TONG CHI KEUNG TOM v. DESERT PALACE INC

CACV228/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL No. 228 of 2007

(ON APPEAL FROM HCB No.2960  of 2006)

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DECISION

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Hon. Yuen JA:

1. This is an application by Desert Palace Inc for security for costs of Tong Chi Keung Tom’s appeal from a bankruptcy order made against him by Kwan J on 4 July 2007.

2. Desert Palace had presented a petition on the ground that Mr Tong had failed to comply with a statutory demand for US$300,000, equivalent to HK$2,328,000.

3. Mr Tong denied that he was indebted in that amount and alleged that he should be entitled to set-off various discounts and allowances, but it appears from Kwan J’s judgment that he did not deny that he was indebted in the net sum of US$119,000.  On that basis alone, the judge held that a bankruptcy order should be made.  The judge then went on to reject Mr Tong’s allegations regarding the discounts and allowances to be set-off against his debts.

4. A bankruptcy order was made and the Official Receiver became the trustee in bankruptcy.  A report has been provided to this court which referred to Mr Tong’s statement of affairs.  This disclosed assets of $20,000, expected income of $144,000 for the next 12 months and unsecured liabilities of about $6.8 million.  This formed the foundation of Desert Palace’s application for security for costs.  

5. The principles governing applications for security for costs of an appeal have been summarized by the Court of Appeal in Chung Kau v Hong Kong Housing Authority and others [2004] 2 HKLRD 650, at 656:

“	(1)	The fact that an appellant is impecunious does not lead automatically to an order that security for costs must be provided.  The court 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 be provided.
	(2)	That said, as a matter of practice, once an applicant for security can demonstrate that impecuniosity (or some other factor such as difficulty or expense in enforcing a costs order) exists, while the court retains an overall discretion whether or not to make the order, it would then generally be up to the party resisting the application for security to demonstrate countervailing factors which would militate against such an order being made.  A common countervailing factor to resist applications for security are the merits of an appeal.
	(3)	On a consideration of the merits of the appeal, while a detailed examination is not required (or desirable, even if possible on the materials before the court at this stage), the Court should form some sort of preliminary, even instinctive, view.  Where the merits appear to go strongly one way or the other, this may by itself be a decisive factor.  Thus, an appeal which is very strong would often be a very good reason not to order security.  The converse of course also applies.  A hopeless appeal may even by itself justify an order for security.  However, if the court takes the view that the appeal could really go either way, then generally it will look to the existence of any other factors to tilt the balance, in the absence of which security will be ordered.  This is of course on the assumption that a factor such as impecuniosity has already been demonstrated”.

6. Applying the above principles to the present case, the first matter to be examined was whether Desert Palace has shown that Mr Tong is impecunious.  On the basis of the statement of affairs, there can be no doubt that he is impecunious. 

7. I have also considered the grounds set out in the Notice of Appeal.  First Mr Tong says the judge failed to give him an opportunity to call evidence that he was capable of discharging the debt.  However, his financial circumstances are plain from his statement of affairs and Mr Tong has not adduced any evidence even now to show that he was able to discharge the part of the debt that he has acknowledged.  As for his second ground of appeal, as I have said, even assuming a set-off for the discounts and allowances he claimed, there would still have been an outstanding sum of US$119,000 owed to Desert Palace.  As for the third ground, Mr Tong’s wish to negotiate a settlement does not provide a defence against the grant of a bankruptcy order.   All in all, at this stage of the proceedings it seems to me that Mr Tong’s case is not that strong that I should exercise my discretion against security for costs.

8. No other ground has been suggested why I should exercise my residual discretion against an order for security.

9. As for the estimate of costs, a sum of $200,000 would in my view be an adequate estimate of the costs involved in this fairly straightforward appeal.

10. I would therefore order that the Appellant do within 28 days pay $200,000 into Court as security for the costs of and occasioned by his appeal, and that until such security is given, the appeal be stayed, and that in default of the security being furnished within the 28 days, the appeal shall stand dismissed without further notice or order, with costs of the appeal to be taxed if not agreed and paid by the Appellant to the Respondent.   

11. I would also order that the costs of this application be paid by the Appellant to the Respondent.