Tien Sau Tong Medicine Co (Hong Kong) Ltd v. Cheung Po Ling and Another

CACV249/2019

[2020] HKCA 808

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 249 OF 2019

(ON APPEAL FROM HCA 400/2016)

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BETWEEN

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D E C I S I O N

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

1.This is an application for security for costs by the plaintiff against the defendants. Having considered the documents before us, we came to the view that the application could be dealt with on paper without an oral hearing.

Judgment below

2.The facts of this case were summarized by Coleman J in his judgment dated 14 May 2019 at [1] – [5], as follows:

“1. The plaintiff company is wholly owned by its sole shareholder Mr David Ng, who is also its sole director. Mr Ng is not a businessman but an artist, and he spends the majority of his time in the United States.

2. The 1^st defendant had been employed by the plaintiff since 2007, and the 2^nd defendant (who is the son of the 1^st defendant) had been employed by the plaintiff since 2013.

3. There is no dispute that Mr Ng (and so the plaintiff) reposed considerable trust and confidence in the 1^st defendant, who dealt with much of the day-to-day management and administration of the plaintiff and its business (as well as some of Mr Ng’s personal administration, during his lengthy periods out of Hong Kong). For that purpose, the 1^st defendant had been granted signing rights as an authorized sole signatory for the plaintiff’s bank accounts…

…

5. The question arises in the undisputed context that the 1^st defendant used approximately $6 million of the plaintiff’s funds to purchase a property in the name of the 2^nd defendant (‘the Property’), for his and his wife’s residential use. The funds were obtained by 3 cheques drawn on the bank account of the plaintiff, each signed by the 1^st defendant only.”

3.The plaintiff’s case was that each of the 3 cheques was an unauthorised withdrawal.  The defendants’ case was that Mr Ng, acting on behalf of the plaintiff, orally authorised the making of an interest-free loan to the defendants in October 2014.  The loan was made to enable the 2^nd defendant to purchase a home after his marriage, and was to be repaid by 10 annual instalments over 10 years (see [42] of the judgment).

4.The judge noted that there was no serious contest about the law and that both parties were in agreement on a number of factual issues ([8], [12] – [36] of the judgment).  He noted that there was “rather little documentation which is likely to assist much in resolving the dispute” and that the case would turn on the credibility of the witnesses, the available documents, and the inherent probabilities by reference to commercial business sense or ordinary common sense ([9] of the judgment).

5.The judge held that Mr Ng was a “broadly reliable witness” and that the defendants were not “terribly convincing” witnesses ([38] – [41] of the judgment).  The judge accepted the plaintiff’s evidence and rejected the defendants’ contention that there was an oral loan agreement.  The judge granted, inter alia, a declaration that the 1^st defendant was a constructive trustee of the $5.8 million withdrawn by the 3 cheques and that the 2^nd defendant was a constructive trustee holding the property paid for by the $5.8 million.  The judge also dismissed the defendants’ counterclaim.

Application for security for costs

6.By a notice of appeal dated 10 June 2019, the defendants appealed against the judgment. The plaintiff filed a respondent’s notice and a summons seeking security for costs on 2 July 2019.

7.In support of the application, the plaintiff contended that the defendants were impecunious, and that this was shown by the fact that their combined income and available assets (excluding the subject property) are less than the $5.8 million in dispute.  The plaintiff also relied on an unsatisfied default judgment against the 1^st defendant in DCCJ 4380/2016 in the sum of HK$386,800 plus interest as evidence of impecuniosity.

8.The defendants resisted the application.  They claimed that the intended appeal is meritorious and that the application was part of a series of litigation designed to stifle the appeal through exhaustion of the defendants’ financial resources.  The defendants claimed that their current financial situation was caused by the termination of their employment by the plaintiff and the various legal proceedings between themselves and the plaintiff, including a claim by the defendants for outstanding wages said to be owed by the plaintiff to the defendants.

Discussion

9.The approach to an application for security for the costs of an appeal are clearly stated in Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650 at [14]:

“The power of the Court of Appeal to order security for costs in an appeal derives from RHC Order 59 rule 10(5). This Rule reads :

‘The Court of Appeal may, in special circumstances, order that such security shall be given for the costs of an appeal as may be just.’

The relevant principles, in particular the treatment of impecuniosity as a special circumstance are summarized in Hong Kong Civil Procedure 2004 Volume 1 at paragraphs 59/10/28 - 59/10/29. In this context, however, I would emphasize the following:-

(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 for costs 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.

(4)  As I have said above, the overriding consideration for the court is to consider, as the rule requires, whether ‘special’ (not exceptional) circumstances exist making it ‘just’ to order security.”

10.So far as impecuniosity is concerned, the defendants have put forward little material to contradict the plaintiff’s contention that they do not appear to have sufficient financial resources to meet any costs order against them should their appeal be unsuccessful, having regard to their lack of known assets (apart from the property which has been determined to be held on trust for the plaintiff), and their substantially reduced income since their dismissal from employment with the plaintiff.  This appears to us to sufficiently demonstrate impecuniosity on the part of the defendants, such that the plaintiff is likely to encounter difficulty in enforcing any costs order that may be made in his favour if the appeal fails. 

