T & T Global Trading Ltd v. Boe (HK) Group Co., Ltd

CACV 36/2022

[2022] HKCA 1186

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 36 OF 2022

(ON APPEAL FROM HCA NO. 1355 OF 2017)

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BETWEEN

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Before :  Hon Cheung and Chow JJA in Court

Date of Decision :  11 August 2022

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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.  Security for costs of the appeal

1.This is the defendant’s application for an order that the plaintiff do pay into court $1,269,632 as security for costs of the appeal lodged by it against the judgment of Deputy High Court Judge Raymond Leung SC dated 20 December 2021 (‘the Judgment’). The plaintiff opposes the application for security.

2.Having considered the papers, we are of the view that it is appropriate to deal with this 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 (‘RHC’) (Cap. 4A).

3.The defendant relied on Order 59, rule 10(5) of RHC, Cap. 4A and section 905 of the Companies Ordinance (‘Cap. 622’) in support of its application.

II.  The parties’ case

4.On 28 January 2022, the defendant through its solicitors requested the plaintiff to confirm whether it was agreeable to pay security for its costs of the appeal, in the sum of $1,269,632, by relying on the fact that the plaintiff ‘is a shelf company that has a nominal paid‑up capital of HK$1 to prove that there is reason [to] believe your client will be unable to pay our client’s costs if it is ordered to do so upon the Court’s dismissal of your client’s appeal’.

5.On 10 February 2022, the plaintiff rejected the request and stated that the total amount of its paid‑up capital is $1,000,000, which was demonstrable through a company search.

6.On 14 February 2022, the defendant through its solicitors responded to the 10 February 2022 letter. The defendant noted that the plaintiff had a paid-up capital of $1,000,000 instead of the $1, but maintained that it was entitled to security as the plaintiff had failed to disclose any of its fixed assets within Hong Kong which would be available to satisfy a potential costs order. The defendant asked the plaintiff to disclose information that it has assets to satisfy a potential adverse costs order by close of business on 16 February 2022.

7.On 16 February 2022, the plaintiff through its solicitors responded to the 14 February 2022 letter. The plaintiff reiterated that the defendant’s application is misconceived.

8.On 28 February 2022, the defendant filed this application for security for costs.

9.The defendant’s application is largely based on its belief that the plaintiff is impecunious and the plaintiff will be unable to pay the defendant its costs if the plaintiff fails in its intended appeal. The defendant relies on the following evidence, in its affirmation, in support of its application :

1)  Despite the letters of 28 January and 14 February 2022, the plaintiff has failed to provide any evidence or information of any assets within the jurisdiction; and

2)  The fact that the plaintiff has a paid‑up capital of $1,000,000 is inconclusive. The plaintiff has previously faced a ‘cash flow problem’ in 2017. This suggests that any paid‑up capital has been ‘used up’.

10.The defendant in its written submissions contends it is entitled to security for costs for the following reasons :

1)  There is no evidence the plaintiff has any assets in Hong Kong, nor is there any evidence of the plaintiff’s trading activities;

2)  The fact that the plaintiff used to run an export business from 2016 to 2017 is not indicative of its present financial situation. Especially, in light of impact of Covid‑19 on international trade;

3)  The plaintiff’s share capital is wholly irrelevant. The plaintiff’s admitted cash flow problems in 2017 suggest its share capital has already been exhausted. Further and in any event, $1,000,000 is insufficient to cover the costs of the appeal and below;

4)  The plaintiff has failed to discharge its ‘evidentiary burden’ to demonstrate financial means;

5)  The plaintiff has failed to pay a costs order made by Master Ho on 27 April 2022, directing the plaintiff to pay the defendant a sum of $1,040 forthwith; and

6)  The plaintiff’s appeal is unmeritorious.

11.The plaintiff, in its evidence and written submissions in opposition, maintains that the burden of proof in seeking an application for security for costs rests with the defendant. The defendant is obliged to provide credible evidence to support its belief that the plaintiff is impecunious, but has failed to do so. In particular :

1)  The defendant has not put forth any ‘credible evidence’ regarding the plaintiff’s inability to pay;

2)  The plaintiff has a paid-up share capital of $1,000,000;

3)  The plaintiff has not been wound up and there is no evidence of any outstanding creditors;

4)  The defendant’s reliance of an unpaid costs order of $1,040 (which is de minimis) demonstrates how desperate this application is;

5)  The quantum of security sought by the plaintiff is ‘grossly inflated’; and

6)  The plaintiff’s appeal is meritorious.

III.  Principles

13.These legal principles are not in dispute.

IV.  Our view

14.In our view, the defendant has discharged its burden of showing that the plaintiff is impecunious or at least there is reason to believe that the plaintiff will be unable to pay the defendant’s costs of the appeal if it fails in the appeal. This issue turns on the individual circumstances of each case. Had the evidence in this case consisted only of the fact that the plaintiff has a paid‑up capital of $1 million, it has not disclosed assets in Hong Kong and it has not paid the costs order of about $1,040, it may not be sufficient to support an application for security for costs. But in this case, the defendant is also relying on the plaintiff’s own admission in its Re‑Amended Statement of Claim filed on 20 May 2019 (the unamended pleading was first filed on 7 July 2017) that due to the defendant’s failure and refusal to return the deposit paid by the plaintiff to the defendant it had suffered cash flow problems and was unable to place further orders to fulfill its obligations towards its own customers. Faced with the allegation that it had cash flow problems, the defendant clearly carries an evidential burden of showing its financial state at the time when security was sought in February 2022. The plaintiff had simply brushed aside this allegation and not responded to it at all in its affirmation in opposition to the application. It chose not to disclose anything pertinent to its financial state, instead the focus of its affirmation is in the main on the amount of security sought by the defendant. In our view the defendant has established the issue of impecuniosity of the plaintiff. This is sufficient to support the defendant’s application without the need for us to discuss the defendant’s further ground that the plaintiff’s appeal is unmeritorious. All that we need to say is that the merits of the appeal are not such that it will cause us to exercise the discretion against the granting of security.

15.As to the amount of security, we are of the view that the $1,269,632 which includes fee of two counsel of $885,500.00 is excessive. The plaintiff was represented by two counsel below but the appeal is not complicated. The appropriate amount of security on a party to party basis is $600,000.

V.  Conclusion

16.Accordingly, we will make the following orders :

1)  The plaintiff is to pay into court within 21 days the sum of $600,000 as security for the costs of its appeal;

2)  The appeal is stayed until the sum is paid;

3)  In default of payment, the appeal is dismissed without further order together with costs to the defendant; and

4)  The defendant is to have the costs of the application.

Mr Thomas Wong, instructed by Hui & Lam LLP, for the Defendant

Mr Vincent Lung, instructed by Ince & Co, for the Plaintiff