Louis Vuitton Malletier and Another v. Cuvee Xlv French Wine Ltd and Another

CACV 404/2019

[2020] HKCA 674

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 404 OF 2019

(ON APPEAL FROM HCA NO. 1900 OF 2013)

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BETWEEN

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J U D G M E N T

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Hon Chu JA giving the judgment of the Court:

1.This is the plaintiffs’ application that the 2^nd defendant provides security for their costs in this appeal in the sum of $2,109,700.  The 2^nd defendant opposes the application.  Both parties have filed affidavits and lodged written submissions.

2.Having considered the papers, we are of the view that it is appropriate to deal with the application based on the written submissions only without an oral hearing, pursuant to Order 59 rule 14A(1) of the Rules of the High Court, Cap. 4A.

The application for security for costs

3.On 3 September 2019, the 2^nd defendant filed a Notice of Appeal to appeal against the judgment of Lok J given in HCA 1900 of 2013 (“the Action”) on 7 August 2019[1] finding in favour of the plaintiffs on their claims in infringement of trade mark and passing off.  The appeal has yet to be listed for hearing. 

4.On 6 February 2020, the plaintiffs’ solicitors wrote to the 2^nd defendant requesting him to provide security for their costs of the appeal in the sum of $550,000 enclosing a breakdown of estimated costs (which was in the sum of $620,000).  The letter also stipulated that the plaintiffs reserve the right to seek further security if their costs escalate for any reason.  The 2^nd defendant did not respond to the letter. 

5.On 10 March 2020, the plaintiffs took out the present summons.  Although the summons stated that the security sought was in respect of costs up to the appeal hearing and also asked for liberty to apply for further security for costs, the supporting affirmation[2] indicated that the requested security covered costs up to and including the appeal hearing.  The plaintiffs’ skeleton bill of estimated costs also covered the costs of the hearing of the appeal.  We therefore deal with this application on the basis that the plaintiffs are applying for security of their costs of the appeal up to, and including, the appeal hearing.   

6.The principal ground on which the plaintiffs make the present application is that the 2^nd defendant is impecunious and that the plaintiffs will encounter difficulty, undue expense and delay in enforcing any costs order against him if his appeal was unsuccessful.  The plaintiffs also contend that the 2^nd defendant fails to show any countervailing factors for the court to exercise its discretion against ordering security to be provided.

Relevant legal principles

7.Under Order 59 rule 10(5) of the Rules of the High Court, the Court of Appeal may, in special circumstances, order that security be given for the costs of an appeal as may be just.  It is settled practice to require security for costs to be given by an appellant who would be unable through impecuniosity to pay the costs of the appeal, if unsuccessful, or where the respondent would encounter difficulties or delay in recovering his costs from the appellant in the event the appeal was unsuccessful.

8.The court, however, has a discretion and 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 for costs be provided.  Once a case of impecuniosity is demonstrated, it is generally up to the appellant to demonstrate countervailing factors militating against an order being made: See Chung Kau v. Hong Kong Housing Authority & Others [2004] 2 HKLRD 650; and Hong Kong Civil Procedure 2020 Vol.1 paras.59/10/26 and 59/10/27.

Impecuniosity of the 2^nd defendant

9.The plaintiffs rely on the following matters to support their contention that the 2^nd defendant is impecunious:

(1)  The 2^nd defendant is an undischarged bankrupt.  He was adjudicated bankrupt on 6 November 2018 in HCB 5530/2018. With no objection from the Official Receiver, the plaintiffs were given leave by Lok J to proceed with the Action.  The Official Receiver also did not oppose to the 2^nd defendant proceeding with the present appeal.

(2)  The 2^nd defendant had applied for legal aid in 2018 and 2019 in connection with the Action and this appeal.

(3)  The 2^nd defendant failed to pay the costs previously ordered against him on 11 September 2018 (not the costs of the action).

10.In his affidavit opposing the application[3], the 2^nd defendant did not deny that he was impecunious.  Nor did he dispute the matters relied on by the plaintiffs in contending he is impecunious (see [8] above).  In fact, the 2^nd defendant volunteered that he owed legal fees of his former solicitors and was further indebted in the amount of $20 million.  He said that it was well known to the plaintiffs that he had no financial resources.   

11.On the materials before the court, we are satisfied that the plaintiffs have demonstrated that the 2^nd defendant is impecunious.  Given that the 2^nd defendant is an undischarged bankrupt, there will be difficulty or delay in recovering costs of the appeal from him if the appeal were to be dismissed.  We are therefore satisfied that the plaintiffs have made out a case of special circumstances for requiring security for costs to be provided.

Countervailing factors

12.It would appear from the 2^nd defendant’s affidavits, the second of which[4] is in fact his written submission, that his main grounds of opposition to the application are: (1) the plaintiffs have all along known that he is a bankrupt and lacks financial means; and (2) the refusal of his legal aid application is on the financial eligibility ground, which is indicative of his appeal have a good prospect of success.  

13.In respect of the first ground of opposition, there is no doubt that the plaintiffs knew before the trial of the Action that the 2^nd defendant has been adjudicated bankrupt, and had decided nevertheless to proceed with their claim against him.  This is, however, irrelevant to whether the 2^nd defendant should be ordered to provide security for the plaintiffs’ costs in this appeal.

