Chinachem Charitable Foundation Ltd v. Chan Wai Tong Christopher and Others

CACV 268/2021

[2021] HKCA 1708

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 268 OF 2021

(ON APPEAL FROM HCCL NO. 6 OF 2020)

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Before :  Hon Kwan VP and Cheung JA in Court

Date of Decision : 12 November 2021

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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. Application for security for costs

1.G Lam J (as he then was) struck out parts of the plaintiff’s statement of claim.  The parts that were struck out relate to the alleged wrongful payments from the late Nina Wang’s estate (the ‘Estate’) by the 1^st to 3^rd defendants, i.e. the joint and several administrators of the Estate (‘the Administrators’) to the 4^th defendant. The plaintiff filed its notice of appeal appealing against the judgment.

2.The defendants now apply for security for costs of the appeal against the plaintiff on the ground that the plaintiff is impecunious.  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. 

3.The plaintiff pleaded that the Administrators ‘are and were’ partners of PricewaterhouseCoopers, Hong Kong (‘PwC’) and the 4^th defendant has been a Senior Advisor to PwC for the Greater China Region and has held such position since October 2011.  The plaintiff’s allegation against the Administrators is that they had, in breach of their fiduciary duties, inflated their fees by 10% for the purpose of making payments to the 4^th defendant from the Estate, and that the 4^th defendant is liable for knowing receipt of such payments.  It is alleged that such payments were made to him pursuant to an ‘Under-The-Table Agreement’ made in late 2011. 

II.   The Judge’s Decision

4.G Lam J held that the plaintiff’s claim is illogical and improbable.  Further, there is no factual basis at all to the alleged extra 10% of inflated fees.  He held that the plaintiff’s plea that this issue was subject to discovery and interrogatory did not assist it because it is an abuse to start a case against an opponent without a solid foundation hoping that something will turn up from these procedures.  He held :

‘ In my judgement, the paragraphs in question of the statement of claim make serious allegations of wrongdoing and dishonesty against professional men without any foundation. They should not have been put forward. Now that they had regrettably been put forward, they should not be allowed to remain, and should be struck out as being frivolous and vexatious and an abuse of process.’

III.     Our view

1)   Impecuniosity of the plaintiff

5.We are satisfied that the plaintiff is impecunious.

6.Since 2012, the plaintiff has been continuously ‘balance sheet insolvent’ in that its total liabilities substantially exceeded its total assets.  The plaintiff’s auditors have consistently emphasised that the plaintiff may not be able to continue in operation as a going concern.  The auditors explained why the financial statements were still being prepared on a going concern basis.

‘ These financial statements are prepared on a going concern basis notwithstanding the Foundation’s total liabilities exceeded total assets by HK$50,435,285 on the basis that the Foundation will obtain continuing financial support from third parties. We have not been provided with evidence to indicate that financial support from third parties is available.’

7.The plaintiff’s audited financial statements for the year ended 31 December 2019 (the ‘2019 Report’) show that the plaintiff’s total liabilities exceeded total assets by HK$50,435,285.  The plaintiff had only HK$22,122 in cash available.  There are ongoing legal proceedings against the plaintiff (namely, HCA 832/2014 and HCA 764/2015) in which at least HK$92.85 million and interest of 48% per annum (in relation to HCA 764/2015 only) are being claimed.  As the defendants submitted, if the claims are successful, the plaintiff’s total net liabilities will increase to at least HK$143,285,285.  Although the 2019 Report stated that HK$28,391,452 in litigation costs are being recoverable, the sums have not been recognised by the auditors as assets of the plaintiff, which raises doubt about recoverability of the sums.

8.The Judge had ordered the plaintiff to pay costs to the defendants on an indemnity basis with a certificate for two counsel (to be taxed if not agreed).  The defendants’ solicitors requested the plaintiff to make payment of the costs incurred of HK$3,653,055.81.  The plaintiff’s position is that the costs claimed by defendants are excessive and since there is no direction from the Court that costs should be paid forthwith, no sum is yet due from the plaintiff.  The fact remains that the plaintiff is presently liable for defendants’ costs and has not responded with any costs proposal.

