Allied Ever Holdings Ltd v. Li Shu Chung and Others

CACV 15/2018

[2019] HKCA 752

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 15 OF 2018

(ON APPEAL FROM HCCW 497 of 2009)

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Before: Hon Poon and Au JJA in Court

Dates of Written Submissions: 3, 17 and 24 January 2019

Date of Decision: 5 July 2019

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D E C I S I O N

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Hon Au JA (giving decision of the court):

A.   INTRODUCTION

1.By way of the decision (“the Decision”) dated 27 November 2017, Deputy High Court Judge To (“the Judge”) granted the application of the petitioner, Allied Ever Holding Ltd (“Allied Ever”), to stay the winding up order (“the WU Order”) made on 6 July 2010 against the company Luen Tat Watch Band Manufacturer Ltd (“the Company”), and discharge the appointment of the joint and several liquidators (“the Liquidators”) of the Company.  He also made a costs order against the 1^st respondent (“Ken Li”) and the Liquidators on an indemnity basis.

2.Under this appeal (“the Present Appeal”), Ken Li appealed the Decision and the costs order by way of the Notice Appeal dated 18 January 2018.

3.Separately, the Liquidators have also appealed against the Decision and the costs order under CACV 11/2018 (“the Liquidators’ Appeal”).

4.This is the petitioner’s application for security for costs in the amount of $4.3 million against Ken Li in the Present Appeal.

5.Pursuant to Order 59, rule 14A of the Rules of the High Court, Poon JA has directed that this application be determined on paper.  The parties have since filed their respective written submissions.

B.   THE SECURITY FOR COSTS APPLICATION

B1.   The position of the parties

6.It is first to note that Ken Li accepts that he has to give security for costs.  He only disputes the amount of the security.  He submits that the amount of $4.3 million sought by Allied Ever is simply excessive and offers to pay security in the amount of $380,000.

7.Hence, the only issue in this application is the appropriate quantum of the security of costs that should be ordered.

8.The principles concerning the assessment of the quantum of security for costs that are relevant to this application are not controversial.  They can be summarized as follows:

(1)   First, the court normally takes a broad brush approach and does not conduct a taxation of the respondent’ costs in fixing the quantum of security.  Instead, the exercise on which it is engaged is to arrive at an appropriate estimation of the likely amount of costs which would be ordered to be paid by the appellant to the respondent on a party and party taxation: see Great Bill Ltd v JFK Holding Company Ltd and Another (unreported, CACV 53/2012, 13 September 2012), per Fok JA (as he then was) at paragraph 20.

(2)   Second, one of the factors to bear in mind when fixing the amount is the underlying objectives in Order 1A, rule 1 of the Rules of the High Court, in particular rule 1(c) and (d) which highlight proportionality in conduct of proceedings and fairness between the parties: see Rich Fine (HK) Investment Ltd and Another v Leung Yiu Chuen [2018] HKCA 965, per Lam VP at paragraphs 8 - 12.

(3)   Third, to facilitate the court’s decision on the appropriate amount of security, the applicant’s legal representatives must provide a realistic estimate of the time and costs likely to be incurred in each stage of the proceedings which must bear some logical correlation to the complexity of the case and the issues involved.  Otherwise, the court is deprived of the assistance that it rightly expects: see Re Days International Ltd (unreported, HCCW 299/2011, 26 January 2015) per Anthony Chan J at paragraph 26.

9.For the present purpose, the main contentions advanced by Mr Justin Lam (for Ken Li) that the amount of the security sought by Allied Ever is plainly excessive are in summary these:

(1)   There are overlapping factual and legal issues that Ever Allied (as respondent) will have to deal with in relation to the Present Appeal and the Liquidators’ Appeal.  In the premises, the works to be conducted by Allied Ever’s legal teams in these two appeals are likely to be duplicated. It will be inappropriate and unjust for the petitioner to claim the full amount of estimated costs in relation to the two appeals against Ken Li alone, without taking into account the potential liability of, and Allied Ever’s prospect to recover the same from, the Liquidators on costs should their appeal fail.

(2)   The various items of costs set out in the skeleton bill of costs are by themselves grossly excessive and exaggerated.

10.Bearing the applicable principles in mind, we now turn to consider these contentions.

B2.   Duplication of works between the Present Appeal and the Liquidators’ Appeal

11.To better understand this ground of this contention, it is necessary to set out some background leading to, and the Judge’s reasons for, the Decision.

12.The parties to the present proceedings in HCCW 497/2009 have been involved in a long and checkered history of litigations.  Suffice for the present purpose, it can be stated as follows:

(1)   Ken Li is the eldest son of the late Lee Sai Nam (“the Father”).  The petitioner is the nominee company of the Father.

(2)   The Company was initially set up by the Father as the flagship company in manufacturing watchband products.  The business had been very successful and the Father had since established various other related companies.

(3)   Ken Li attempted to oust the Father and his siblings (Richard Li and Seline Li) from the Company.  This had led to various litigations, including HCA 1711/2009 (“the Main Action”) commenced in August 2009, whereby the Father sought a declaration that he was the absolute and beneficial owner of all the shares and profits of the Company and its related company, Hong Kong Pak Tat Trading Company (“Pak Tak”).

