SZETO KWOK HUNG ROQUE v. SZETO KWOK KWONG BERNARD AND OTHERS

CAMP 248/2021

[2022] HKCA 278

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 248 OF 2021

(ON AN INTENDED APPEAL FROM HCMP NO. 2596 OF 2017)

________________________

________________________

________________________

________________________

D E C I S I O N

________________________

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

I.     Application for leave to appeal

1.  The defendants renew their application for leave to appeal against the decision of Keith Yeung J (‘the Judge’) dated 18 March 2021 when he refused the defendants’ application for security for costs of the action against the plaintiff.  The Judge had earlier refused to grant leave to appeal.  We will deal with the application on paper.

II.     The proceedings below

2.  The plaintiff’s mother is Madam Tang Lai Wah (‘Madam Tang’). Madam Tang is in her nineties and her health condition is not stable.  The plaintiff commenced proceedings against the defendants who are three of his siblings, stating that they have not taken care of Madam Tang properly and have prevented the plaintiff from contacting Madam Tang.  In November 2017, the plaintiff successfully obtained an injunction which restrained the defendants from 1) preventing Madam Tang from having contact with the plaintiff or preventing the plaintiff from gaining access to her; 2) interfering in the plaintiff’s provision of care and support to Madam Tang, and 3) refusing Madam Tang access to health professionals of her choice.  In December 2017, after hearing submissions from both sides, the Court below made minor amendments to the wordings of the injunction order.

3.  The application for security for costs was only issued on 23 September 2020.

III.     The Judge’s decision

4.  The Judge refused the defendants’ application for security on the following grounds.  Whilst he accepted that the evidence suggested that the plaintiff is not an ordinary resident of Hong Kong, he also considered the plaintiff’s financial position. The plaintiff holds 12% worth of shares in a private family company named Worth Enterprises Company Limited (‘Worth Enterprises’) of which the defendants are directors and shareholders.  According to the 2^nd defendant’s 4^th Affirmation, the net asset value of Worth Enterprises in 2019 was $92 million.  Recently, Worth Enterprises sold off certain non‑current assets in exchange for cash and Worth Enterprises now holds cash as its main asset.

5.  The Judge considered that even though the 2^nd defendant claimed that the present financial position of Worth Enterprises is unknown, the financial position of Worth Enterprises should not be materially worse off than before.  The Judge held that it would be oppressive for the plaintiff to be ordered security when he holds shares in Worth Enterprises, and those shares which are worth $10 million already offers a measure of security for the defendants.

IV.     Principles

6.  The defendants must show that they have a reasonable prospect of success in the appeal or there is some other reason in the interest of justice before they are entitled to obtain leave to appeal. 

7.  The decision to grant or refuse to grant security for costs is an exercise of discretion by the Judge.  This Court will not interfere with the discretion unless it is shown that the decision is plainly wrong in the sense that, for example, he had erred on principle, he had ignored relevant factors or taken into account irrelevant factors or the decision is outside the generous ambit within which reasonable disagreement is possible.

V.     Grounds of appeal

8.  The main thrust of the defendants’ argument is basically the same as they had relied upon in support of their application for security, namely, shares in a Hong Kong private company do not amount to substantial assets within the jurisdiction readily available for costs.  It is highly unlikely, if not impossible, for a buyer to be readily found for the plaintiff’s shareholding in Worth Enterprises, which is a minority interest in a family company.  In any event, enforcement of orders over shares in a private company may be expensive or protracted.  The fact that the defendants are shareholders and directors does not make it any easier or any less expensive and protracted to enforce an adverse costs order should one be made against the plaintiff at the conclusion of the trial.  Where an order for sale of shares in a private company to enforce a charging order absolute is made, it may be executed either by way of 1) negotiation between the existing shareholders of the private company (i.e. the defendants in the present case) and the judgment debtor (the shares of whom are charged) to try to agree on a price at which the existing shareholders are willing to buy and the judgment debtor is willing to sell his shares or 2) failing agreement, by way of a public auction.

9.  Given the protracted litigation between the plaintiff and the defendants, which led naturally to hostility and sourness in their relationships, it is highly unlikely that a reasonable, commercial and sensible agreement may be reached between them as to the sale of the plaintiff’s shares in Worth Enterprises. Similarly, it is highly unlikely that a willing buyer would emerge in a public auction.  If no buyer is willing to offer anything above the reserve price at the public auction, then any value in the plaintiff’s shareholding in Worth Enterprises would remain locked away from the defendants who will be left with an empty adverse costs order against the plaintiff with no meaningful recourse or remedy.

10.  From these premises, the defendants argued that the Judge had erred on principle, taken irrelevant consideration into account and ignored relevant considerations which entitled this Court to intervene.

VI.     Our view

11.  The principle on the realization of shares in a private company is well established and is not in issue.  However, the situation here is that Worth Enterprises is a family company which is cash rich and of which the defendants have shares.  What the defendants said about the difficulties involved in the sale of the plaintiff’s share can only go so far.  If the defendants eventually obtain a judgment on costs against the plaintiff, they are entitled to enforce it by a charging order on the plaintiff’s shares and obtain an order for sale of the charged shares : Timmar Co. Ltd v Erwin Hardy Corp Ltd [2001] 3 HKLRD 651 and Ameritax Plus Ltd v Denice Y Foster Harris [2012] 5 HKLRD 757.  This would indeed give the defendants a measure of security.  This is also not a situation where potential buyers will buy into a private company which holds unrealisable assets or assets which are difficult to liquidate.  As pointed out earlier, most of the assets of Worth Enterprises had already turned to cash.  Whilst the defendants said they are not willing or prepared to buy the plaintiff’s shares, in case they do, they will augment their shareholdings in this cash rich company.  But the real point here is that the Judge is well aware of the problems involved, he is certainly not guilty of the complaints levelled by the defendants such as he had taken into account irrelevant matters or ignored relevant considerations or had reversed the burden of proof.  What the Judge said is this :

‘ 18. The consideration of an application for security involves balancing between what would be too oppressive to the plaintiff by requiring him to pay security and what would give the defendant a measure of security.’

12.  In our view, the defendants are unable to show that the Judge was plainly wrong in the exercise of this discretion.  Accordingly, there is no reasonable prospect of success in the defendants’ intended application.  There is also no other reason in the interest of justice why leave should be granted.  The defendants’ application for leave to appeal is refused.

VII.   Conclusion

13.  Accordingly, the defendants’ application is refused.  As the application is totally without merit, pursuant to Order 59, rule 2A(8) of the Rules of the High Court, we will make an order that no party may request our determination to be reconsidered at an oral hearing inter partes.

VIII.  Cost

14.  We will make no order as to cost.