9.As to the plaintiff’s claim that it is not impecunious and that it has been relying on third party financial support for many years, the auditors had pointed out there is no evidence to indicate that the financial support from third party is available.  There is no disclosure as to the identity of the third parties, the amount they are to provide, the reasons for providing the support and conditions, if any, attached to the funding.  The plaintiff claimed that the third parties preferred to be anonymous, but there is no reason why the other details could not be disclosed.

10.The plaintiff claimed that it still manages to make donation of RMB 6 million.  The plaintiff admitted that it was only able to make the donations because it had received contributions from independent third-party donors.  Again, this is not reflected in the plaintiff’s audited financial statement.  There is no basis to assume that any donor contributions to the plaintiff will continue to meet the plaintiff’s litigation costs or satisfy adverse costs orders against it in the appeal.

11.The plaintiff claimed that the governors of the plaintiff would not recall the loans made to plaintiff.  But the 2019 report stated that the aggregate value of such loans is HK$27,000,000 whereas the plaintiff’s total liabilities exceed total assets by HK$50,435,285.

12.The plaintiff claimed that it is entitled to be indemnified from the Estate in respect of the three actions it had conducted, namely, HCA 832/2014, HCA 764/2015 and HCAP 8/2007 and is seeking a Beddoe order to such an effect. The Beddoe application is being opposed by the Secretary for Justice and the Administrators, on the basis, inter alia, that the plaintiff has no standing to make such an application, and in any event, the application has been made out of time.  Further, the Beddoe application relates only to legal costs of the proceedings, and does not include the plaintiff’s liability in such proceedings should its defences against the claims fail and judgment is awarded against it.

13.Although the defendants have shown that the plaintiff is impecunious.  Nonetheless, we have to consider whether the plaintiff has such a meritorious appeal that we should exercise our discretion against the ordering of security so as not to stifle a genuine appeal.  

14.The plaintiff contends that :

(1)  The Judge ought to disclose that he had previously represented Mr. Tony Chan Chun Chung who had sued the plaintiff and he should recuse himself from hearing the present case.

(2)  The Judge demonstrated an appearance of bias.

(3)  The Judged erred in striking out parts of the statement of claim.

15.It is not necessary to go into the details of these contentions which are fully canvassed in the notice of appeal and in the submission of counsel for the present application.  We are not satisfied that these grounds have such a high chance of success that we should not order security against the plaintiff.

2)   Quantum

16.According to the defendants’ skeleton bill of costs, the estimated costs are HK$1,968,598.20 which includes HK$568,589.20 for solicitors’ fee and HK$1,400,000 as fee for two counsel.  The estimate includes the costs of the present application as well.

17.As indicated in the defendants’ summons, for the purpose of the present application for security, this costs estimate in the skeleton bill has been reduced by around 24% to HK$1,500,000.

18.The draft skeleton bill of costs is in breach of Practice Direction 14.3 in that it does not state that the amount claimed does not exceed the defendants’ liability for costs to their own solicitors.  We will require the defendants’ solicitors to submit a properly endorsed draft skeleton bill of costs within two days.

19.The appeal is estimated to be a three‑hour appeal.  We consider the appropriate amount on a party‑and‑party basis to be HK$900,000.

IV.   Conclusion

20.We will make the following orders :

1)   The plaintiff is ordered to pay into Court HK$900,000 as security for the costs of its appeal with 21 days from the date of this order;

2)   Pending payment into Court, the appeal is stayed;

3)   In default of payment, the appeal will be dismissed without further order together with the costs of the appeal to the defendants; and

4)   The defendants are to have the costs of the application for security, summarily assessed at HK$200,000.

Mr Pat Lun Chan instructed by Jones Day, solicitors for the plaintiff

Ms Sara Tong, instructed by Linklaters, solicitors for the 1^st to 4^th defendants