14.First, contrary to what the 2^nd defendant thinks,[5] the plaintiffs have not been barred from recovering costs from him or his bankrupt estate.  Under the order dated 4 December 2018 granting leave to the plaintiffs to proceed with the Action, paragraphs 2 and 3 only ordered the plaintiffs: (i) not to seek costs against the Official Receiver or the Trustee in Bankruptcy personally; and (ii) not to enforce any monetary judgment against the 2^nd defendant or his bankruptcy estate without the leave of the court.  The plaintiffs are not prevented from seeking costs against the 2^nd defendant or his bankruptcy estate.  Further, the plaintiffs may, after obtaining permission from the court, enforce the costs order against the 2^nd defendant or his bankruptcy estate.  This explains why Lok J ordered both the 1^st and 2^nd defendants to pay the plaintiffs damages for infringement of trade mark and passing off, and also ordered them to pay the costs of the Action.[6] 

15.Second, this is an appeal brought by the 2^nd defendant.  The plaintiffs have to participate in it, and to incur costs to defend the appeal, in order to preserve the outcome of the Action.  It is important to bear in mind the rationale underlying the regime of ordering security for the costs of appeal.  It is that the dispute between the parties had already been determined in the court below, and it is prima facie an injustice to the respondent to the appeal to allow an appeal to the Court of Appeal to proceed without security for costs being furnished in circumstances where the respondent will be unable to enforce against the appellant any order for costs made by the Court of Appeal: Hong Kong Civil Procedure 2020 Vol.1 para.59/10/25. 

16.As to the second ground of opposition, the 2^nd defendant applied for legal aid in connection with this appeal.  On 18 December 2019, the Director of Legal Aid refused the application on the ground that he was not satisfied that the 2^nd defendant’s financial resources did not exceed the statutory limit.  The 2^nd defendant’s is appealing against the Director’s refusal.  He contended that the reason given for the refusal of legal aid is indicative of the prospect of his appeal.  We do not agree.

17.The 2^nd defendant is correct to say that the Director will have regard to both the financial means of an applicant and the merits of his case before deciding to grant legal aid.  However, it does not mean that the Director will assess the applicant’s financial means and the merits of his case at the same time.  If the applicant fails to meet the financial eligibility limit, the Director would not have to proceed to assess the merits of his case.  In the present case, the notice of refusal of legal aid only showed that the Director had made an assessment on the 2^nd defendants’ financial eligibility.  It did not indicate the Director had also made an assessment of the merits of the 2^nd defendant’s appeal.  Accordingly, the 2^nd defendant’s reliance on the reason for the refusal of his legal aid application as indicative of the strength of his appeal is misplaced.

18.The 2^nd defendant’s amended notice of appeal contained a total of 19 pages.  It made an extensive attack on Lok J’s judgment, ranging from the acceptance of the evidence of the plaintiffs’ witnesses, the analysis of the evidence and the finding of facts, to the terms of the order made.  It challenged almost all of the judge’s finding of facts and was a substantial repetition of the arguments advanced by the 2^nd defendant before the judge. 

19.The court in a security for costs application will not embark on a detailed examination of the grounds of appeal; it needs only form a preliminary view of the prospect of the appeal: Chung Kau v Hong Kong Housing Authority, supra, at [14].  Having considered the judgment of the judge and the amended notice of appeal, we are not satisfied that the 2^nd defendant has demonstrated that his appeal has a high chance of success such that we should not order security against him.

Security to be ordered

20.We next consider the amount of security to be ordered.  The plaintiffs’ letter to the 2^nd defendant before the application asked for security in the sum of $550,000.  The plaintiffs’ solicitors explained that this was a gross underestimate in that they had underestimated counsel’s fees.  The amount sought in the present application is $2,109,700, of which $1,700,000 is counsel fees.   This is based on a one day appeal.

21.We have considered the items in the bill of costs.  We have the following observations:

(1)  The hourly rate of the fee earners is significantly higher than that allowed by the taxing master in a party-and-party taxation.

(2)  On the costs of the present application (section A item 3 and section B item 1), it is a simple and straightforward application involving no oral hearing.  The time involved is on the high side. 

(3)  On the estimated costs of appeal (section A items 1, 2 and 4, and section B item 2), while the amended notice of appeal is lengthy with wide ranging grounds of appeal which will require time to peruse and consider, the appeal is not complex and does not raise difficult points of law.  The papers involved in the appeal would have all been considered in the trial below. The majority of the arguments advanced by the 2^nd defendant would also have been canvassed at the trial.  On a party-and-party basis, the costs of the solicitors, notably section A items 1 and 4, as well as the fees of counsel are very much on the high side. 

22.Taking the matter in the round, we are of the view that the appropriate amount of security to be ordered is $700,000. 

Costs of this application

23.Applying the usual rule of costs follow the event, the plaintiffs having succeeded in the application should have the costs of this application.          

Disposition

24.The orders we make are as follows:

(1)  The 2^nd defendant shall within 30 days from the date of handing down of this judgment give security for the plaintiffs’ costs of this appeal in the sum of HK$700,000, by making payment into court of the said sum;

(2)  Until the 2^nd defendant has given the security ordered in (1) above and notice thereof is given to the solicitors for the plaintiffs (such notice to be given on the same day as the lodgement is made), all proceedings in this appeal are to be stayed;

(3)  In default of the 2^nd defendant giving security as ordered in (1) above, this appeal do (upon the solicitors for the plaintiffs certifying such default to the Registrar of High Court) stand dismissed out of this court without further order;

(4)  In the event that the appeal is dismissed in the circumstances provided for in (3) above, the 2^nd defendant shall pay the plaintiffs the costs of this appeal, such costs to be summarily assessed; and

(5)  The costs of the application for security for costs to be paid by the 2^nd defendant to the plaintiffs in any event.

Baker & McKenzie for the 1^st and 2^nd plaintiffs.

The 2^nd defendant, unrepresented, acted in person.