11.Additionally, the plaintiff relies on the unsatisfied default judgment in DCCJ 4380/2016 as evidence of impecuniosity.  In her affirmation of 16 July 2019, the 1^st defendant said that she had never been served with the default judgment and that it had not been executed.  In paragraphs 14 to 15 of the 2^nd affirmation of Chan Pui Yin Gloria (the solicitor acting for the plaintiff) dated 23 July 2019, the plaintiff responded it had initially withheld service and execution of the default judgment because of then ongoing settlement negotiations, and that after these broke down, the plaintiff did not see any purpose in attempting to execute the judgment against the defendants, who apparently did not have the means to satisfy it.

12.In a letter dated 6 October 2017 (exhibited to the affirmation of Ms Chan), from the defendants’ solicitors to the plaintiff’s solicitors, the defendants’ solicitors complained that the default judgment was obtained “mala fide” in breach of the settlement negotiation and that they would apply to set aside the default judgment on the ground that the amount claimed had already been repaid to Mr Ng. Notwithstanding this, no steps were taken to set aside the default judgment which has remained outstanding since 10 July 2017.  This therefore seems to us to provide a further basis for inferring impecuniosity on the part of the 1^st defendant.

13.We are therefore satisfied that the plaintiff has made out a case of impecuniosity against both defendants.

14.As for the suggestion that the application was part of a series of litigation designed to exhaust the defendants’ resources and thus to stifle the appeal, we do not consider that this suggestion is justified.  The various proceedings between the plaintiff and the defendants arise out of separate incidents giving rise to claims by the plaintiff.  The plaintiff was successful in two of them, while the rest are still on foot.  One of the claims is by the defendants against the plaintiff for unpaid salary.  The claim for an injunction is part of the attempts at execution of the judgment under appeal.  None of the plaintiff’s actions seem to us to be obviously unmeritorious, and we are therefore unable to see a basis for contending the plaintiff is attempting to exhaust the financial resources of the defendants through litigation.

15.We turn next to the merits of the appeal.  As stated in Chung Kau (supra), where, on a preliminary assessment, an appeal appears to have strong prospects of success, this will often be a sufficient reason to refuse an order for security for costs.  The 1^st defendant, in her affirmation in opposition to this application, states that the grounds of appeal “should be real and substantial” (paragraph 3 of her affirmation) and that the appeal “should [have] substance” and “[a] sufficiently good chance of success” (paragraph 5).  It may be noted that the 1^st defendant does not appear to suggest that she has been advised that the appeal has very strong prospects of success.

16.In our view, this is not surprising.  It is apparent from the notice of appeal dated 10 June 2019 that all of the defendants’ grounds of appeal relate to the judge’s findings of fact, and complain about the sufficiency (or lack of it) of the evidence to support the judge’s findings, and the judge’s assessment of allegedly contrary evidence and the weight (or lack of it) accorded to such, and the inferences drawn by the judge from the primary evidence.  The complaints relate to three broad areas, namely:

(1)  whether there was any discussion between Ng and the 1^st defendant in late 2015 relating to interest payable on a loan;

(2)  whether the 2^nd defendant should be taken to have known that there was no prior approval of the loan; and

(3)  whether any loan had been made by the plaintiff to the defendants and whether the withdrawals were made without approval.

17.It is well established that in order to succeed in an appeal based on challenges to factual findings by a trial judge, an appellant faces a difficult task, and will have to show that the judge’s conclusions were plainly wrong.  Complaints (as in this case) regarding the sufficiency of evidence and the proper inference to be drawn from the evidence will generally be difficult to establish.  Having considered the judgment with some care, we are unable to say that this appeal can be said to have very strong prospects of success.  In saying this, we do not express any final view as to the merits of the appeal, but we are quite satisfied that it cannot be said that the prospects of success are so strong as to justify the refusal of security for costs where it would (as we think is the case here) be otherwise appropriate to order security to be provided.

18.There is therefore no countervailing factor against an order for security for costs.

19.Having considered the skeleton bill put forward by the plaintiff, we are of the view that many of the items claimed for time spent by the plaintiff’s solicitors are excessive, and consider that the appropriate amount of security should be HK$310,000, including the costs of this application.

20.We would therefore grant the application and make an order that the defendants do within 28 days of this Decision give security for the plaintiff’s costs of this appeal in the sum of HK$310,000, in default of which the said appeal shall stand dismissed without further order. 

21.So far as the costs of this application are concerned, we make an order nisi that these should be paid by the defendants to the plaintiff in any event.  Having considered the statement of costs lodged by the plaintiff, we find the time spent on the application by the solicitors to be excessive in many respects, and can see no basis for allowing a refresher to counsel.  We therefore assess such costs on a gross sum basis in the amount of HK$110,000.

Mr Kevin Hon, instructed by Alex To & Co. Solicitors, for the plaintiff

Mr Arthur Yip, instructed by Lennon & Lawyers, for the 1^st and 2^nd defendants