(4)   At around the same time, the Father through Allied Ever as the petitioner petitioned to wind up the Company.  However, Ken Li caused a special resolution to be passed to wind up the Company pursuant to section 177(1)(a) of the former Companies Ordinance.  As a result, the WU Order was eventually made on 6 July 2010 against the Company with costs against Ken Li, and the Liquidators were then appointed.

(5)   On the other hand, after trial, by way of a judgment dated 9 December 2015 (“the CFI Judgment”), the first instance court ruled in favour of the Father and held, among others, that he was the absolute and beneficial owner of all the shares and profits of the Company and Pak Tak.  This fact was conclusively affirmed by the Court of Appeal in its judgment dated 19 January 2017 (“the CA Judgment”) in CACV 2/2016 in dismissing the appeal against the CFI Judgment.

13.After the CFI Judgment, by a summons dated 26 May 2016, Allied Ever applied to (a) stay the WU Order; and (b) discharge the appointment of the Liquidators.  As mentioned above, by way of the Decision, the Judge granted the reliefs sought by Allied Ever.

14.In granting the stay of the WU Order:

(1)   The Judge found that the Company was marginally solvent after examining and finding that most of the proofs of debts (in particular those advanced by Ken Li) were “spurious” and should be rejected.  He came to that conclusion on the basis that those alleged debts were inconsistent with some of the major fact findings in the CFI Judgment or other objective circumstances.  See: paragraphs 43 - 64 and 106 - 111 of the Decision.

(2)   The Judge accepted the undertakings offered by Richard Li and Seline Li to cover any debts of the Company if not covered by the Company’s assets eventually.  See: paragraphs 28 and 112 of the Decision.

15.In ordering the removal of the Liquidators, the Judge accepted the Allied Ever’s contentions and concluded effectively that the Liquidators had taken side and were biased in favour of Ken Li and his camp against the Father, and that Allied Ever had basis to have lost confidence in the Liquidators’ professional judgment[1]. In so concluding, the Judge found that the Liquidators had:

(1)   entertained completely spurious proof of debts in favour of Ken Li and his camp (see paragraphs 31, 43 ‑ 64, 115 - 118 of the Decision);

(2)   made false allegation about “recent hidden” tax liability (see paragraphs 31, 65 ‑ 73 and 119 of the Decision);

(3)   forgone investigations and claims against Ken Li’s camp (paragraphs 31, 74 - 83 and 120 - 122 of the Decision);

(4)   assisted Ken Li in the trial of the Main Action (paragraphs 31, 84 - 86 and 123 of the Decision);

(5)   insisted on continuing legal actions against the Father and his camp which were conducted not in the best interest of the Company.  Their conduct was also evidence of bad faith, bias in favour of Ken Li and an intention to benefit themselves to the prejudice of persons who were interested in the assets of the Company.  Even the court had lost confidence in them (paragraphs 31, 87 - 102 and 124 of the Decision);

(6)   exaggerated the alleged non-compliance of the production order[2] made against Seline Li in order to justify their remaining in office (see paragraphs 31, 103 - 104 and 125 of the Decision).

16.In the Notice of Appeal, Ken Li advanced four challenges against the Decision.  In summary, they are that:

(1)   The Judge failed to properly apply the legal principles as to the granting of a stay of winding-up proceedings.

(2)   The Judge was plainly wrong in finding that the Company is marginally solvent, as he erroneously found that the various valid proofs of debts were spurious.

(3)   The Judge was plainly wrong in other findings that Ken Li had engaged in various alleged wrongdoing relating to the assets and business of the Company:

(a)   the Judge was plainly wrong in finding against Ken Li that Ken Li had appropriated $28 million from Yuen Hing;

(b)   the Judge was plainly wrong in concluding that there was any misappropriation of $30 million by Ken Li;

(c)   the Judge was also plainly wrong in holding that the liquidators failed to make investigation in what they alleged to be a massively insolvent company for the purpose of recovering its assets is explicable;

(d)   the Judge was wrong in the findings in relation to Ken Li’s alleged deletion of the Company’s data;

(e)   the Judge was wrong in the findings in relation to Ken Li’s alleged diversion of the Company’s business;

(4)   The Judge erred in principle in making an indemnity costs order with certificate for four counsel against Ken Li.  Further, the errors in finding the above facts had affected the Judge’s exercise of discretion in making the costs order.

17.In light of the above, we agree with Mr Lam that there are likely to be overlap of factual issues between Ken Li’s Appeal and the Liquidators’ Appeal.

18.As seen from Ken Li’s above grounds of appeal, the challenges against the Judge’s finding in relation to the (spurious) proof of debts and Ken Li’s wrongdoings are the same findings that the Judge made and relied on as grounds for removing the Liquidators (see paragraphs 15(1) and (3) above).  The same findings are similarly subject to the Liquidators’ challenge in the Liquidators’ Appeal.[3] In the premises, these findings (which constitute a significant part of the Decision) are subject to challenge in both the Present Appeal and the Liquidators’ Appeal.

