Sne Engineering Co Ltd v. Chim Kee Machinery Co Ltd

CACV 101/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 101 OF 2016

(ON APPEAL FROM HCA NO. 2025 OF 2012)

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D E C I S I O N

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

I. The summonses

1.1.There are five summonses before us :

1)   Summons dated 23 February 2017 by the defendant for security for costs of the appeal.

2)  Summons dated 27 April 2017 by the plaintiff to strike out part of the 3^rd affirmation of Tang Yiu Chi James (‘Tang’).

3)  Summons dated 27 April 2017 by the plaintiff for leave to file    the 6^th affirmation of Takuya Matsumoto (‘Matsumoto’).

4)  Summons dated 2 May 2017 by the defendant to amend its summons of 23 February 2017.

5)  Summons dated 9 May 2017 by the plaintiff to amend its summons of 27 April 2017.

1.2.The parties had filed submissions on these first four summonses.  The fifth summons was filed without any supporting document by the plaintiff.  The defendant objects to this summons.  We will deal with these summonses on paper.

II. Security for costs and amendment

1) The judgment below

2.1.The summonses for security for costs and amendment can be dealt with together.

2.2.Deputy High Court Judge Burrell found for the defendant in the Court below.  The plaintiff was ordered to pay the defendant over $8.3 million together with interest and costs.  The plaintiff appeals against the judgment and the hearing is scheduled to be heard on 14 June 2017.

2.3.Another division of this Court had on 15 July 2016, upon the plaintiff’s application, ordered a stay of execution of the judgment below conditional upon the plaintiff paying $4.3 million into Court.  This order had since been complied with by the plaintiff.

2) Impecuniosity of the defendant and difficulty to

enforce costs orders 

2.4.The defendant relies on the impecuniosity of the plaintiff and difficulty in enforcing costs orders as special circumstances in support of its application for security.

2.5.Another division of this Court had on 8 May 2015 in CACV 88/2014 ordered the plaintiff to pay security for costs of that appeal in the sum of $1.5 million on the basis of its impecuniosity.  The plaintiff complied with the order.  It proceeded with the appeal but was unsuccessful and was ordered to pay the costs of the appeal.

2.6.The evidence does not reveal that the plaintiff’s financial position has improved since May 2015.  In its application for stay, the plaintiff admitted that it was impecunious.  It has assets of $1.2 million in cash.  This Court observed that its depletion of funds from $4.3 million to $1.2 million in a period of two months had not been satisfactorily explained.

2.7.The only audited account produced by the plaintiff was in respect of June 2011 in which it incurred a net loss of HK$96 million.  Although it had at the stay application produced a draft management account ended 30 June 2016 which purported to show that it has ‘net assets’ of $195 million, this was due to a large sum of ‘receivables’ which are disputed and in any event it was the plaintiff’s stated position in the stay application that it was impecunious.

2.8.There is evidence which shows that the plaintiff’s current registered address is in a secretarial business centre.  There is no evidence that it is engaged in any business.  In the affirmation filed in opposition to the application for security, the plaintiff merely produced a tender document (which is heavily redacted) submitted by the plaintiff dated 21 September 2016.  There is no indication that this tender which is dated more than seven months ago has been accepted.

2.9.The defendant had difficulties in enforcing the judgment below by way of garnishee order.  The plaintiff at the last moment produced evidence for the first time which purported to show that its bank accounts had been charged to Sugisaki Kiso Co. Ltd which is a majority shareholder of the plaintiff.

2.10.The plaintiff submitted that it managed to comply with previous court orders on payment into Court (including payment in as security for the costs below).  The fact that such conditions had been met does not mean that the plaintiff by itself is not impecunious.  Such funds obviously came from third parties.

2.11.The plaintiff complained that its impecuniosity was caused by Hsin Chong and the defendant. First of all, Hsin Chong is not a party to this action.  In relation to the allegation that there was a conspiracy between Hsin Chong and the defendant against the plaintiff, the Judge below had found against the plaintiff on this point (paragraphs 92 to 106 of the judgment below).

2.12.The plaintiff also complained that the defendant had improperly issued two winding up petitions against it.  One was issued in 2012 and the other in 2016.  The 2012 petition was dismissed because the judge held the dispute between the parties should be tried by way of civil proceedings.  This was done and the dispute was eventually resolved in the defendant’s favour in respect of this action and CACV 88/2014 (on appeal from HCA No. 1466 of 2012).

