bank account of the 1^st defendant and its undertaking to maintain such credit balance.

10.  As said above, the credit balance (in the region of $900,000 odd) coupled with the undertaking is not significant bearing in mind the costs liability below.  The plaintiff’s bill for the costs below is slightly less than $2.7 million (of which around $850,000 was counsel fees and about $120,000 was disbursement).  Though it is subject to taxation, in view of the length of trial and the complexity of the case, we have no difficulty in saying that such costs are likely to be substantially higher than the credit balance in the bank account plus the $220,000 deposit refundable to it.

11.  In this connection, it is wrong to suggest (as Mr Lam did) that the costs liability would be splitted between the 3 defendants with the 1^st defendant only liable for 1/3.  The costs liability is joint and several and the plaintiff is entitled to pursue the full claim against any one of the defendants.

12.  The undertaking by the 1^st defendant is imprecise and it would not stop its creditors from securing the fund in such bank account.  Without any information as to the source of its credit balance (for all we know it may be funded by loans which a creditor may call in at any time), and without any steady regular stream of income (to support the undertaking to maintain the balance), we do not find the credit balance (even with that undertaking) to be of much comfort.   

13.  We are satisfied that the 1^st defendant is impecunious and that the plaintiff would encounter undue delay or being put to undue expense to enforce any costs order against the 1^st defendant in his favour.  

14.  Mr Lam submitted that as there is no allegation of impecuniosity against the 2^nd and 3^rd defendants, the court should not order security for costs against the 1^st defendant.  Counsel relied on Winnote Pty Ltd v Page (2005) 64 NSWLR 244 to support his argument.

15.  Before we examine the relevant principle, it is necessary to note a highly relevant feature in the present case.  In the Notice of Appeal, one of the reliefs sought by the defendants is specific performance of the agreements.  This is not a remedy available to the 2^nd and 3^rd defendants as they were not parties to the agreements.  If the appeal of the 1^st defendant could not proceed, there is no need to consider the counterclaim and the question of specific performance.  To that extent at least, the liability of the 2^nd and 3^rd defendants for costs in the appeal may not be concomitant with that of the 1^st defendant. 

16.  Further, if the 1^st defendant is barred from appealing (on account of non-payment of security) and is therefore bound by the judgment of Chung J, the only point for the 2^nd and 3^rd defendants (who are not party to the agreements and have no locus standi to enforce the agreements) to appeal is in respect of the question of costs.  The character and scope of the appeal would be quite different.

17.  In these respects, the present case is similar to the situation in John Bishop (Caterers) Ltd v National Union Bank Ltd [1973] 1 All ER 707 and Pearson v Naydler [1977] 1 WLR 899 where security for costs were ordered against a corporate plaintiff notwithstanding the presence of individual co-plaintiffs in the same case.

18.  Having considered the cases, we are of the view that the correct principle is this: there is no absolute bar against ordering security against an appellant when there are co-appellants in the same appeal. It is a matter of discretion which the court must exercise with regard to the particular circumstances of the appeal and the presence of co-appellant who could meet the costs liabilities of a successful respondent is a relevant but not dispositive consideration.  We agree with Mr Lee that Winnote Pty Ltd v Page, supra should not be read as laying down any absolute rule fettering the exercise of discretion by the court: see Macedonian Orthodox Community Church St Petka Inc v His Eminence Metropolitan Petar [2012] NSWCA 304 at [10].

19.  On the facts and circumstances of this appeal, we do not regard the presence of the 2^nd and 3^rd defendants as co-appellants as a significant factor in our exercise of discretion.  Whilst the plaintiff has no evidence to support a case of impecuniosity against them (and to that extent their prosecution of the appeals could not be affected by any order of security for costs against the 1^st defendant), the 2^nd and 3^rd defendants have not produce any substantive evidence to support their bare assertions that they have the means to pay for the costs of the appeal.  In the circumstances, we cannot attach much weight to the bare assertion of Mr Ng in his affirmation that the plaintiff would be able to recover all the costs from the 2^nd and 3^rd defendants.

20.  Taking all circumstances into account, we consider it is appropriate for us to order security for costs against the 1^st defendant.  Bearing in mind the amount in its bank account, it should be able to comply with the order. 

21.  Having considered the skeleton bill exhibited to the affirmation of the plaintiff (which adds up to $1,372,500), and having regard to the complexity and length of the appeal and the experience of counsel and solicitor involved in its preparation on behalf of the plaintiff (and it appears that one of the counsel involved is also the trial counsel and thus should be familiar with the case), we shall order the 1^st defendant to pay security for costs in the sum of $600,000.  The security for costs is in respect of the costs of the appeal.  It does not include the costs of this application, for which we would make a separate order below.  In view of the imminence of the hearing of the appeal and the time necessary for preparation for such hearing, and the availability of fund in the 1^st defendant’s bank account to meet the obligation, the time for compliance can be shortened. We make an order in terms of the summons with the substitution of the figure of $600,000 with that of $800,000 and the substitution of time for payment to 14 days.   

22.  We also order the 1^st defendant to pay the plaintiff’s costs of this application.  Having considered the statement of costs of the plaintiff, we fix the same at $87,583.00.