19.In other words, Allied Ever’s legal team (as the respondent in both appeals) would be duplicating these parts of their preparation for the Present Appeal and the Liquidators’ Appeal.  It follows that, insofar as the consideration of security for costs is concerned, it will be inappropriate and unjust for the Allied Ever to claim the full amount of its estimated costs in the Present Appeal.

B3.   Excessive itemized costs

20.Allied Ever’s skeleton bill of costs in setting out the estimated costs of $4.3 million in support of the security for costs application can be broken down as follows:

(1)   Costs incurred up to 31 August 2018, in the sum of $31,600, which are related to (a) professional communications work with client, the other side and counsel; (b) perusal of documents; and (c) junior counsel’s advice work on procedural issues in the appeal.

(2)   Costs to be incurred from 1 September 2018 to conclusion of appeal:

(a)   $296,800, being costs of professional work for communications including conferences, telephone calls and letters (with an estimate of a total of 57 hours of work shared between two solicitors respectively called in 1984 (with an hourly rate of $5,800) and 2012 (with an hourly rate at $3,200)).

(b)   $284,800, being professional work involved in preparation of documents, perusal of documents, preparation of hearing and attending hearing, including call-over (with an estimate of a total of 50 hours of work shared between the two solicitors).

(c)   $3,650,000, being brief fee for two senior counsel (respectively of $2,000,000 and $1,000,000), and a junior counsel of $650,000.

(d)   $50,000 as the estimated fee for a tax expert.

21.In our view, the reasonableness of these estimates for costs to be incurred after 1 September 2018 should be considered in the following context:

(1)   The full hearing before the Judge was only one day.  In the premises, the hearing of the Present Appeal is likely to be at most for one day only.

(2)   Further, as shown in the Decision, the matter does not involve complicated or difficult legal arguments or research.

(3)   The legal team (including the solicitors, senior counsel and junior counsel) is the same one handling the matter before the Judge.  They are therefore familiar with the papers and arguments.

22.Given the context, those estimates are plainly excessive and disproportionate:

(1)   It is difficult to understand why it is necessary for the solicitors to engage some 57 hours’ works for communications for the purpose of the Present Appeal.  This is plainly excessive.  We would grossly reduce it to 10 hours of work charged at the hourly rate of $3,200, and 3 hours of work charged by the more senior solicitor at the hourly rate of $5,800.  The estimated costs should thus be $49,400, round up to $50,000.

(2)   Similarly, it is again difficult to understand why the solicitors would need to engage a total of 50 hours of work in perusing the documents and preparing for the hearing for the appeal.  The documents and papers that will be used for the Present Appeal are the same, and also likely to be less in volume, as those that were used before the Judge, which the solicitors should already be familiar with.  This is clearly excessive.  We would grossly reduce it to 10 hours of work by the junior solicitor at $3,200 and 5 hours for attendance at the hearing by both solicitors.  A reasonable estimate should be $77,000, round up to $80,000.

(3)   For a one-day appeal, the engagement of two senior counsel and a junior with a total brief costs of $3.65 million is also excessive, in particular when they are familiar with the matter.  For the purpose of security for costs, counsel’s fee (with the engagement of a senior counsel and one junior counsel) of $500,000 should represent a more reasonable estimate.

(4)   There is simply no justification and explanation for the engagement of a so-called tax expert for the purpose of appeal.  This should be totally discounted.

23.When these adjustments are considered with the court’s above conclusion that there will be duplication of works by the legal teams for the preparation of the Present Appeal and the Liquidators’ Appeal (for which we would further grossly reduce the estimated costs by one-third), we think a more appropriate quantum for security for costs should be ($500,000 + $50,000 + $80,000 + $31,600) × 2/3 = $441,076, round it up to roughly $450,000.

C.   DISPOSITION

24.For the above reasons, we order that:

(1)   Unless the appellant pays into court the sum of $450,000 within 14 days from the date of this decision as security for costs of this appeal, the appeal shall be dismissed without further order.  Upon such dismissal, the appellant shall pay the respondent the costs of this appeal, such costs are to be taxed if not agreed.

(2)   The appeal shall be stayed until the payment of the security as ordered under (1) above.

25.As to the costs of this application, since Ken Li has rightly not disputed liability to pay security for costs, and both parties’ respective contentions on the amount of security for costs cannot be said to be reasonably close to the amount the court has ordered, neither of them can be regarded as the ultimate successor in this application.  The court notes that it is only by the time of his written submissions that Ken Li has indicated his position of disputing the quantum of security alone.  However, this must still be considered in the context of the plainly excessive amount of security Allied Ever has consistently asked for in the application.  When all these circumstances are taken into account, the appropriate and just costs order should be no order to costs, and we so order.

Justin Lam and Rosa Lee, instructed by Johnnie Yam, Jacky Lee & Co, for the appellant

Alan Kwong and Stephanie Wong, instructed by Joseph SC Chan & Co, for the respondent