2.13.In respect of the 2016 petition, it was for non payment of the judgment sum below and taxed costs of the appeal in CACV 88/2014.  The defendant was entitled to pursue the enforcement of these sums.  In any event, the 2016 petition has been stayed pending the outcome of this appeal.

2.14.In our view the plaintiff has not made out a case that its impecuniosity was caused by the defendant. 

2.15.In the stay application, this Court stated that the plaintiff’s appeal on the ‘implied term’ is arguable.  This remains to be an arguable point only and the plaintiff has not showed that it has such a high chance of success in this appeal, that the Court should not impose security so as not to stifle a genuine appeal.  In any event, despite the previous position, the plaintiff’s shareholders indicated in the stay proceedings that they would support the plaintiff financially.  It is likely that any order for security imposed by this Court will be funded by them as well.

2.16.The defendant seeks to amend the summons for security.

2.17.The amendment asks 1) the Court to impose security within 14 days of the order and 2) to order the plaintiff to procure Mr Yoshihito Sugisaki and/or Sugisaki Kiso Co Ltd and/or some other fit and proper person to provide the security.

2.18.Regarding (1) the plaintiff had asked for security by letter in January 2017 and followed up by issuing the summons in March 2017.  The plaintiff had ample time to respond to the application.  In view of the imminent appeal, 14 days is appropriate.  Regarding (2), since it is the plaintiff’s own case that it is supported by its shareholders, we see no objection to the order sought either.

2.19.There is an application by the plaintiff to exclude the defendant’s submission dated 2 May 2017 on the ground that the defendant’s submission is too long and does not comply with the Practice Direction.  This is an application without substance as the defendant has indicated it has put both the submission on security and amendment in one document.  The two matters can be dealt with together.  The application is refused.

2.20.The defendant asks for security of $1,499,600 of which $640,000 represents fees for two counsel. Of this sum, $150,000 is for counsel’s brief for the stay application.  We are of the view that $1 million is the appropriate sum for security.

3) Disposition

2.21.Accordingly, we order

1)   $1 million to be paid into Court within 14 days.

2)   Until payment in, the plaintiff’s appeal is stayed.

3)   In default of payment in, the appeal is dismissed with costs to the defendant (with certificate for two counsel).

2.22.Costs of this application be to the defendant.

III. Application to adduce the 6^th affirmation of Matsumoto

3.The plaintiff applies to adduce the 6^th affirmation of Matsumoto purportedly to respond to the 3^rd affirmation of Tang.  We are not prepared to admit this evidence.  The plaintiff already had the chance to put forward its case fully on security in the 4^th and 5^th affirmations of Matsumoto.  All the evidence in support of its financial viability should be produced at one time instead of in a piecemeal manner.  Arguments against the defendant’s submissions should be raised in counsel’s submission and not in the affirmation.  As the defendant is the applicant for the security for costs, it is entitled to have the last word in the 3^rd affirmation of Tang.  To allow the 6^th affirmation of Matsumoto to be adduced will involve another response from the defendant. This is not conducive to case management of an appeal which will be heard soon.  The application is refused with costs to the defendant.

IV. Striking out

4.1.The applicant applies to strike out part of the 3^rd affirmation of Tang.  Tang’s 3^rd affirmation was filed in response to the 4^th and 5^th affirmations of Matsumoto filed in opposition to the defendant’s application for security. Apart from being a late application, which was taken out almost a month after the filing of Tang’s affirmation, we do not see this is a plain and obvious case for striking out.  The Court is not prepared to deal with satellite litigation like this at such a late stage of the proceedings.  Accordingly, the application is refused with costs to the defendant.

4.2.After the plaintiff had filed its submissions on 9 May 2017 it filed another summons dated 9 May 2017 in which it seeks amendment of its summons dated 27 April 2017 to include a further order to expunge certain documents from the bundles of documents.

4.3.The Court is not prepared to allow such last minute application to be made, particularly, in the light of our refusal to accede to the summons dated 27 April 2017.  The summons is refused with costs to the defendant.

V. Summary assessment of costs

5.The Court will deal with summary assessments of costs later.

Written Submissions by Billy K. Y. Kwan, instructed by Chong & Yen Solicitors, for the plaintiff

Written Submissions by Joseph Wong, instructed by Tsui & Co. Solicitors, for the defendant